When considering purchasing an eCommerce store on Flippa, it's crucial to conduct thorough due diligence. Here's a detailed checklist to help you evaluate potential purchases, along with good signs, caution signs, and red flags for each aspect. For legal reasons: This is just my opinion; buy at your own risk. If you find this list helpful and would like to support me, you can tip me here
📦 General Information
1. Store Niche and Products
👍 Good Signs:
Unique or high-demand products.
Clear differentiation from competitors.
Positive feedback from customers about the niche.
⚠️ Caution Signs:
Niche market with limited growth potential.
Products with mixed customer reviews.
🚩 Red Flags:
Oversaturated market with high competition.
Generic products easily available elsewhere.
Lack of clarity or focus in the product range.
2. Reason for Sale
👍 Good Signs:
Seller has a clear, logical reason for selling (e.g., focusing on another business, retirement).
⚠️ Caution Signs:
Seller's reason for sale is somewhat vague.
Seller is unwilling to provide detailed explanations.
🚩🚨 Show Stopper:
Vague or suspicious reasons for selling.
3. Store Age and History
👍 Good Signs:
Long-standing store with a positive history.
Consistent performance over time.
⚠️ Caution Signs:
Store has a moderate history with some fluctuations.
Some negative feedback in the past.
🚩🚨 Show Stopper:
Previous bans or suspensions.
💰 Financials
4. Revenue and Profit
👍 Good Signs:
Steady or growing revenue and profit margins.
Transparent and detailed financial records.
⚠️ Caution Signs:
Revenue and profit have minor fluctuations.
Seasonal revenue spikes (evaluate if normal for the niche).
🚩🚨 Show Stopper:
Inconsistent revenue or profits.
Lack of financial documentation or discrepancies in records.
Consideration:
Evaluate if revenue and profit fluctuations are due to seasonal trends (e.g., Christmas gifts, summer products). Seasonal fluctuations can be normal but require understanding the peak and off-peak seasons.
5. Expenses
👍 Good Signs:
Clear breakdown of all expenses.
Reasonable and consistent expense levels.
⚠️ Caution Signs:
Some unexpected or fluctuating expenses.
Higher than average marketing costs.
🚩🚨 Show Stopper:
Hidden or unexplained costs.
6. Financial Documentation
👍 Good Signs:
Comprehensive and well-maintained financial records.
Third-party verified statements (e.g., payment processor statements).
⚠️ Caution Signs:
Financial records are mostly complete but with some minor gaps.
Some discrepancies that can be explained.
🚩🚨 Show Stopper:
Missing or incomplete financial records.
🌐 Traffic and Analytics
7. Traffic Sources
👍 Good Signs:
Diverse traffic sources (organic, paid, social media, etc.).
Stable or growing traffic trends.
⚠️ Caution Signs:
Some dependency on a single traffic source.
Traffic has minor fluctuations.
🚩🚨 Show Stopper:
Sudden drops in traffic without clear explanation.
Consideration:
Determine if traffic fluctuations are due to seasonal trends. Seasonal spikes or drops can be expected for certain products and should be factored into the evaluation.
8. SEO and Rankings
👍 Good Signs:
Strong SEO performance and high rankings for relevant keywords.
Quality backlink profile.
⚠️ Caution Signs:
SEO performance is average with room for improvement.
Backlink profile has some low-quality links.
🚩🚨 Show Stopper:
Penalized by search engines or a history of black hat SEO tactics.
9. Customer Demographics
👍 Good Signs:
Clear understanding of target customer base.
Positive customer engagement and loyalty.
⚠️ Caution Signs:
Incomplete customer demographic data.
Mixed levels of customer engagement.
🚩 Red Flags:
Lack of information about customer demographics.
Low customer retention rates.
🛠️ Operational Aspects
10. Supplier and Inventory
👍 Good Signs:
Reliable and reputable suppliers with favorable terms.
Efficient inventory management and fulfillment process.
⚠️ Caution Signs:
Dependence on a limited number of suppliers.
Occasional stockouts or fulfillment issues.
🚩🚨 Show Stopper:
Dependence on a single supplier.
11. Platform and Technology
👍 Good Signs:
Store built on a reputable and user-friendly platform.
Up-to-date technology and minimal technical debt.
⚠️ Caution Signs:
Platform is functional but may need updates.
Some technical debt present.
🚩🚨 Show Stopper:
Custom-built platform with limited support.
12. Employees and Contractors
👍 Good Signs:
Experienced and reliable team.
Clear roles and responsibilities.
⚠️ Caution Signs:
Team is adequate but may need additional training.
Some dependency on key individuals.
🚩 Red Flags:
High turnover rates.
Undefined roles or dependency on key individuals.
📜 Legal and Compliance
13. Legal Documentation
👍 Good Signs:
Properly documented business licenses and permits.
Compliance with all relevant regulations.
⚠️ Caution Signs:
Minor gaps in documentation.
Some compliance issues that can be resolved.
🚩🚨 Show Stopper:
Missing or incomplete legal documentation.
History of legal issues or non-compliance.
14. Intellectual Property
👍 Good Signs:
Ownership of key intellectual property (e.g., domain name, trademarks).
No ongoing legal disputes.
⚠️ Caution Signs:
Some intellectual property concerns that need clarification.
Minor disputes that have been resolved.
🚩🚨 Show Stopper:
Unresolved intellectual property disputes.
👥 Customer Base and Reviews
15. Customer List
👍 Good Signs:
Large, engaged, and loyal customer base.
Effective customer acquisition and retention strategies.
⚠️ Caution Signs:
Customer list quality is mixed.
Moderate customer churn rates.
🚩 Red Flags:
Low-quality or outdated customer list.
High customer churn rates.
16. Reviews and Reputation
👍 Good Signs:
Positive customer reviews and strong reputation.
Good ratings on external review sites.
⚠️ Caution Signs:
Some negative reviews that are being addressed.
Reputation has minor blemishes.
🚩 Red Flags:
Poor customer reviews and frequent complaints.
Negative reputation on external sites.
🔄 Transition and Support
17. Transition Plan
👍 Good Signs:
Clear and well-documented transition plan.
Seller willing to provide support during the transition.
⚠️ Caution Signs:
Transition plan is adequate but needs more detail.
Limited seller support post-sale.
🚩🚨 Show Stopper:
No transition plan or limited support from the seller.
18. Training and Documentation
👍 Good Signs:
Comprehensive training and documentation provided.
Availability of standard operating procedures (SOPs).
⚠️ Caution Signs:
Training and documentation are somewhat lacking.
SOPs need updates or improvements.
🚩 Red Flags:
Lack of training or documentation.
Seller unwilling to provide necessary operational details.
💳 Financial Arrangements
19. Purchase Price and Valuation
👍 Good Signs:
Reasonable valuation based on industry standards.
Willingness to negotiate based on due diligence findings.
⚠️ Caution Signs:
Price is slightly above market value.
Valuation method needs clarification.
🚩 Red Flags:
Overpriced store with no room for negotiation.
Valuation based on unrealistic projections.
20. Payment Terms
👍 Good Signs:
Clear and fair payment terms.
Use of escrow services to ensure secure transactions.
⚠️ Caution Signs:
Payment terms are somewhat rigid.
Limited flexibility in payment options.
🚩🚨 Show Stopper:
Seller unwilling to use escrow services.
Ideal Ratio of Red Flags to Caution Signs to Green Flags
When evaluating an eCommerce store for purchase, it's essential to strike a balance:
Green Flags (Good Signs): 60-70%
Caution Signs (Yellow Flags): 20-30%
Red Flags: 10% or less, with any 🚩🚨 Show Stoppers being a significant concern.
If you encounter multiple show stoppers or if red flags exceed 10%, it's wise to reassess the overall viability of the purchase and consider seeking expert advice or walking away.
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