Buying an online store that already trades can look like a short cut. The products, the website and the customers are already in place. But the figures in a sales listing are only the seller’s version of events. Careful checks before you sign are what protect your money.
This guide covers the main checks for buying an established online business in Australia. It draws on free guidance from state government small business bodies. It is general information only. Rules differ between states, so get advice from your own accountant and lawyer.
Start with whether the business suits you
The Small Business Development Corporation in Western Australia suggests starting with yourself, not the business. Ask yourself if you are physically, financially and emotionally suited to it. Consider the skills, time and commitment needed to make it work. An online store still needs daily attention to orders, stock and customer messages.
Businesses for sale can be found through listings, accountants, business brokers and commercial real estate agents. The SBDC guide to buying a business sets out three broad steps. You identify the right business, analyse it closely and then make an offer. Most of the hard work sits in that middle step.
What due diligence means
Due diligence is the process of checking a business before you commit. The Queensland Government due diligence checklist says it confirms the business is as ethical, compliant and profitable as claimed. It can take anywhere from a week to several months. It should be finished before you sign any contracts.
The same guide suggests building a due diligence period into the sales contract. This is generally limited to five to ten business days after signing. It gives you room to end or renegotiate the deal if a serious problem turns up. The SBDC adds that you should not sign offers or pay money until you have the key documents.
Checking the money
Ask for certified financial statements for the previous three years. The SBDC also lists a balance sheet of assets and liabilities. Queensland suggests profit and loss statements, accounts payable and receivable, loans, overdrafts and a credit history check. Your adviser can obtain the credit check for you.
Sales figures and cash flow deserve extra care, because the Queensland guide warns they may be inflated. For an online store, compare reported sales with payment platform reports and bank records. Look at tax returns for at least three years too, along with GST, PAYG and superannuation guarantee records. Gaps between these sources are worth asking about.
Valuing what you are buying
The SBDC sets out a few common ways to value a business. Return on investment is net profit multiplied by 100, then divided by the price. Asset value is the assets of the business plus goodwill. Ask whether the profits will continue and whether the goodwill figure is realistic.
Online assets that need to change hands
An online business is often worth little without its digital assets. The Queensland checklist includes intellectual property such as trade marks, copyright and business registration. It also lists software licences and contracts. For an online store, that covers the website platform, apps, plugins and any paid tools.
Make a written list of every account the business relies on. That includes the domain name, hosting, email, payment gateways, marketplace stores and social media pages. Check who legally holds each one and whether it can be transferred. Ask the seller to confirm in writing how each one will be handed over.
Look closely at the website itself. Buyers judge a supplier by its site, as this piece on what procurement managers look for in an industrial supplier website explains. Check how the store looks on a phone and how the checkout works. Note any repairs you would need to fund early.
Marketing accounts and online reputation
Paid advertising accounts often carry history, settings and data that have value. If the seller runs search ads, ask to see the account and its results. This look at how Google Ads can generate new clients shows how much depends on a well set up campaign. Find out whether the account itself will transfer or only the know how.
Social media pages can be just as valuable. Review follower numbers, but also the quality of engagement and the tone of past posts. A strong page builds trust in a brand, as covered in this article on social media marketing that builds your brand. The Queensland guide also suggests checking customer ratings and reviews online.
Contracts, suppliers and staff
Supplier contracts need a careful read. Check any liability exclusions and whether the seller can transfer them without the supplier’s consent. Ask about unwritten supplier deals as well. Queensland also suggests checking staff and contractor contracts, awards and any wage rises coming up.
The SBDC notes there is no standard set of documents for buying a business. Get every promise from the seller confirmed in writing. Your lawyer can add conditions that let you withdraw without penalty if the seller does not meet them. Ask for warranties and indemnities too, for example against unpaid wages or superannuation.
Some online businesses come with a warehouse or packing space. In that case check the lease terms, permitted uses and any likely rent rises. You may also take on safety duties for the premises, so read about using a fire protection service provider for your business. The SBDC suggests a Personal Property Securities Register search to check for interests over business property.
Tax points to raise early
The SBDC says GST applies to the sale unless the business is sold as a going concern. Queensland suggests checking transfer duty too. It also flags capital gains tax if you plan to sell again within 12 months. An accountant can explain how the deal structure affects what you pay.
Keep some money in reserve
Even careful buyers get surprises. The Queensland guide warns of delayed expenses such as equipment, maintenance or wages that need funding straight away. It suggests keeping extra cash for a possible shortfall and comparing figures with industry benchmarks. A contingency plan for risks the contract does not cover is also wise.
Ask how much training the seller will give after the sale. An agreement not to compete is worth raising too, so the seller cannot open a rival store straight away. Confirm the takeover date and who controls sales and banking during any trial period. These details are far easier to settle before contracts are signed.
Frequently asked questions
How long does due diligence take?
Queensland Government guidance says it can take a week to several months. A due diligence period in the contract is generally limited to five to ten business days after signing. Finish your main checks before you sign.
Do I pay GST when buying a business?
The SBDC says GST applies to the sale unless the business is sold as a going concern. The way the sale is set up matters. Ask your accountant before agreeing to terms.
Who should help me check the business?
State guidance points to accountants, financial advisers, lawyers and business mentors. Lawyers and accountants should inspect the key documents. A business broker can also help you find suitable businesses for sale.
What online assets should be included in the sale?
List the domain name, website, hosting, email, payment and marketplace accounts and social media pages. Check software licences and intellectual property such as trade marks. Get the handover of each one written into the contract.
This article is general information only and is not legal or financial advice. Laws and processes differ between states and territories and change over time. Speak with a qualified lawyer and accountant before buying a business.