Buying an established e-commerce business

[Krystal Ross]

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Hello,
I am looking at buying an established small e-commerce business who have been trading for 3 years. The asking price is $6000 and It includes website, $5000 worth of stock and social media accounts.
What questions should I be asking and what should I be doing? I’ve never done this before, please help.

[Paul – FS Concierge]

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Hi And Welcome to Flying Solo [USER=116346]@Krystal Ross[/USER] . It is great to have you!

Thank you for joining our community and posting.

Past sales is the best guide to future sales so the first, but not only thing I would ask for is a list of past sales – the longer, they have data for, the better the data will be.

That said, it is easy to fudge figures eg, run an ad campaign on a third party site that costs more than the profits on the sales and then hide that campaign from the new buyer – now the new buyer has no sales because the ad campaign is stopped.

I think you should be very careful and see an Accountant if you come to a point where you actually want to buy.

You can research the buying and selling process on sites like flippa.com.

Cheers

[JDSpring]

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Hi Krystal

Are you acquiring a legal entity as part of the deal?

If yes, the due diligence list could be very extensive as it would include looking at financials, tax, ICA etc Pragmatically speaking, consider starting with the basics ie. Legal/financial due diligence.

In terms of the business itself, is it making revenue? as it sounds very cheap. Perhaps start with the source of the sites traffic (this is ultimately the revenue source too) and how much its costing to maintain it, and perhaps at a product level try and see if there is enough GP Margin at a product level to support the cost of sourcing the traffic.

Hope that helps and good luck!

[businesstrade]

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Krystal Ross, post: 267743, member: 116346 wrote:

Hello,
I am looking at buying an established small e-commerce business who have been trading for 3 years. The asking price is $6000 and It includes website, $5000 worth of stock and social media accounts.
What questions should I be asking and what should I be doing? I’ve never done this before, please help.

See below for my comprehensive guide regarding the questions you need to ask yourself and the owner prior to buying a business.

https://www.businesstrade.com.au/12-questions-to-ask-before-buying-a-business/635/

businesstrade.com.au - buy or sell a business

[three brains]

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The previous answers seem very good on the financial side of the purchase. Nothing I can add there.

I can only add a couple of thoughts on the ‘digital’ side since you mention both website and social accounts. I’ve just gone through setting up some e-commerce functionality on my site and here’s a couple of the areas I had to make sure were up an running to run the site properly.

* Access to the site’s Google Analytics data to see historic traffic and onsite behaviours.
* Details on any licenses and subscriptions to run the website e.g. the URL will usually require renewal, there will likely be monthly server hosting fees, if using something like Shopify, there’s usually a monthly payment to them etc.
* Details of any other website plug-ins or other software (e.g. an email program like Mailchimp) that can come with license and renewal fees
* Handover notes or contact details on how to deal with any technical support issues which may have come up before? e.g. what if the site goes down or gets hacked, who looks after those sort of issues?
* Access to any of the data or details on the social accounts – e.g. any history / tracking on campaigns which were previously run.

Good luck

[John Debrincat]

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Krystal Ross, post: 267743, member: 116346 wrote:

Hello,
I am looking at buying an established small e-commerce business who have been trading for 3 years. The asking price is $6000 and It includes website, $5000 worth of stock and social media accounts.
What questions should I be asking and what should I be doing? I’ve never done this before, please help.

Hello Krystal,

Buying an online business is like buying any business. There is some good advice on Business.gov.au – https://www.business.gov.au/Planning/New-businesses/Buying-an-existing-business.

Most business acquisitions these days include digital property, so nothing new really. What are you potentially likely to miss?

• Intellectual Property rights – just because someone has a website it doesn’t mean that they own the intellectual property that makes up the website. You need a clear position.
• 3rd party licences were covered earlier but to reinforce this issue those licences need to be transferred if you don’t acquire the business entity. That sometimes costs money.
• Ownership of the domain and other copyrighted material:
  • Domains need to go through a Transfer of Legal Ownership (TLO), this usually cost about a $100 but is often forgotten. Make sure the TLO is completed and domain details are updated including the owner and technical email address. This has to be initiated by the owner so do it before you finalise as its often hard to get their attention afterwards.
  • LOGO’s and other trademarks need to be transferred. I have seen businesses come unstuck because it was missed.
  • Use of 3rd party trademarks – manufactures logos etc are often provided to a business are are non-transferable.
• 3rd party portals, eBay, Amazon, Google Merchant center, Google Ads etc, are all non-transferable without consent, sometimes hard (impossible) to get. If these are in a business name and you don’t acquire the business entity its probably easier to start from scratch.
• If you don’t acquire the business entity you won’t get the bank accounts etc. If you have an eCommerce platform then gateway accounts like eWAY, PayPal, Afterpay etc are not transferable. If you take over the business operation you are not guaranteed to get these approved as it often will come back to your financial position.
• Other accounts like Australia Post or shipping providers are intrinsic to the business but will not be automatically transferred if you don’t buy the business entity.
• Social Media accounts – again these can be hard to transfer but can be an important part of the business marketing. If the business uses Facebook Ads then it is also a financial issue as there will be payment details stored. Some businesses rely on social marketing so just ignoring this can be a mistake.

Product suppliers are a whole other issue and complex. Digital or bricks and mortar; suppliers can be very finicky when it comes to change of ownership.

Last point and then I am done but not dusted. Ask for a non-compete provision; meaning that whoever is selling the business won’t just start up a similar business in the same space for 2 or 3 years (pick a period). If they say no to that then be a skeptic.

John

[eagleeye]

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$5000 worth of stock and social media accounts.

Is it $5000 worth of stock at retail price or wholesale?

SAV – Stock at Value. Research this and make sure you are not buying stock at retail value and stock that may not sell.

[judithcam]

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In my opinion, both are so important to have a successful business, especially when talking about a small startup. A small startup means plenty of questions and pains referring to promoting it and achieving the results you aspire. [Mod Edit To Remove Promotional Content]

• This reply was modified 1 year, 4 months ago by Paul - FS Concierge.

[GarmentPrinting]

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Hello,

Congratulations on considering buying an established small e-commerce business! Here are a few questions you may want to ask the seller:

What is the monthly revenue and profit of the business? What is the average order value and how many orders are processed per month?
What is the source of traffic to the website? How much of it is organic and how much is paid? What is the conversion rate?
Are there any existing supplier or distributor agreements in place? Are there any exclusivity agreements?
How is the inventory managed? Is it tracked in real-time?
Are there any outstanding debts or liabilities associated with the business?
What is the reason for selling the business?
Additionally, you should also do your due diligence on the business. This could involve:

Checking the website’s traffic using tools like Google Analytics.
Checking the business’s social media presence and engagement.
Checking for any negative reviews or comments online.
Reviewing financial statements and tax returns of the business.
Verifying the authenticity of the stock and evaluating its current market value.

[Author]

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