How to Buy an Ecommerce Business

How to finalize the sale and transfer business ownership

After finding a great business buying opportunity and
understanding how much you want to pay for it, it’s time to
communicate that with the seller to finalize the sale.

Communication and Negotiation

Communication and negotiation plays an important role in
achieving a successful acquisition. Spending money to buy a
business online from someone you’ve never met before is both
risky and a bit scary, same for the person on the other side who
is selling the business. You should aim to build trust with the
seller starting from the beginning of your communication.

Here are a couple of tips for communication and negotiation:

  1. Tell the seller who you are, what you do and why you want to
    buy the business. Providing more background information
    about yourself is always helpful in building trust.

  2. Show the seller you are serious about the opportunity by
    asking well-thought-out questions. Carefully review the
    information provided by the seller and do enough research
    before you ask questions. Do not ask questions where you
    can easily get the answers yourself. It’s both about respecting
    the seller’s time and about showing the seller that you are
    capable of taking care of the business they have spent years
    building.

  3. Tell the seller more about what you are planning to do with
    the business and what value you can add to it after you
    acquire it if possible. If this is a serious business the seller
    has spent years working on, he or she will want to know the
    business is going to be well taken care of.

  4. When you negotiate with the seller on the price of the
    business, be transparent and show them your valuation
    process. Use facts and numbers to back up your valuation
    and the price you want to pay during the negotiation.

  5. When it comes to an important discussion or negotiation,
    try to communicate with the seller over the phone instead
    of going back and forth via emails.

Steps to Finalize the Sale

When finalizing the sale, conducting due diligence and drafting
the related legal documents, both buyer and seller should consult
their own lawyers to ensure that their interests are protected
when the deal involves a large amount of money.

Confirmatory Due Diligence

After you have agreed to buy the business and mapped out the timeline
for closing, it’s time to conduct your confirmatory due diligence.

You should verify the revenue statistics with the seller either by
getting access to the seller’s ecommerce store dashboard or
through a live video walk-through. Since Exchange automatically
verifies revenues on Shopify store listings, it makes thing easier.
It’s recommended to ask for a full Profit and Loss Statement with
historical stats tracing back to the beginning of the ecommerce store
from the seller during the Due Diligence process. Check the revenue
report, operating expenses, customer order details, and bank payout
records to see if the numbers are matching. Carefully inspect the
traffic data to see if the traffic trend matches the revenue trends,
and if there are any hidden expenses that haven’t been disclosed.

With the help of your lawyer, research the legal aspects of the seller’s
ecommerce business. For example, is there any legal restrictions
or issues with the type of products the business is selling? If the
business is current operating outside of your home country, you
should consider whether there are applicable rules and regulations
in your jurisdiction that could potentially impact the business. Are
there any trademark infringement issues? Are there any current or
previous unresolved lawsuits related to the business?

Most online business transactions are structured as an asset
purchase, which means there is no transfer of business ownerships.
In an asset purchase, you’re essentially buying the Shopify store as
an asset from the seller. You will not take over most the business’s
previous liabilities through the acquisition, which means you’re not
responsible for the business’s previous debts or obligations. This
is good because it frees you from most of the legal due diligence
work, but any legal disputes attached to the assets should still be
under your concerns, such as patent/trademark infringements.

If there is current employment or contractor relationship, supplier
relationship or advertising partnership in the current business, do
your due diligence on the contracts and see if those relationships
could be carried over with little risk.

Ask the seller to send you a list of assets included in the sale, and
carefully inspect each asset (domain ownership, social media
account follower authenticity, etc.) during the asset transfer.

Asset Purchase Agreement

The next step is to draft an Asset Purchase Agreement with the
seller with the help of your lawyer. You will need to work with
your lawyer to customize the agreement and add terms relevant
to your specific deal. To start you off, here are some things you
could consider:

  • Timeframe and logistics on closing. When should the buyer transfer money into Escrow? How long is the inspection period? Under what conditions can the buyer or seller withdraw from the binding agreement? What are the responsibilities of each parties during the closing period?
  • How long is the post-transaction support period? How will the seller assist the buyer in post-acquisition integration?
  • Terms on holdbacks, earn-out, milestones, or any other types of delayed payments, if any.
  • Is there a non-compete period? How long is the non-compete period and what kind of restrictions the non-compete will have on the seller?
  • The list of assets included in the sale as an attachment to the Asset Purchase Agreement. Examples are:
    • Social media accounts
    • Customer email lists
    • Shopify store and apps, design files, product image files, marketing materials, etc.
    • Other subscription or tool accounts, Zapier, internal processing like Trello, etc.
    • Advertising accounts like Google Adwords if transferrable. If the advertising accounts are not included in the sale, make sure you can replicate the ad campaigns by get the ad campaign details from the seller.
  • Standard Operating Procedures document (if any)
  • How do your local tax laws apply? Is there any applicable withholding tax that may arise as a result of a sale of your business?
  • Whether and how you will transfer intellectual property
  • Other special terms, including whether the buyer and seller will give representations and warranties or any indemnities.

Transferring the Business

After the asset purchase agreement has been signed, a typical
business transfer looks like this:

  1. The buyer transfers money into Exchange’s partner:
    Escrow.com.

  2. After the Escrow service confirms the deposit of money,
    the seller will be notified and he/she starts transferring the
    business and the relevant assets to the buyer.

  3. After all the assets have been transferred, the buyer has a
    period of time to inspect the assets to make sure everything is
    as described and agreed on in the Asset Purchase Agreement.
    Depending on the complexity and the size of the transaction,
    the inspection period could be anywhere between 24 to 72
    hours.

  4. By the end of the inspection period, if no discrepancy has
    been found, the buyer should release money from Escrow
    to the seller’s account.

  5. Seller receives money from Escrow. The transaction is
    officially closed.

  6. Seller provides training and support as agreed in the Asset
    Purchase Agreement.

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