Attention Points for e-Commerce Acquisitions
Imagine you get interested in a website from an anonymous profile on our platform: The numbers look good, and the market description and the forecast as well. Then the next step is to get in touch with the seller. Via businessforsale.eu you will first be asked to confirm that you treat the information you receive confidentially. Then you will receive the URL and you will be able to view the website yourself.
As with a job interview, the first impression is important. But to get a good picture, all necessary aspects must be investigated. On this page we will explain in 6 parts what aspects we consider to be important when purchasing a web store : General, Development, SEO, SEA, Legal & Financial.
The first contact with a web store seller
A good first step after signing the confidentiality statement (the “NDA”) is to ask the seller to access the Google Analytics account of the particular web store (for this access, you need a Gmail address. The seller then gives you access. From the Analytics account -> Manage -> User Management). In Analytics, you can already start your business analyses with the data available.
With larger acquisitions, the seller will have drawn up a sales document (the “memorandum”) with all relevant information about his business. You can request that document at this stage, provided that it is present.
You now know the domain name, you have carefully reviewed the web store and made your first analysis. At this stage, you probably already have a good idea if the store would be something for you. That’s the time to get acquainted with the seller and get all details about the offered business on the table. Our advice is to plan a face-to-face appointment at this stage so that you get an impression of the person or company that sells.
Below we give you an overview of the topics we consider important in the acquisition of a web store. Regard the list as a guide and find out what applies in your situation. The list is generic and not complete for each type of acquisition. In addition, the list is long, so do not mail in total to a seller, but treat it as a checklist in your communication with the seller to determine if you have investigated the most important elements.
General web store information
- What is the story behind the store? Why has the seller started this store in this segment?
- Investigate the owner’s history of the store. Are you buying from the 1st owner, or has the store changed owner 4 times within 2 years?
- From when does the first order date? Also request the order history.
- What about the market? (Competition, wholesale, exclusivity, law & regulation)
- What is the size of the demand? (Include the search volume for the products and the trend in search volume)
- What does the future of this market look like?
- Which sales channels are being used and do these offer opportunities?
- How large is the client database and the newsletter mailing list?
- Are social media accounts actively maintained?
- Is there any stock at the time of purchase? Are there unsaleable items in there?
- Does the seller process all orders themselves or does he/she work with a fulfilment or dropshipping partner?
- What is the time spent per week?
- Is there staff or is the shop supported by external agents?
- Do you become the owner of the web stores content (photos and content) with the acquisition?
- What is the preferred way of transfer and what are the pros and cons?
- Is web store member of a trustmark and is the membership still active? (Check on the company site of the trustmark)
- Can customers leave an review about the company (Kiyoh etc) and how old are the most recent reviews?
- Search the web for information about the seller.
- And ask what the reason for the sale is.
- Purchase a creditworthiness report about the counter party. For this you login your Businessforsale account, open a conversation and click on the tab ‘creditworthiness’.
The technique behind the shop
- Does the webdesign looks up of date or will you have to redesign it?
- Does the store run on an open source platform or hosted software? And what are the related costs per month?
- Also important: What are the costs when you want to make a change in the web store or its design?
- Are all the necessary functionalities and modules up to date and easy to use?
A serious acquisition, requires serious investigation. If you would like to know about the web store technique, consider a technical scan. This scan not only tells you the status, but also gives you improvement points so you know what the low hanging fruit is.
Search Engine Optimization & Advertising (SEO/SEA)
- Check the age of the web store: How old is the site? This may affect the value. Older websites often have a better reputation in Google.
- In Google Webmaster Tools, check what the web store’s positions are on its main keywords. Is there room for improvement or is the competition on these keywords (to) high?
- In Google Adwords, review how effective the current campaigns are: What does a conversion cost and what is the competition for the keywords being advertised? Is there room for campaign optimization?
- Analyze the number of visitors and where they come from: Are those paid sources or free? And analyze how those visitors then convert into orders and what those conversions cost and deliver. To do this, you need access to the Google Analytics account of the shop, and preferably the Adwords account.
- What are trends in visitor numbers, conversion and revenue per source of traffic?
- Investigate whether the web store does not use techniques to mislead search engines, such as hidden texts or links. This can lead to severe penalties and even removal from the search engines. Unfortunately, you will never be 100% sure, but when you go through Google’s Webmaster Guidelines, you’ll know what to look for.
- Use MOZ.com’s OpenSiteExplorer to get an idea of the backlink profile (how clean are links to the webshop).
The optimization of SEO & SEA determines the difference between earning money and not earning money for most web stores. Thus, it is not necessary to explain that both are key elements when you acquire a web store. For many buyers, chances are often also in SEO / SEA optimization. If you can use support here, please check out our SEO & SEA scans. These reports give you an accurate overview of the opportunities and threats and how to exploit/deal with them.
The legal side of a web store acquisition
- Check out the supplier contracts and terms. Certainly when the web store operates on the basis of dropshipping and the dependence on this partner is high.
- And do not forget to make a good acquisition agreement by a lawyer! Whether you acquire the web store with a stock transaction are an asset transaction: It is really important that the agreement is well thought out. You can start with a template that you customize. But we recommend you contact a lawyer to review any agreement before you sign. Assume that a lawyer needs approximately 3 to 4 hours.
- We work together with several law firms for both legal scans and the preparation of various legal documents. Contact us when you need assistance.
Financial aspects of a web store acquisition
Before you close any deal, it is very important to first examine the books (or maybe your bookkeeper can play a role here). This phase of the acquisition process is also known as ‘due diligence’.
We certainly recommend to investigate the following elements:
- The accounting, balance sheet and profit and loss sheet.
- Check the bookkeeping against the numbers in the backend of the web store and against the numbers in the Adwords & Affiliate accounts. Does the store work with a dropshipper? Then double check the data.
- Check the conversions in Adwords / Analytics against the actual orders delivered.
- What is the monthly cash flow?
- What are the bottlenecks and what is yet to be gained?
- What are the debts and what is the equity? (In case of a limited entity)
- The stock positions and amount of goodwill
- And perhaps the most important: Determine how much money is actually earned monthly: What’s the net margin??
- Have the seller taken his own hours in this margin calculation?
Review at least the last 12 months: Sales and profit trends affect the value. Is this a rising line? And for what period of time can the web store demonstrate a stable revenue pattern?
- Check shipping and return costs (can this be optimized?)
- What is the return rate?
- And what is the % returning customers?
- Which party takes care of the payments in the store and what are its costs?
- Are there any outstanding orders that still have to be delivered at the time of transfer?
- If the web store is taken over via a transfer of stocks: What are the bank balances at the time of acquisition, are there any debts, is there any equity?
- In conclusion, an additional recommendation: In our experience, it is advisable to pay the transaction price partly at the time of transfer and partly when the seller has fulfilled all his obligations. Suggest to include this in the acquisition agreement.