1. Unverifiable or Misleading Financials
Yes, unverifiable or misleading financials are one of the most common risks associated with e-commerce businesses for sale.
Numbers don’t lie—unless they’ve been manipulated…
A seller may claim their business is highly profitable, but if the financials don’t check out, you could be walking into a money pit rather than a goldmine.
To protect yourself, you’ll need to conduct in-depth due diligence to verify the revenue claims.
Request access to the business’s financial records, including profit and loss (P&L) statements, tax returns, and bank statements.
Be wary if the seller is reluctant to provide detailed reports or offers only vague summaries.
A lack of transparency is often a sign they’re trying to hide something.
Even if financials look good at first glance, dig deeper:
Are sales consistent, or do they spike suddenly before the business is listed for sale?
If revenue has increased sharply in the last three to six months, the seller might have pumped money into short-term advertising campaigns to inflate the numbers artificially.
Check at least 12-24 months of data to spot trends and irregularities.
Another red flag is unexplained expenses or disproportionately high costs.
If a business is generating millions in revenue but only keeping a small percentage as profit, ask why.
High operating expenses, excessive ad spend, or supplier markups could be eating into the profit margins, leaving little room for future profitability.
We Help You Buy / Build, Manage and Scale E-commerce Brands for an EXIT
E-commerce Simplified for Busy Individuals – We handle the buying, building, and scaling, so you can focus on what matters.
Growth-Focused Strategies – From sourcing to marketing, we drive growth and prepare you for a profitable exit.
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2. Over-Reliance on Paid Advertising
While advertising is one of the key pillars of e-commerce, a business that depends entirely on paid ads for sales is extremely risky.
Platforms like Facebook, Google, and TikTok can change their algorithms overnight, sending ad costs soaring or reducing reach.
And this can cause a once-thriving store to collapse in the blink of an eye!
A healthy e-commerce business should have a diverse traffic strategy, including organic search (SEO), email marketing, and repeat customers.
If more than 70-80% of traffic comes from paid ads, that’s a sign the business lacks stability.
Even worse, if the seller has been spending aggressively on ads just to maintain revenue, margins may be thinner than they appear.
To verify this, request access to Google Analytics, Facebook Ad Manager, and Shopify reports.
Look at the Customer Acquisition Cost (CAC). Is it too high compared to the average order value?
If yes, you may struggle to maintain profitability after taking over the business.
3. Declining or Unstable Revenue
A sudden drop in sales is another obvious warning sign to look out for.
Even a business with stable revenue could be in trouble if the underlying factors aren’t sustainable.
The key here is to take your time to understand whether the business is growing, stagnating, or declining.
Check its historical sales data over the past two years.
Are there consistent upward trends, or do you notice gradual declines?
If revenue peaked six months ago and has been steadily falling, it could mean the market demand is shrinking, competitors are taking over, or the product is losing its appeal.
Also, consider seasonality. Some businesses (such as those selling holiday-themed products) will enjoy huge spikes in sales at certain times of the year.
However, they’ll struggle the rest of the time.
Make sure you calculate the average monthly revenue outside of peak seasons, so you don’t base your valuation on misleading figures.
4. Unsustainable Supplier Relationships
Suppliers are another key pillar of an online store. This makes supplier instability one of the biggest risks in e-commerce acquisitions.
If a business relies heavily on a single supplier, what happens if that supplier raises prices, runs out of stock, or cuts ties with the store altogether?
Before committing to a purchase, ask for supplier contracts and invoices.
Check whether the supplier offers long-term agreements or the store operates on month-to-month terms.
You’d also want to check if the products are exclusively sourced or if competitors can buy from the same supplier.
Has the supplier increased prices recently, and is there a risk of future hikes?
Overall, a business that relies on a supplier that could suddenly stop fulfilling orders could be at risk of failing!
You could find yourself scrambling to find alternatives, which could mean higher costs and lower profit margins.
5. High Refund Rates and Customer Complaints
Even if sales numbers look good, unhappy customers can ruin an e-commerce business.
If you’re looking at a store with high refund rates, constant chargebacks, or bad reviews, these are clear signs that something is wrong.
There could be issues with product quality, shipping times, or customer service.
We advise you to check the store’s Shopify or Stripe chargeback history, as well as reviews on platforms like Trustpilot, Better Business Bureau (BBB), and social media.
If you see a pattern of complaints about late deliveries, defective products, or poor service, you’d want to rethink buying that business.
Some sellers may also hide negative feedback by removing product reviews or setting up new Shopify accounts to erase bad ratings.
To check if older reviews have been wiped, look at the business’s Google search history and archived versions of its website.
We Help You Buy / Build, Manage and Scale E-commerce Brands for an EXIT
E-commerce Simplified for Busy Individuals – We handle the buying, building, and scaling, so you can focus on what matters.
Growth-Focused Strategies – From sourcing to marketing, we drive growth and prepare you for a profitable exit.
Expertly Managed Exits – We build a high-value brand designed for a Lucrative exit.
6. Lack of a Strong Brand or Loyal Customer Base
A truly valuable e-commerce business is more than just about products and revenue—it’s about brand reputation and customer loyalty.
If the store has no real brand identity, little social media presence, and minimal customer engagement, it may be easily replaceable by competitors.
A strong brand should have the following:
An engaged email list and repeat customers
Active social media pages with real followers and interactions
Organic traffic from search engines (not just paid ads)
A unique selling proposition (USP) that differentiates it from competitors
If the store lacks these elements, it may be relying on short-term tactics that won’t last in the long run.
7. Legal and Regulatory Risks
Another critical red flag that many buyers often overlook is legal and regulatory compliance.
Issues in this area can range from intellectual property disputes to non-compliance with data privacy laws or even pending lawsuits.
Before proceeding with an acquisition, verify that the business has all its legal documents in order, including licenses, trademarks, and any necessary regulatory approvals.
Check for any history of legal disputes or customer privacy breaches that might pose future liabilities.
If the seller is evasive about legal documentation or has unresolved legal issues, it could lead to major challenges after the purchase.
These challenges might include unexpected liabilities or legal penalties, which can be costly to resolve.
Wrapping Up
Buying an e-commerce business is more than just chasing impressive sales numbers—it’s about ensuring long-term sustainability. A store may look great on paper, but deeper analysis often reveals hidden risks.
Thorough due diligence will help you avoid costly mistakes. Remember to take your time, ask the right questions, and don’t be swayed by appearances.
Smart acquisitions are driven by data, strategy, and careful evaluation—not wishful thinking.
Not sure how to conduct due diligence on an e-commerce acquisition? You don’t have to go through it alone. Our expert acquisition services are designed to help you secure high-potential online stores.
We handle comprehensive due diligence and strategic negotiations on your behalf, ensuring you don’t just buy a business but a future success.
Post-acquisition, we use our proven growth formula to scale your store by 2x-10x, ensuring you exit at maximum profit when the time is right.
Ready to invest wisely? Click Here to learn how we can help you make the smartest acquisition and scale your e-commerce business to new heights!
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