Blog Posts, eCommerce

Should You Buy An eCommerce Business That Is For Sale?



Should You Buy An eCommerce Business That Is For Sale?

Ali Ladha, CPA, CA / June 9, 2023

Should You Buy An eCommerce Business That Is For Sale?

It may seem risky, but purchasing an established eCommerce business can have its benefits. 

From the ability to skip the time-consuming setup and product development stages to taking advantage of an existing customer base, there are plenty of reasons to consider buying an eCommerce business for sale.

It can be exciting to jump in and take over an established platform, but you must consider certain factors before signing the dotted lines. 

This article will discuss how to value an ecommerce business, the dangers of not doing due diligence, the need for experience, and how an accountant can help make your purchase seamless. 

What Skills Do You Need To Run an Existing eCommerce Business?

Running a successful existing eCommerce business requires a wide range of skills and knowledge in various business areas. For example, you need strong networking skills to help maintain partnerships with reputed suppliers and expand the customer base.

  • Inventory management 

You must understand inventory management to maximise profits and minimise losses. This includes tracking inventory levels, implementing effective storage solutions, and utilising efficient processes for receiving and shipping products.

  • Logistics

Logistics plays a critical role in eCommerce. Ensuring timely and efficient delivery of products is vital in maintaining great customer service and building trust. A business owner should know various shipping methods and carriers to keep costs low while maintaining quality delivery standards.

  • Customer Service

Online reviews power eCommerce. Good customer service is essential to keep customers happy and coming back. Knowing how to handle customer complaints, returns, and inquiries while maintaining an excellent customer experience can help you build a loyal customer base.

  • Marketing and Trends

Knowledge of different eCommerce platforms and social media tools is critical in building a brand and establishing a solid market presence. Utilising targeted marketing tactics such as email marketing campaigns, paid advertising, and influencer marketing can help drive sales and expand the customer base. Also, staying up-to-date with the latest market trends and consumer behaviour can help you identify new product opportunities and adapt to the dynamic market environment.

  • Technological advancements

You must embrace technological advancements in eCommerce to meet customer expectations regarding website design and functionality, payment processing, and other online tools and strategies.   

Mastering these areas can build a solid foundation for success in growing an established eCommerce business. However, these skills are not enough; you must research before buying a business. The right skill set with the wrong business would require you to put in more effort with less than satisfactory ROI. 

Here’s what you should look out for when looking for an eCommerce business to buy.

Factors to Consider When Buying An Existing eCommerce Business

Before jumping on a purchase, here are the top things to keep in mind when buying an existing eCommerce business: 

  • Niche and Product Demand

You should evaluate the niche and product line of the eCommerce business. Are they in demand, or are they declining in popularity? Research the current market trends and competition to assess the viability of the business in the long term. An excellent place to start is Google Trends and keywords research tools like SEMRush or Ahrefs.

  • Revenue & Profitability

Determine if the business is profitable and generating consistent revenue. Look at the financial statements for at least the last three years, including revenue, expenses, profits, and cash flow. Also, inquire about the sales and revenue trends of the business and whether there are any seasonality issues. You should look at specific financial metrics to assess the quality of the business such as EBITDA, Gross Margin, and the Cash Flow Conversion cycle. This can be a pretty intense and complex undertaking. If you’re feeling overwhelmed, do not hesitate to reach out to an expert on our team.

  • Traffic Sources and Quality

Analyse the eCommerce website’s existing traffic sources (paid vs. organic). Conduct a thorough review of the website’s analytics, including traffic metrics, conversion rates, and customer demographics. You should also check for any penalties or algorithmic issues that could affect the website’s organic rankings. You want to get a sense that traffic is steady and increasing overall, and does not have a decreasing trendline. If you see a business that you like but is suffering from declining traffic, you might want to dig further or think twice about acquiring this business.

  • Fulfilment and Shipping Processes

Review the logistics and fulfilment processes of the eCommerce business. Check for an efficient inventory management system, shipping and return policies, and a reliable product carrier. Also, review their suppliers, including potential issues with lead times, product quality, or negative reviews.

  • Customer Reviews and Satisfaction

Evaluate the online reputation of the eCommerce business. Look for customer reviews on platforms like Yelp, Google, or Trustpilot. Check for negative feedback, common customer complaints, or recurring issues. You can also conduct surveys or feedback forms to assess customer satisfaction.

  • Legal Structure and Contracts 

Review the business’s legal structure (LLC, Corporation, etc.) and ensure all legal and regulatory requirements are met. You should also review all existing contracts with suppliers, vendors, and employees to avoid hidden liabilities or obligations.

  • Brand Equity and Intellectual Property

Conduct a trademark search and review all registered patents, trademarks, and copyrights belonging to the eCommerce business. Ensure the brand has a strong online presence across multiple social media channels, a professional website, and a consistent brand message.

  • Dangers Of Ignoring Due Diligence Checks

Due diligence checks might sound tedious and time-consuming, but they are crucial when investing in an existing business. You don’t want to find out too late that the business you thought was profitable has some underlying issues that could cause serious problems for you legally or financially. That’s where an accountant can help make the process easier.

An expert accountant can give you a red flag report on the business’s financial statements, tax returns, and other vital documents to help you identify any issues. They can also review the books, tax situation and help you plan for the financial year. 

Working with an accountant also makes it easier to determine a fair price for the business. They can help you determine the value of the business’s assets, inventory, and goodwill, so you can decide on what price you’re willing to pay for the business.

Final Thoughts: Should You Buy An eCommerce Business That Is For Sale?

Buying an existing eCommerce business can be an excellent investment, but you must conduct thorough due diligence to mitigate risks and ensure long-term success. By considering all these factors, you can make an informed decision and maximise your chances of acquiring a profitable eCommerce business.

So before you jump in and invest in an existing ecommerce business, take the time to do your due diligence checks and work with an accountant. If you are looking for a team of formidable financial experts, you can check out Vertical CPA

The accounting and tax information provided in this post does not constitute advice and is meant to be for general information purposes only. The information is current as at the date of this post and does not reflect any changes in accounting and/or tax legislation thereafter. Moreover, the information has been prepared without considering your company or personal financial/tax circumstances and/or objectives.

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