5 aspects of an online business takeover

Due diligence is an integral part of a business acquisition and is usually organized between the LOI stage and acquisition agreement. The literal meaning of "due diligence" is "due diligence," but in the case of a business acquisition, it mainly refers to the book examination. So, however you translate it, due diligence means that the online business is being scrutinized very carefully.

Such due diligence involves a critical review of the accuracy of the figures and information provided. As far as we are concerned, this is not limited to the accounting. In this phase, the online business itself can also be thoroughly screened for technology and, for example, performance in the areas of SEA and SEO. The outcome of the due diligence is thus primarily validation of the information shared by the seller, on the basis of which the buyer has made his offer.

For many small or start-up business owners, organizing accounting is not a top priority. Regularly during a due diligence, issues come up that need to be sorted out. As a seller, what can you prepare for? And what things can you as a buyer look at to assess a online business? Below are some angles. This list is not exhaustive and is only intended to provide some guidance.

1. Turnover control

Sum payments per period: For 1 period (e.g. month), the orders in the online business must correspond to the payments received. Do this sum preferably with amount including VAT, then must apply:

BANK + PAYPAL + MOLLIE = ONLINE BUSINESS REVENUE + SHIPPING COSTS

This seems a simple truth, but it will often not be completely correct and that is not a problem. What is important is that the differences can be explained. Questions you can ask:

  • Are returns deducted from the online business turnover?
  • Are the correct amounts including VAT everywhere?
  • Are BOL orders processed correctly and not double-counted?
  • How and where are the refunds processed?

2. Procurement

For an entire year, purchasing can also be controlled. Get from the accounting package or from the records of purchasing the purchase value for a year. The inventory movements must match these invoices. The following sums must be correct:

  1. INVENTORY END OF PERIOD = INVENTORY BEGINNING OF PERIOD + PURCHASE - SALES
  2. SALES - PURCHASE = GROSS MARGIN

Questions to ask in case of discrepancies:

  • Is there "dead" stock: products that will never be sold again?
  • How much loss is there per year (theft + damage)?

3. VAT

The profit and VAT should relate to each other. Thus the quarterly or monthly VAT returns can be seen. You can check these with the purchase and sales invoices:

VAT PAYMENT = VAT SALES - VAT PURCHASE/EXPENSES

With proper administration and no crazy exceptions, a profit has been made in a period if VAT has also been remitted. And when the VAT remittance is negative, it is the other way around. Check the VAT base (sum purchase and sum sale). Also check (in case of discrepancies):

  • Are there VAT-exempt purchase or sales invoices?
  • What part of the costs are exempt from VAT (personnel or purchasing outside the EU)?
  • Is VAT properly processed in return payments?

4. Shipping Costs

Shipping costs must match the number of orders and corresponding packages/weights. The following statements should be checked:

SHIPPING COSTS = ORDERS PER MONTH x SHIPPING COSTS-PER-PAKET

In addition, of course, the number of packages in 1 month must match the orders in that month. Differences can be due to:

  • Some orders may be split across multiple packages
  • Returns are also reimbursed
  • BOL or other shipping costs are included in 'purchase costs

5. Traffic

With website traffic, we need to see if the free (organic) traffic is correct and also the paid Google Ads traffic is correct. And these traffic figures should also be correct with the average conversion and visitors per month. Much more can be written about the analysis of Google Ads and Analytics. In any case, make sure that the monthly traffic is plausible for the number of orders, and that explanations are sought when the conversion rate is extremely high (actually already above 4%).

With these five points, the entire online business is certainly not 100% checked, but they do give a picture of the state of the business, and can help assess a small online business.