Post #54: Acquiring a Business in the Blue Economy – Part 2: Due Diligence & Valuation (SME Acquisitions)

Hello! I’ll start with a quick apology—this week’s blog isn’t strictly OceanTech-focused. But before you click away, hear me out.

If you’ve been following OceanTech Insider, you’ll know I’m deeply interested in marine conservation, sustainability, and the blue economy. However, I also have a strong interest in startups, SMEs, and buying and scaling second-hand businesses, especially those with potential for growth, impact, and financial sustainability. This week, I’m taking a bit of a detour to explore the nuts and bolts of acquiring a business, which can be an alternative route to driving change in the blue economy.

We often focus on startups and innovation, but not everyone needs to build from scratch to make an impact. Sometimes, the smartest move isn’t launching something new, but acquiring and improving an existing business—especially when there are many great ventures struggling to scale, in need of fresh leadership, or being sold off by retiring owners.

So, if you’re curious about business acquisitions under £100K, how to spot red flags, and what makes a great small-scale purchase, read this Part 2. And don’t worry—next week, I’ll be back with OceanTech content:)

Due Diligence: Uncovering the Real Story Behind a Business

Due diligence ensures you aren’t walking into a financial disaster. Even if a business looks successful, the numbers and operations must back it up.

Financial Due Diligence

• Revenue trends – Is the business growing, stable, or declining? Look at the past 2–3 years of revenue (if available) to spot patterns.

• Profit margins – Some online businesses have high revenue but low profits due to high ad spend or fulfilment costs. Make sure the margins make sense.

• Subscription vs. one-off sales – Recurring revenue businesses (e.g., subscription-based ocean data platforms) are typically more valuable than those reliant on one-time purchases.

• Platform dependency – If the business relies heavily on one traffic source (e.g., Amazon, Google SEO, Instagram), its risk increases.

• Debt & liabilities – Even smaller online businesses may have supplier debts, unpaid marketing costs, or outstanding SaaS subscriptions that need to be accounted for.

Operational Due Diligence

• Is the business owner the business? – If the current owner is the main reason the business works (e.g., they handle all marketing or sales personally), will it still function without them?

• Customer retention rate – A business with repeat customers or long-term subscribers is much more valuable than one with mostly one-time buyers.

• Existing contracts – Are there supplier partnerships, affiliate deals, or service agreements that ensure revenue stability?

• Technology & hosting – If the business depends on specific tech tools, website platforms, or email marketing software, will you have full control after the sale?

Regulatory & Compliance Due Diligence

• Legal risks – If it’s an e-commerce or media business, does it have data protection compliance (GDPR), copyright issues, or pending disputes?

• Trademarks & brand ownership – Check if the business owns its brand name, logo, and domain—many smaller businesses don’t, and a competitor could force a rebrand.

• Sustainability claims – If the company markets itself as "eco-friendly" or "marine-safe", is there evidence backing up these claims? Misleading sustainability marketing can lead to bad press or legal challenges.

🚩 Red Flags That Could Kill a Deal:

• Revenue is highly seasonal (e.g., an online store that only sells well during summer months).

• The seller is the main asset—if they personally drive all traffic (e.g., influencer-based brands).

• No clear customer acquisition strategy—if the business owner doesn’t know how they get new customers, scaling will be tough.

• Overly complex backend—if managing the business requires custom coding, technical knowledge, or constant intervention, it might be harder to handle than expected.

Business Valuation: What’s It Really Worth?

Overpaying for a business kills your ability to grow and scale it profitably. Unlike traditional businesses, many small online-based marine businesses are valued based on profitability, traffic, or existing assets rather than just revenue.

Common Valuation Methods for Smaller Businesses

Earnings-Based Valuation (Most Common for Profitable Online Businesses)

• Small businesses typically sell for 2–3x their annual profit (not revenue).

• Example: A marine conservation media website making £40K net profit per year might sell for £80K–£120K (2x–3x profit).

Asset-Based Valuation (For E-Commerce & IP-Heavy Businesses)

• Used for businesses that own physical stock, intellectual property, or patents.

• Example: An eco-friendly ocean apparel store with £30K of unsold stock might value itself at stock + revenue multiple.

Traffic & Subscriber Valuation (For Content, SaaS & Digital Businesses)

• If a business makes money from ads, affiliates, or memberships, its value is often based on site traffic or subscriber base.

• Example: A marine research blog with 50K monthly visitors and £1.5K in monthly ad revenue might sell for £50K–£75K.

  
  

🚩 Red Flags in Valuation:

• Unrealistic growth projections – Some sellers will pitch the "potential" of a business instead of its actual earnings.

• Overvalued based on revenue, not profit – A business making £100K revenue but only £10K in profit isn’t worth much.

• Hidden costs – Some sellers exclude ad spend, unpaid invoices, or staff costs from their financials to make the business look more profitable.

Negotiating & Structuring a Deal (For Smaller Acquisitions)

Buying a sub-£100K business requires different negotiation strategies compared to larger deals. Many small business owners just want a clean exit, so there’s often room to negotiate flexible deals.

Key Negotiation Strategies:

• Revenue share deals – Instead of paying upfront, negotiate a profit-share over 12–24 months.

• Seller transition period – Ask the seller to stay on for 3–6 months to ensure smooth operations.

• Discounts for all-cash offers – Many small business sellers will take less if paid upfront rather than over time.

• Test-run period – Negotiate a 2-3 month transition where you shadow operations before fully taking over.

Avoid These Mistakes:

• Buying a business that isn’t actually passive – Many “online businesses” still require a lot of daily management.

• Overpaying based on potential rather than actual performance.

• Not securing access to key assets – Ensure domain names, social media accounts, customer email lists, and supplier contracts transfer to you.

Transition Planning: Ensuring a Smooth Handover

Buying a business is one thing—successfully taking it over and running it is another. The first few months post-acquisition can make or break the deal, and without a proper transition plan, you risk losing customers, disrupting operations, or struggling with an unexpected learning curve.

For smaller acquisitions (£50K–£100K), where businesses are often owner-operated or lean digital ventures, knowledge, relationships, and operational processes tend to be tied to the seller. A smooth transition is about extracting that knowledge, keeping operations steady, and ensuring suppliers and customers stay engaged.

Key Areas to Address in a Business Transition

Capturing Operational Knowledge

Most small business owners run things their own way, often without structured documentation. If the seller walks away without a proper handover, you could end up spending months figuring out the business from scratch.

How to Extract the Seller’s Knowledge:

• Request detailed process documentation on day-to-day operations (e.g., customer service handling, supplier communications, marketing workflows).

• Have the seller record screen-share tutorials for key processes (e.g., how they manage orders, ads, subscriptions, or reporting).

• Identify any software, tools, or automations they use and ensure you have admin access before they exit.

Key documents to request:

• Financial records, revenue tracking, and key performance indicators (KPIs).

• Supplier agreements, product sourcing details, and logistics information.

• Customer support workflows, common FAQs, and refund/complaint handling procedures.

• Marketing and traffic generation methods, including ad accounts and content strategies.

Retaining Customers & Ensuring Revenue Stability

For many small businesses, customer trust is tied to the previous owner. If you don’t handle the transition carefully, you risk losing loyal buyers or subscribers.

How to Maintain Revenue & Customer Trust:

• Keep pricing, services, and policies unchanged for the first few months—avoid making big, sudden changes.

• Understand repeat customers—look at CRM data or past orders to see who drives revenue, and ensure they receive continued engagement.

If the business runs on subscriptions or memberships, review cancellation trends and implement retention strategies (e.g., offering discounts for long-term renewals).

Key questions to ask:

• What percentage of revenue comes from repeat customers vs. new ones?

• Are there any customers who rely on the business for critical services?

• Is customer data well-organised and accessible, or does the seller keep most of it informally?

Managing Supplier & Partner Relationships

If the business relies on suppliers, manufacturers, or service partners, ensuring these relationships remain stable is crucial. Some suppliers only worked with the previous owner due to personal connections, and if they leave, it could create serious operational issues.

How to Secure Supplier Relationships:

• Get all supplier agreements in writing before finalising the purchase.

• Have the seller introduce you to key suppliers or partners, so they are comfortable continuing the relationship.

• If possible, negotiate long-term supplier contracts to prevent any disruptions in stock, pricing, or services.

Key questions to ask:

• Are there exclusive supplier agreements in place?

• Are there backup suppliers in case a key relationship falls through?

• Do suppliers have minimum order quantities or terms that might affect cash flow?

Structuring Seller Involvement Post-Sale

A smart way to reduce risk and ensure a smooth transition is to keep the seller involved for a defined handover period.

Ways to Keep the Seller Involved Without Full Ownership:

• Consulting Period – Negotiate a few hours per week for 1–3 months, where the seller provides guidance, introductions, and problem-solving.

• Earn-Out Agreements – If the seller is confident in the business’s future, structure payments so that part of the acquisition price is tied to future revenue targets.

• Gradual Exit Structure – Instead of an immediate takeover, structure a phased transition where responsibilities are handed over gradually.

Key questions to ask:

• How involved is the seller willing to be post-sale?

• Would they consider an earn-out, or are they looking for a clean exit?

• Do they have personal relationships with suppliers/customers that need careful handover?

Final Thoughts

Buying a smaller blue economy business—whether it’s an e-commerce store selling sustainable products, a digital fisheries platform, or a conservation-focused website—can be a great entry point into the industry.

However, success depends on:

✅ Choosing a business with stable revenue, repeat customers, and low overhead costs.

✅ Avoiding businesses that rely on one marketing channel or the seller’s personal brand.

✅ Ensuring all digital assets, supplier relationships, and operational knowledge transfer smoothly.

If you’ve ever bought or considered buying an online or service-based marine business, I’d love to hear your insights. Next week we are back to normal:)

Warm wishes

H

Sources: Chat GPT-4o