Evaluating an E-Commerce Business w/ Declining Financials

by a searcher from University of South Carolina

Feb 07,2023

I have been working on purchasing a E-commerce business over the last 5 months. I had an LOI accepted in September and have been negotiating the contract since. Now, the contract is ready to sign, but the Q4 financials came back very weak. In 2021 they finished the calendar year doing $3.4MM in revenue doing $1.2MM in Q4###-###-#### finished at $2.1MM with Q4 pulling $540K. I am working on receiving a better answer from the seller on why this has happened. In general, I would like to ask, is it worth me proceeding with this business with my EBITA $120k less? Assuming I can drop my purchase price, do I want to take over a declining business?

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24 comments

searcher from Harvard University

Run

03/17/2023 | like reply | 0 likes

searcher from University of Toronto

I would suggest probing a bit more on why the drop in revenue. Maybe understanding the customer segments, concentration, and the change in the purchase behaviour of the different segments of the customers maybe important data points. Further, you may want to check for any expiring customer contracts, change in customer relationships, etc. Lastly, you may also want to pay attention to any changes to the marketing activity of the business. Drop in revenue clearly shows change in the external environment of the business.

As for the terms of the sale, you absolutely must push for a earnout styled financing and also have a longer transition runway with the seller.

Would really like to know more about this situation though!

03/13/2023 | like reply | 0 likes

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