Know The Importance Of Due Diligence In Selling Your Ecommerce Business

People put their e-commerce business for sale for a variety of reasons. The most common ones include:

• Retirement – Having put in the years of effort in establishing their business, it is time to enjoy your twilight years with your family doing the things you enjoy the most.
• New opportunities – Most entrepreneurs are restless by nature. The mundane activities of a set business may no longer be challenging enough for them or some new opportunity might appear more attractive. To be able to devote time and effort, it may be required to put the existing ecommerce business for sale.
• Personal reasons – Changes in your personal situation, poor health, the need for a sabbatical, and higher learning, etc., all can be catalysts requiring exiting your business.
• Poor performance – If your business has been consistently performing poorly, it may be best to cut your losses and move on. Then there’s the threat of increasing competition. If you’re unable to withstand the pressures, it may be financially beneficial to either sell your enterprise to a larger, wealthier competitor, or list your ecommerce business for sale and encash its value.

While your reasons are your own, carrying out thorough due diligence is a highly prescribed exercise to get a fair market value for your ecommerce business for sale. Here are a few handy tips to help you get the best returns from the sale.

Perform A Business Health Check

The due diligence process for your ecommerce business for sale should begin with a thorough check on how your business is performing financially and operationally. Would you want to buy a business that is not able to stand on its own feet? Surely, not. Neither would most other buyers. Hence, you can begin by gathering the data that shows you the true picture of your business’ performance. This will also help you identify existing gaps and areas that can be improved before listing your ecommerce business for sale. While the specifics can vary based on the nature of your business and industry, here’s what you should focus on gathering as a precursor to the rest of the activities.

• Financial Data: Profit and loss (P&L) statements for the recent 2-3 years to know (and later show) the year-on-year performance of your enterprise. Also, cash flow, sales figures, net revenues, taxes paid, outstanding debt, expenses, utilities, supplier payments, etc.
• Operations Data: While the financial health of your ecommerce business for sale will be one of the foremost criteria that potential buyers will consider, they will also be interested to know its current performance levels. Buyers try to assess the ease of managing and running the business under their ownership. They are also looking to see its scalability and ability to continue generating returns, even after you have exited the venture. So, for this, you should gather operational metrics such as customer traffic to your site/store/app, cost of customer acquisition, revenue per shopper, average feedback, return rate, cart-to-order ratio, cart abandonment rate, and so on.

Business Valuation

The next logical step in the due diligence process is to understand the value of your business. This includes both tangible and intangible aspects of the business. The tangible aspects comprise your annual revenue, cost of sales, profits, and projected growth. These are used in conjunction with prevailing market conditions and the benchmark indices used in the industry you operate in, to derive a fair market price for your ecommerce business for sale. Intangible factors can comprise of your brand value and its perception in the minds of the customer, your existing relationship and contracts with suppliers, the robustness of your supply chain and logistics, et al.

Although seasoned entrepreneurs can conduct this exercise on their own, you may benefit by engaging the services of a professional business valuation consultant or firm to establish a fair market value for your ecommerce business for sale.

Ways To Sell

To increase your chances of earning the most profit for your ecommerce business for sale, you must identify the optimal mode to list and sell it. The most-preferred modes include:

Selling directly: A direct sale through your personal or professional network can be quick and easy, however, it is best left to people who have gone through the rigors of selling a business successfully in the past.

Selling via broker: First-time sellers or those who do not wish to be completely consumed by the process can seek the services of a broker. At a fixed fee or a percentage of the sale amount, a broker can hold your hand through the various stages right from business valuation to negotiations to post-sale payment receipt.

Selling to an acquirer: Acquiring platforms can take your ecommerce business for sale as-it-is and integrate it into their existing platform or transform it to make it more optimized. For you, it is a seamless process with the assurance of receiving a fair market value for your business without incurring brokerage-related expenses.

In conclusion, if you have decided to put your ecommerce business for sale, then due diligence is a critical process to increase the chances of a successful and profitable sale. It can help maximize the business’s value, prevent legal and financial risks, build trust with buyers, and reduce the likelihood of post-sale disputes.

Ulani Uriah

Umar Nisar was born and raised in the busy city of Abbottabad. As a journalist, Umar Nisar has contributed to many online publications including PAK Today and the Huffing Post. In regards to academics, Umar Nisar earned a degree in business from the Abbottabad UST, Havelian. Umar Nisar follows the money and covers all aspects of emerging tech here at The Hear Up.

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