An e-commerce business can present impressive sales dashboards, growing advertising returns and a valuable-looking stock balance. A buyer still needs to establish how much revenue survives refunds, what each order contributes after fulfilment and marketing, and how much cash must remain tied up in inventory.
E-commerce financial due diligence should reconcile orders to recognised revenue and cash, assess returns and contribution margins, test inventory value and examine dependence on advertising platforms, marketplaces and key suppliers. Platform sales figures are a starting point, not an acquisition conclusion.
This guide is for buyers of UK online retailers, direct-to-consumer brands and marketplace-led SMEs, as well as owners preparing for sale or investment. It focuses on financial evidence. Legal, tax, product safety, intellectual property, technology and commercial reviews need their own agreed coverage.
Map the business before comparing the numbers
Separate direct website sales, marketplaces, wholesale and any subscription activity. Identify which legal entity owns the stock, contracts with the customer, receives payment and incurs the costs. Where an owner operates several brands or accounts, establish exactly which assets, liabilities, staff and activities are included in the sale.
Understand whether the target holds inventory, uses third-party fulfilment, dropships or combines these models. A business that takes customer payments before paying suppliers has a different cash cycle from one that places large overseas orders months before sale.
Also distinguish sales made as principal from fees earned as an agent. The accounting assessment depends on contracts and the applicable reporting framework, not the label used in a platform export. Reconcile the chosen presentation consistently before comparing margins or valuation metrics.
- 01Reconcile the saleConnect orders, refunds and cash.
- 02Test contributionInclude fees, returns and marketing.
- 03Check continuityAssess stock and platform reliance.
Reconcile orders, revenue, settlements and bank receipts
Create a bridge from the order-management system to the general ledger. Explain VAT or other sales taxes, cancellations, discounts, refunds, gift cards, shipping income and timing differences. Gross merchandise value, booked orders and recognised revenue can be materially different measures.
Then reconcile payment-provider and marketplace settlements to bank receipts. A net settlement may already deduct fees, refunds, chargebacks or reserves. Recording the cash receipt as sales can obscure both revenue and costs, while recognising the same fee elsewhere can create double counting.
Investigate the dates used in each system: order placed, payment captured, goods dispatched, delivery completed and settlement received. Test the target’s accounting policy against its contracts and reporting framework. Orders taken before year end do not automatically belong in that year’s revenue.
Use read-only access or securely supplied exports where agreed, and retain original files and reconciliation versions. Screenshots can explain a dashboard but are weak substitutes for transaction-level records that can be traced and tested.
Analyse returns by the sale that caused them
Returns can lag the original sale and make recent trading look stronger than it eventually proves to be. Analyse refunds and returns against the original order cohort, product, channel and promotion where possible. Compare recent cohorts only after allowing for how long customers usually take to return goods.
Distinguish cancellations before dispatch, refunds without a physical return, faulty goods, size-related returns and chargebacks. Each can have different consequences for revenue, stock recovery, handling costs and future customer behaviour. Identify whether refunded goods return to saleable inventory or need discounting or disposal.
The government’s returns and refunds guidance explains consumer obligations, including cancellation rights for many distance sales. Product-specific exceptions and the target’s own commercial policies also matter. Ask legal advisers to review the policy and assess compliance; the financial work should test whether expected costs and liabilities are supported.
Investigate unexplained changes in return rates. A temporary fall could reflect a healthier product mix, but it could also arise because the latest selling period has not matured. Similarly, a surge in promotional sales may create a later wave of refunds and fulfilment expense.
Calculate contribution after the costs of winning and serving the order
Start with a written definition of each margin measure. A product gross margin that deducts only purchase cost answers a different question from contribution after shipping, fulfilment, payment fees, marketplace charges, returns and advertising.
Compare like with like by channel and period. Determine whether product cost includes inbound freight, duties and other relevant landed costs, and whether discounts and supplier rebates are reflected consistently. Reconcile estimated standard costs to actual invoices and inventory accounting.
Separate advertising performance from accounting profitability. Return on advertising spend, or ROAS, commonly compares attributed sales with ad spend. It does not by itself show order contribution, cash generation or whether the attributed customer would have purchased anyway.
Ask how attribution windows, repeat customers and overlapping platforms affect the reported result. Commercial specialists may need to investigate acquisition quality and channel incrementality. Financial analysis should quantify what happens if acquisition costs rise or the mix shifts towards less profitable channels.
Worked example: strong sales, modest order contribution
This fictional monthly example uses £000 and excludes VAT from sales. It is not a client outcome or a sector benchmark. Revenue and costs are assumed to be consistently matched to the illustrated order cohort. In practice, returns timing, inventory movements and prepayments require additional reconciliation.
| Order economics | £000 | Running balance £000 |
|---|---|---|
| Sales before refunds | 250 | 250 |
| Refunds and allowances | −25 | 225 |
| Cost of goods sold | −90 | 135 |
| Fulfilment and outbound delivery | −28 | 107 |
| Payment and marketplace fees | −17 | 90 |
| Return handling and unrecoverable return costs | −5 | 85 |
| Advertising spend | −65 | 20 |
| Contribution before central overheads | 20 | 20 |
The £20,000 contribution is before salaries not included above, rent, systems, professional fees, finance costs, tax and other central expenses. It is not EBITDA or cash flow. The table assumes the cost-of-goods figure and return-loss figure do not count the same loss twice.
If advertising spend rises by £10,000 with sales and all other assumptions unchanged, contribution falls to £10,000. A buyer should test whether the budget depends on advertising efficiency that can be sustained, rather than using the latest sales growth as evidence that every additional order creates attractive profit.
Examine repeat purchasing without importing SaaS assumptions
Customer retention can matter greatly to a retailer, but a repeat purchase is not necessarily contracted recurring revenue. Separate subscriptions from customers who choose to reorder. Analyse second-purchase rates, time to repeat, order contribution and refunds for comparable cohorts.
Distinguish new customer growth from more orders placed by existing customers. Check whether acquisition costs include agency fees, creative production, discounts and affiliate payments where relevant to the chosen measure. Document exclusions so the buyer can reconstruct the calculation.
Lifetime value estimates deserve particular care when the brand is young or its product mix has changed. A projection based on a small early cohort can overstate future repeat behaviour. Show observed contribution to date separately from projected future contribution and test alternative retention assumptions.
Avoid judging every category by the same repeat rate. Furniture, consumables and seasonal gifts have different purchase patterns. The useful question is whether the target’s actual customer behaviour supports its own forecast and cash requirements.
Inventory: separate quantity, condition and recoverable value
Request item-level stock by location, age, ownership and status. Reconcile warehouse or fulfilment-provider reports to the ledger and investigate goods in transit, consignment stock, reserved units and returns awaiting inspection. Check the cut-off around goods received and dispatched.
Identify slow-moving items, obsolete packaging, discontinued products and stock tied to a short selling season. Compare the carrying amount with realistic selling proceeds after relevant completion and selling costs. HMRC’s inventory guidance explains the net realisable value concept; apply the target’s actual accounting framework to the valuation assessment.
Do not assume that every unit can be sold at the current website price. Review actual discounting, bundles, clearance activity, subsequent sales and any product quality issues. If management expects stock to be sold through a different channel, include the associated fees and handling economics.
Physical counts, condition checks and product testing may require separate specialists. Financial due diligence can assess reconciliations and valuation assumptions but cannot verify every item through a spreadsheet review. Agree any independent stock procedures before completion.
Model seasonality and the next inventory purchase
Review cash through the full trading cycle, including pre-season stock buying and post-season refunds. A cash-rich balance immediately after a major sales event can be followed by tax payments, supplier invoices and deposits for the next product run.
Build a forecast that links purchase orders, supplier deposits, lead times, shipping, customs payments where applicable, stock availability, sales and settlements. Model marketplace reserves and payment-provider holds where relevant. Distinguish operating cash from amounts needed to meet customer or supplier obligations.
Stress-test slower sell-through, earlier supplier payments, shipping delays, higher landed costs and a weaker peak season. Use the actual inventory purchasing commitments rather than assuming orders can be cancelled without cost. Cash flow forecasting and financial modelling can show the interaction between margin, stock and liquidity.
When agreeing a working capital target, assess the seasonal position and expected growth. A simple annual average may not represent the level needed at the proposed completion date. Define the mechanism and account classifications with the transaction advisers.
Marketplace and platform dependence is a transaction issue
Identify the proportion of contribution, not just revenue, generated through each marketplace or advertising platform. Review account ownership, access permissions, payout history and any warnings or disputes. A single account suspension can have immediate cash consequences.
Do not assume accounts, reviews, listings, payment arrangements or software licences can transfer freely. Lawyers and platform specialists should establish the contractual position and the steps required for the proposed share or asset purchase. Include any trading interruption or reserve requirement in the completion plan.
Review ownership and control of the domain, brand, customer database, creative assets and relevant intellectual property. Commercial and technology specialists should assess traffic quality, site resilience and dependence on particular agencies or individuals. Financial forecasts should reflect identified continuity risks rather than treating platform access as certain.
Tax advisers should review VAT, overseas sales, import arrangements and any marketplace-specific obligations relevant to the actual business. A platform’s collection of some taxes does not establish that all of the target’s tax obligations have been met.
What should the buyer ask for first?
Start with records that can be reconciled and used to answer the transaction’s central questions. Tailor the request as the analysis develops.
| Evidence | What it helps establish |
|---|---|
| Monthly accounts, trial balance and bank reconciliations | Reliability of historical financial results |
| Order-level sales, refunds and channel exports | Revenue bridge and returns behaviour |
| Payment-provider and marketplace settlements | Fees, reserves, chargebacks and cash reconciliation |
| Product costing and fulfilment invoices | Consistent contribution by product and channel |
| Advertising data and customer cohorts | Acquisition economics and repeat-purchase assumptions |
| Stock ageing, counts and purchase commitments | Recoverable inventory value and future cash needs |
| Platform, supplier and fulfilment agreements | Concentration, continuity and completion requirements |
The final report should explain earnings quality, cash requirements, balance-sheet issues, information limitations and specialist matters that remain unresolved. It should distinguish a sustainable target result from buyer-specific improvements that have not yet been delivered. Our practical UK buyer’s guide covers the wider review process.
Preparing an e-commerce business for investment or sale
Owners can prepare by reconciling sales and settlements, agreeing margin definitions, documenting return assumptions and cleaning up stock records. Maintain evidence of costs and commercial terms rather than rebuilding the story from screenshots when a buyer asks.
For an investment raise, explain how additional marketing or stock will translate into contribution and cash. The companion SME growth capital guide shows how to calculate the funding gap. For a sale, due diligence preparation can help organise the evidence before a buyer begins its review.
Frequently asked questions
Is ROAS enough to value an e-commerce business?
No. ROAS compares attributed sales with advertising spend under a particular measurement method. It does not by itself establish contribution after product, fulfilment, fee and return costs, or the cash available after overheads and working capital.
Why should returns be analysed by order cohort?
Refunds can occur after the original selling period. Linking them to the orders that caused them helps distinguish an actual improvement from a recent cohort that has not yet had time to generate returns.
Does a high stock balance increase the purchase price automatically?
No. Stock needs evidence of ownership, quantity, condition and recoverable value. Its transaction treatment also depends on the agreed deal structure and completion mechanism. Slow-moving or obsolete items may require adjustment.
Can marketplace accounts transfer to the buyer?
Do not assume so. Transferability and approval requirements depend on the platform terms, account arrangements and transaction structure. Have the relevant advisers confirm the position and include required steps in the completion plan.
Can Consult EFC review an online retailer before acquisition?
Consult EFC can scope financial due diligence around earnings, channel economics, stock, working capital and cash requirements. Legal, tax, technology, product and commercial specialists should cover the additional areas relevant to the target.
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Over 12 years across Big Four audit, Investment Banking, and corporate advisory. Kish works with SaaS founders, tech companies, and ambitious UK SMEs from £1M to £50M in revenue on fundraising, valuations, exit planning, and financial strategy. ICAEW regulated. Big Four trained. Based in London.