The e-commerce industry is on the rise, and there is no time like the present to jump on the bandwagon. While running an e-commerce business can be fulfilling and rewarding, purchasing an e-commerce business can take time and effort. This article will go through the process of buying an e-commerce store and the steps you should follow.
Conducting Due Diligence
Before negotiating prices and conditions for buying an e-commerce store, you should conduct due diligence. Due diligence involves gathering information about the e-commerce business to ensure it is a good investment. With due diligence, you can:
- identify any issues with the business; and
- work with the existing owner to understand why such problems exist.
During your due diligence process, you should review the business accounts. You may want to analyse:
- profit and loss statements;
- balance sheets; and
- other financial statements to understand the company’s financial position.
Furthermore, you can confirm whether the e-commerce business has significant revenue and growth potential. In addition to this, you can also review the business’:
- gross income and profit;
- expenses;
- inventory and total value;
- total units sold;
- liabilities and assets; and
- forecasts.
Understand Where Traffic Comes From
An e-commerce website’s traffic will showcase the number of visitors and the health of its SEO strategy. With traffic comes customers, so you must understand how the business is acquiring customers.
You need to understand what traffic-driving strategy the business uses to maintain or improve it efficiently. Furthermore, you should research where the traffic comes from, as the location that generates the most sales should be the company’s primary market.
Continue reading this article below the formReviewing Logistics
An e-commerce business usually has a lot of logistical strategies and processes that you will need to consider before buying the business. The company may have agreements and partnerships to help support its store. As a result, you must ensure these agreements will remain once you start owning the business. Hence, you may want to check the business’:
- shipping arrangements;
- affiliate programs;
- software licenses;
- commercial leases; and
- Supplier and distribution agreements.
Checking Legal Documents
An e-commerce website must have certain legal documents to protect the business from legal issues. Without these legal documents, the company may be in dangerous waters. If you buy the company, you must implement certain legalities immediately. The three legal documents an e-commerce website should have include:
- terms and conditions;
- website terms of use; and
- privacy policy.
1. Terms and Conditions
The online store’s terms and conditions are the contracts customers agree to when purchasing goods from the e-commerce store. This legal document will outline your and your customer’s rights and duties when making a sale.
The terms and conditions can include:
- payment provider terms, for example, a payment provider may charge an additional fee on top of the customer’s order;
- delivery, which can include who is responsible for delivering the goods and the period in which the goods should be delivered within;
- returns, refunds, and replacements; and
- how customers can view and accept the terms and conditions.
2. Website Terms of Use
The website terms of use will apply to everyone who visits the website. This legal document outlines how visitors can interact with the online store and what is prohibited. With this, the business’ liability regarding what customers do on the website is limited.
3. Privacy Policy
The e-commerce website will most likely deal with a customer’s personal information, which is any information that can identify a person. If the business you are looking to buy deals with personal information, they are bound under New Zealand privacy laws.
The website’s privacy policy will outline how the business complies with its obligations and allows customers to understand how their data is handled and managed. In an e-commerce store, there is a higher risk of privacy breaches. As a result, the business must protect customer privacy when data is collected, used, or stored.
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Key Takeaways
When buying an e-commerce store, you must first conduct due diligence on the business. This will help you identify risks and how much potential the company has. Furthermore, you need to understand how the business is driving traffic and what logistics arrangements are in place. Finally, you must also ensure the e-commerce store has all the necessary legal documents.
If you need help purchasing an e-commerce store, contact our experienced business lawyers to assist as part of our LegalVision membership. You will have unlimited access to lawyers who can answer your questions and draft and review your documents for a low monthly fee. Call us today at 0800 005 570 or visit our membership page.
Frequently Asked Questions
The e-commerce business you want to buy should have terms and conditions, website terms of use, and a privacy policy. If you decide to own the business, these legal documents will limit your liabilities and prevent future legal issues.
Website terms of use will outline the rules for people using your website. People visiting your website can know how they can use it, what is prohibited and to what extent your liability is limited.
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