How to perform an inspection period
After you've made an offer, sent payment to Escrow.com, and the seller has shipped assets to you it's time to begin your inspection period. The inspection period is a set length of time during which you are required to take a final look at the assets you're purchasing to ensure that everything you've received is as advertised and agreed upon by the seller.
Escrow uses milestones to determine the completeness of a transaction. Milestones can be steps such as the transfer of domain names, social media accounts and access to the Shopify admin via staff permissions. Accepting all milestones in your Escrow.com account will end your inspection period. Because all Escrow.com transactions are final, it's very important that you do your due diligence during this period. Accepting milestones is binding, and once you accept the seller is paid and the business becomes yours.
If you need to make changes to the Escrow milestones after the transaction has been created, then you must contact Escrow Support to request the changes. After both buyer and seller agree to the changes, Escrow will apply them.
Beginning the inspection period
After you've paid through Escrow.com, the seller is instructed to begin shipping assets to you. This most often includes any domain names, social media accounts, ownership of apps, and physical inventory. Once the seller confirms with Exchange Marketplace that they have sent you these all of the required assets, you must check them off in your milestone list within your Escrow.com account.
Log into your Escrow.com account and head to the transaction you have open with the seller. Check off the assets that you've received and click the Process Actions button on the transaction page. You will then receive a confirmation from Exchange to begin your inspection period.
Inspection period length
This depends on the length of time that was agreed upon between you and the seller at the time the transaction was created. A typical inspection period lasts 3 days, but for higher value transactions it's recommended that you agree to a longer inspection period. However, sellers can propose an inspection period as short as 24 hours.
Can Exchange assist with the inspection?
Exchange calculates sales and traffic data for the seller when the listing is created. This means that you can rest assured that the sales and traffic reported in the listing graphs are based off data that is available to Shopify.
There are other vital pieces of information about the business that you need to inspect yourself. Claims such as profit margins, expenses, and traffic sources are reported by the seller and can't be verified by Exchange.
What you should have access to before inspecting
First, refer to your Escrow.com transaction to see the full list of assets the seller has agreed to hand over. At the inspection period stage, you should have received access to all of these assets. The only exception is store ownership status of the Shopify account. At this point the seller will add you as a staff member. Exchange will not make you store owner until your inspection period ends.
Other things you should have possession of are:
- Domain names. Depending on where the domain name is hosted, you should receive notification by email that a domain name has been transferred to you. To have the domain transferred to you, the seller will most likely need your contact information. This information is fine to be shared for the transfer of assets such as domains and social media accounts, however this information should not be used to circumvent the Exchange messaging system.
- Social media accounts. Facebook or Instagram accounts are a common part of most sales made on Exchange. If you've agreed to take ownership of these accounts, ensure that the seller makes you the new store owner.
- Advertising accounts. Google Adwords can be a very useful tool when it comes to spreading the word bout your business.
- Apps. Most Shopify businesses use a variety of apps to function. Because many apps are created by third-party developers and not Shopify, their account information needs to be handed over to you by the seller. If you're purchasing a dropshipping or print on demand business, it's especially important that you ensure the seller transfers ownership of fulfillment apps like Oberlo or Printful.
- Physical Inventory. If your purchase includes physical inventory, ensure that the seller has shipped the inventory to you for your inspection. Always ask the seller to provide you with tracking information for the shipment.
It's not uncommon for a seller to request that you give them your contact info (including physical address) in order to properly transfer ownership of assets to you.
What not to do during your inspection period
Do not make any changes to the payment settings, shipping settings, or products during your inspection period. Do not export any data or information from the store during inspection period either. Making changes or exporting information can result in the automatic termination of the inspection period and the seller receiving the payment in full. The seller has transferred ownership of the business assets to you in good faith so that you can make sure that everything is as described by the seller and so you can ask them any questions you might have before the end of the transaction.
Your inspection period guide
Your inspection period can't begin until the seller has created a staff account with the necessary permissions for you. It's the seller's responsibility to create this account for you. After you accept assets the seller has handed over and end the inspection period, Exchange will remove the seller as the account owner and hand ownership of the business to you. Because this account ownership change is not reversible, it's important that you follow this inspection guide carefully. You should also make sure that two-step authentication is disabled on all accounts being transferred to you before accepting their associated milestones in Escrow.
Verify and understand all traffic sources
Exchange listings display the total amount of sessions an online store gets each month. This data is pulled directly from Shopify and cannot be edited by the seller. A session is defined as a unique page view. This means that the number of sessions you see on each listing could be visits to any page on the website, including the home page and product pages. People selling businesses cannot change or edit the sales data you see in listings. As someone buying a business, this gives you peace of mind, knowing that what you see is what you get.
Understanding how much traffic an online store is generating is valuable in understanding how many of these visitors end up becoming customers. The higher a business's revenue compared to total traffic is a good indicator that the business has plenty of potential to make a profit.
Taking a closer look at the business's traffic trends is a great place to start your inspection. To get started, log into your staff account for the online store and head to the Analytics section of the admin.
The Analytics section of the Shopify account provides valuable insight about the business you're purchasing. Within the Overview dashboard of the Analytics section, you'll find reports on sales trends, traffic sources, and customers. If you notice anything in the Overview dashboard that raises questions, then you can expand the reports to find more information or ask the seller to walk you through these reports.
Ask the seller to look at traffic trends. If you notice any peculiar spikes or dives in traffic, then ask the seller for more information about the traffic for those dates. Understanding these trends is important to validate the traffic.
Most importantly, when analyzing the online store's traffic, be sure that the sources of the traffic are legitimate and can be recreated by you, the new owner.
Want to investigate traffic data further? Ask the seller for read-only permission to their Google Analytics account. Google Analytics will provide you with more in-depth information about organic, direct, referral, social and other types of traffic.
Confirm financial information
The only way to list a business for sale on Exchange is to use the official Exchange app made by Shopify. This way, Exchange can calculate the business's sales and traffic data. Exchange automatically creates the charts you see on listings by pulling their verifiable sales history from as far back as January 6th, 2015. There is no way for sellers to modify this data before or after the listing has been created. We can only pull data for sales that have been made through Shopify. Ask the seller to give you more information about expenses and any sales made outside of Shopify.
Currently, Exchange does not verify the seller's profit margins or average monthly profit. This information is supplied by the seller.
You can make use of the Analytics available in the Shopify admin. These numbers will be useful in determining average daily or monthly revenue information, as well as data about average order value and more in-depth information about customers.
It's important to know that Shopify does not calculate expenses. For this reason, you should ask the seller to provide you with detailed information about their expenses. Some things you might want to ask the seller to provide are:
- Invoices from Facebook or Google Adsense for advertising spend amounts.
- Invoices from Shopify.
- Invoices for app subscriptions. Shopify apps that might be needed to run the business can sometimes charge a monthly fee.
- Cost of goods. The seller should provide you with information about the cost of the goods sold by the business.
Gathering this information from the seller helps you verify that the average monthly profits reported by the seller in their listing are accurate.
Examine past orders
Go to the Orders section of the Shopify account admin to examine all past orders from the business. Some things you might want to check for are the number of chargebacks, refunded orders, and unfulfilled orders. You can also review tracking numbers to ensure their legitimacy.
Although it's perfectly normal for an established business to have a small number of refunds issued or even the rare chargeback, it's very important that you double-check that all orders are marked as fulfilled by the seller.
If you notice many unfulfilled orders, be sure to ask the seller why. Once you become the new owner of the business, it's likely that customers could come to you for help. You can avoid this by inspecting the past orders to ensure that they've been fulfilled and paid for.
Revenue is the total income generated by the business before expenses. Exchange calculates the business's revenue for the seller, but only the seller can clarify what their monthly expenses are.
The most common expenses for a Shopify business are the monthly plan fees, which typically range from $29-$299 per month. Many businesses also use third-party apps on their shops which might also charge a monthly fee.
The revenue gives you a good idea as to how much potential the business has in generating income overall, but be sure to ask the seller to explain what their costs are.
Learn about the apps used by the seller
Apps can be an important part of running a Shopify business. Many businesses make use of apps to fulfill orders, purchase shipping labels, or handle some of the marketing.
Go to the Apps section of the Shopify admin to see which apps are currently installed. Ask the seller any questions you have about these apps, what they're used for, and if they charge a recurring fee.
It's also important that the seller change account ownership of these apps to you. If there are order fulfillment apps being used you can check the account information for yourself by heading into the specific app.
Not all apps require the seller to transfer ownership. Ask the seller to double check that you will have access to any required apps before you're made the new account owner.
Inspect social media accounts
Social media is a valuable asset to an ecommerce business. If you're purchasing a business on Exchange on the basis that it comes with a strong social media following, then you should ensure that the numbers the seller advertised match up.
After you have access to social media accounts, take a closer look at engagement and follower accounts to check that there is value in purchasing these assets from the seller. Although there is no way to ensure that the follower counts are quality, you can always take a look at conversations on posts.
Learn how to process payments
Check that the business meets all the legal requirements to process payments using Shopify payments. You can verify this by looking over the Shopify Payments Terms of Service for your region.
If you live outside of these supported countries, then you can still process payments for the business, but you will need to find a supported third-party payment gateway.
If the seller is already using a third-party payment gateway, then ask them for more information about the sign-up process to ensure that when you become the new owner of the business you can start processing payments right away.
Arrange supplier relationships and product licensing
Some products require a reseller's license. If you're not sure if the products being sold by the business require a license, then ask the seller if they have obtained the legal rights to sell their products and whether this licensing can be transferred to you.
Ask the seller who supplies their products. If it is a third-party supplier, then arrange to have the seller give you the contact information for the supplier to ensure that once you become the new owner you can order from the same supplier.
If you're purchasing a business that uses dropshipping or print on demand, then you will most likely be using an app like Oberlo or Printful to fulfill orders. These apps handle the fulfillment process for you, but you still need to ensure that the ownership of the app has been transferred to you. It is the seller's responsibility to make these changes for you.
Ask the seller about their customer support
A great way of gaining insight into the business is to understand the needs of the customers. Ask the seller if there are any ongoing customer support issues that need to be addressed. If there are any outstanding chargeback cases or returns that need to be arranged, then it is the seller's responsibility to handle these before you are made the new owner. Otherwise, the seller should educate you on how to handle customer support issues.
If a seller is offering you their post-sale support, then consider drafting a contract to ensure they are held accountable. Consulting with a lawyer is recommended.
Ending your inspection period
The inspection period ends when you mark the check all of the milestones in your Escrow.com account, or after the agreed upon time length of the inspection period has expired.
Once you accept, Escrow.com will release your payment to the seller. Someone from Exchange will contact you as soon as possible to let you know that you've been made the new business owner.
It can take up to 3 business days from the time you end your inspection period to being made the new business and Shopify store owner. During this time Exchange will make necessary changes to the account to ensure that everything's ready for you to successfully takeover.