Due diligence is an audit performed to confirm facts, liabilities, risks, and financial and operational records about the target company. It can help you assess the true value of the business and make an informed buying decision.

However, taking this initiative can be challenging if you buy an online business for the first time. This guide will discuss key assessment tips to ensure that you effectively address all aspects during the due diligence process. 

1. Verify Financial Claims

Carrying out an independent assessment of the prospect allows you to discover the revenue and cash flow it generates monthly and yearly. Based on this information, you can decide whether or not investing in that particular eCommerce company is profitable. If the financial records don’t match the seller’s statements, it is better to look for another opportunity.

To ensure you are making an informed decision, you must review the financial information to assess the following: 

• Revenue: Analyze the company’s revenue based on its location, products, customers, and suppliers. These factors analyze if the company is offering its products to the right population.
• Cost: Examine the allocation of profits towards recurring business expenses. This includes marketplace fees, advertising budget, manufacturing costs, and other related factors. If the operational costs exceed the profits, it indicates that the business is operating at a loss and may not be a viable investment opportunity.
• Financial Statements: Review a minimum of one-year-old financial statements to ensure the company generates a stable income. A fluctuating financial statement shows that the business is an investment risk, as it can go into loss any day.

Accessing a business’s financial documents is a confidential matter that often necessitates signing a non-disclosure agreement (NDA). This agreement ensures that the sensitive information contained within the financial records remains protected and confidential. For first-time buyers, navigating the legal processes and understanding the intricacies of due diligence can be difficult. 

In such cases, seeking guidance from a buy-side broker can be highly beneficial. These professionals specialize in assisting buyers with the legal aspects of acquiring a business, including facilitating secure access to financial documents while maintaining confidentiality. Their expertise and guidance throughout the process can provide first-time buyers with the assurance and support needed to navigate the complexities of due diligence effectively.

2. Assess Website Traffic 

Source: Unspalsh 

Assessing website traffic is a crucial step. Understanding the volume and quality of traffic the website receives provides valuable insights into the business’s potential customer base and market reach. Here are some tips to consider when assessing website traffic:

• Analyze website analytics: Review the website’s analytics data to evaluate the number of visitors, unique visitors, page views, and average session duration. This data helps gauge the website’s popularity and user engagement.
• Examine traffic sources: Determine the sources of website traffic, such as organic search, paid advertising, social media, referrals, or direct visits. This analysis allows you to understand the effectiveness of marketing efforts and the diversification of traffic sources.
• Consider audience demographics: Explore the demographic information of the website’s visitors, such as their age, gender, location, and interests. This data helps determine if the target audience aligns with the business’s products or services.
• Assess conversion rates: Evaluate the website’s conversion rates, including the percentage of visitors who make purchases or take desired actions. This information gives insights into the website’s effectiveness in converting visitors into customers.
• Compare historical trends: Examine the website’s traffic trends over time to identify any significant growth or decline. This analysis helps assess the business’s stability and potential for future growth.

3. Review Legal and Intellectual Property Issues

Legal due diligence entails conducting a comprehensive examination of the prospect’s legal and commercial profile to ensure the proper registration of intellectual property (IP) rights, including trademarks, patents, and codes. By scrutinizing these details, potential lawsuits can be mitigated in the event of inaccurate registration documents. 

Additionally, it is crucial to verify the organization’s ownership of digital assets, such as email and domain, and intellectual assets—including product designs, logos, symbols, product names, and images, among others. Registering these assets safeguards their use, helping to avoid potential legal ramifications.

4. Analyze Market Competition and Trends

Understanding the competitive landscape and current market trends provides valuable insights into the business’s positioning, potential challenges, and growth opportunities. Here are some tips on how to effectively analyze market competition and trends:

• Identify key competitors: Identify the main players in the market who offer similar products or services. Evaluate their strengths, weaknesses, market share, pricing strategies, and customer base to assess the level of competition.
• Assess market trends: Stay updated on the latest market trends, consumer preferences, and emerging technologies that impact the industry. Analyze factors like shifting consumer behavior, market growth projections, and industry regulations to identify opportunities and potential risks.
• Conduct a SWOT analysis: Perform a comprehensive SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis for both the target business and its competitors. This analysis helps identify the unique selling points, areas for improvement, and potential threats in the market.
• Study customer reviews and feedback: Explore customer reviews and feedback regarding the target business and its competitors. This provides insights into customer satisfaction, product quality, and areas where the business can differentiate itself.
• Seek expert opinions: Consult industry experts, market research reports, and industry-specific publications to gain a deeper understanding of the market landscape, competitive dynamics, and future growth potential.
• Consider barriers to entry: Evaluate the barriers to entry in the market, such as high competition, brand loyalty, regulatory requirements, or technological advancements. Understanding these barriers helps assess the sustainability and potential challenges for the business.

5. Evaluate Operational Processes

Operational processes shed light on internal or operational issues within an eCommerce brand. Conducting due diligence in this area involves analyzing the company’s goals, objectives, and strategic planning. It is essential to compare the ongoing goals with the ones achieved to assess team performance. 

Additionally, analyzing the current work environment and understanding the coordination between management and employees is crucial. This helps gain insights into internal functioning and team coordination. Based on these findings, strategic planning can be adjusted, and necessary staff changes can be made to mitigate internal risks in the future.

6. Examine Customer Satisfaction and Reviews

Examining customer support is very important during due diligence, as 94% of buyers prefer to repurchase from a brand after having a positive customer service experience. 

Assessing the quality of customer care provides valuable insights into the business’s reputation, product quality, and after-sales service. You can look for customer reviews on various platforms to gauge overall satisfaction levels. Pay attention to recurring themes, both positive and negative, to understand the business’s strengths and weaknesses. 

You can also engage with customers directly through surveys or feedback forms to gather more specific information. Analyzing customer sentiment, response times and complaint resolution demonstrates the business’s commitment to customer satisfaction. This assessment helps evaluate the store’s potential for growth and build trust with existing customers.

7. Legal and Regulatory Compliance

When conducting due diligence, assessing the business’s legal and regulatory compliance is of utmost importance. This involves thoroughly reviewing the business’s adherence to applicable laws, regulations, and industry standards. Here are some common regulatory compliance areas that most businesses are required to follow:

• Privacy and data protection regulations (such as GDPR or CCPA)
• Consumer protection laws
• Intellectual property rights and trademarks
• Advertising and marketing regulations
• Payment card industry compliance (PCI DSS)
• Employment and labor laws
• Environmental regulations
• Import and export laws

8. Evaluate Technology Stack and Infrastructure

Evaluating the technology stack and infrastructure is crucial. This involves assessing the underlying technology and systems that power the business’s website, operations, and overall digital presence. This examination ensures that the business has a robust foundation for its online operations and can support your growth plans and strategic objectives.

Here are some key areas to consider during this evaluation:

• Website platform and content management system (CMS)
• E-commerce platform or shopping cart software
• Payment gateways and transaction processing systems
• Customer relationship management (CRM) software
• Inventory management and order fulfillment systems
• Analytics and reporting tools
• Security measures, including SSL certificates and data protection protocols
• Scalability and flexibility of the technology stack to support future growth

9. Consider Transition and Training

You can ensure a smooth transition by assessing the need for training, knowledge transfer, and support during the handover period.

• Identify the key personnel involved in the business’s operations and understand their roles and responsibilities.
• Plan for comprehensive training sessions to familiarize yourself and your team with the business’s processes, systems, and customer base.
• Establish clear communication channels to address any potential issues that may arise during the transition.
• Consider utilizing the expertise of the existing team members or seek external assistance to facilitate a seamless transition and ensure business continuity.

Wrapping Up

When purchasing an eCommerce business, conducting due diligence is essential to comprehensively assess its legal, financial, operational, and technological aspects. This information is crucial in determining the viability of the investment and aiding in negotiation processes. 

It is highly recommended to conduct due diligence independently or enlist the expertise of a professional buy-side broker who can provide guidance throughout the process. 

If you’re buying an online business, this website investing due diligence checklist will help you tackle some of the most important issues. 

A due diligence process will help you answer all the important questions.

• Why is someone selling their business? 
• Is the website losing money? 
• What are the liabilities? 
• Does it even have the potential to return your investment? 

It goes without saying that any investment, big or small, needs to be strategic. With a website, it’s both easy and difficult to conduct due diligence. 

It’s comparatively easy as the business is digital, so there’s not much running around. 

On the other hand, it is difficult because the information may be limited or even deceiving. 

What is Due Diligence?

In the world of business, due diligence is the process of investigating an investment opportunity. It could be anything from a company to a property or even copyrights to something. 

In the context of websites, due diligence is basically ensuring that the website you’re purchasing is legit and has potential. 

Due diligence is not one-way, as sellers can also look into a buyer to ensure that they have the means to buy their business. 

In simple words, a website due diligence is similar to an audit before the investment is finalized and the deal is done. 

Website Investing Due Diligence Checklist

This checklist will cover general due diligence for covering a website. Most of the steps of due diligence have tangible results. 

In other words, the outcome is hard data that you can study to make the final call. 

Due diligence shouldn’t just focus on numbers. It should also look into ideas, procedures, employees, vendors, and culture behind that website. You see, a website is a company, so you have to investigate it like one. 

Here’s what you need to put on the list for due diligence:

1. Website Owner

First thing’s first, you need to look up the owner of the website and talk to them directly. Normally, in a traditional business transaction, no investor would go ahead without a face-to-face meeting with the owner of the business. 

The same is the case when buying an online business like a website. 

Regardless of the nature of the website, it’s important to ascertain the identity of the person behind that business. With digital communication tools like Skype or Zoom, it’s possible to chat face-to-face on live calls, even from a different country or continent. 

Using those tools, you should set up a meeting with the owner and have them answer any questions you have (more on that ahead). 

While it’s not required to personally meet the owner or the organization behind the website, the very least you can do is confirm their identity. Look them up on social media, especially LinkedIn, to confirm they are legit. 

This will give you only an idea that person is perhaps legit, although it’s not too hard to create a fake account these days. 

2. Finances

This is the most crucial step, which is why it’s on top of the checklist. As a potential investor, you have the right to view the finances of the website you’re about to purchase. 

Those finances will help give you a direction with your decision, whether the website is worth investing in or not. 

You can request financial documents pertaining to the website or its owner to see how well the website is performing. Transaction statements and tax returns can be used to get the picture of how much revenue the website has been and is currently generating. 

You can also ask them to show you the backend of the website where all of this is happening. 

Similarly, find out if there are any debts, loans, or other financial liabilities currently on the website or the company behind it. 

If you want to be extra cautious, hire an expert to review these finances, and help you make sense of the business. 

3. Taxes

Taxes are extremely important because not only do they spell out the money the website has been making, it also assures that the business will not get you into any trouble due to the non-payment of tax. 

Of course, no one wants to be embroiled in legal battles regarding tax. 

You should also see if the person or company behind the websites have been paying appropriate taxes by declaring the correct amount of money they have made. Any discrepancies can spell disaster later on, as it’s rather easy to detect tax fraud in this day and age with everything going digital. 

4. Verification

When buying a website from someone or some company, you need to make sure that they fulfilled their legal obligations and conducted business as per the laws and regulations. 

• Is their business registered in the country they are operating in?
• If not, are they operating as a sole trader? 
• Do they have trademark licenses, if any? 
• Do they have appropriate image and content licensing for the content on the website?

You can tackle these questions directly with the owner and also find out the information on your own. Of course, it will vary based on the nature of the website. 

5. Website Traffic

One of the most crucial steps for due diligence for investing in a website is looking at the website traffic for the past year or perhaps years. The number of visits, clicks, and conversions will help you evaluate the success of the business. 

The traffic should commensurate to the revenues you looked at earlier. If there are discrepancies, you may need to investigate further. 

The traffic report should be quite detailed, so you can make the distinction between real traffic and fake traffic created with bots. 

Here’s what you should look into:

• Average time per visit
• Clicks to conversion ratio
• Number of pages visited
• Source of traffic (search engine, social media, affiliate links, etc.)

6. Intellectual Property

Intellectual property has become a valuable commodity over the last century. There are legal implications for stealing someone’s intellectual property.

When purchasing a website, make sure you’re also purchasing any intellectual property associated with it as part of the contract. Websites that may focus on a unique product or service are relying on someone’s intellectual property, perhaps the owner of the website. 

Make sure to discuss this with the seller and any legal adviser, and have a clause added to the sale agreement that any intellectual property associated with the website will be your sole property after the execution. 

The same goes for any proprietary technology linked with the website. If the website uses a unique tool custom to that website, you’ll become the owner of that technology with the purchase of the website. 

7. Products and Services

The website you’re interested in likely offering a product or service. The whole thing revolves around the product or service at the end of the day. 

So does it have potential? Do you believe it? These are some of the most important questions to ask. 

While the other steps in this due diligence checklist cover verification and investigative parts of the process, this one measures its potential. If the product or service doesn’t have a lot of potential, it may not be worth investing in the website. 

You should also be asking questions like whether the product or service could use improvements. And if they could, whether those improvements will increase revenue. 

8. Employees

While a lot has gone digital, there are still people behind any technology. If you’re purchasing a website/online business with multiple employees, you should also speak to the employees. 

You should understand the employee structure of the business and get to know those employees beforehand. They might be working for you once you’ve purchased the website, so you should know their roles in running the day-to-day business.  

This will also give you a chance to learn about the culture of the company. Even if it’s just two employees or remote employees, you should know how they’ve been working all this while, especially if the website is quite successful. 

You would want to continue that process to ensure the traffic and sales grow or at least remain steady. 

9. Operations

Similar to employees, you should also investigate the operations behind and around the website. Who does what when using what?

Most successful businesses today standardize their procedures, which streamlines work and improves revenue. If the website is linked with another company or uses a vendor, and find out how it all works. 

If you have a valuable skill set that can extract value in the operations, this is your moment to find areas to improve the business. 

10. Customer Profile

The customer of the website will soon be your customer. But who is the customer? Believe it or not, studying visitors to the website is just as important as investigating the website. It’s an important but often overlooked part of website due diligence. 

You should catalog the consumer persona to see what kind of customers are visiting the website. Also, look into their interaction with the website. Demographics are also vital to understanding the profile. 

More importantly, make sure you receive all the customer information the website has collected since its operation. Organic data like that is crucial from the point of marketing and engagement. This is all the more important for online businesses that rely on loyal customers. 

Wrap Up

This website investing due diligence checklist covers all the essential steps to investigate a website thoroughly before investing in it. It will give you a wholesome picture of the business and confirm its legality. 

You can conduct most of these verifications on your own, but to be more cautious, you can use a business consultant. If the owner or company isn’t transparent about any of the information outlined above, then it’s probably not a good idea to invest in it. 

However, when I first started out browsing Flippa, back in 2013, a lot of sites were obvious scams, or were selling things that looked pretty scammy to me. For example, there were a ton of turnkey sites that offered “social media followers”, back when it wasn’t against the Terms of Service of places like Facebook to sell fake followers.

These sites were fairly questionable. Were the followers they sold legit? Was this a legit business model? Would it even make money? The fact they were turnkey starter websites meant there were no claims being made about income, which probably appealed to the people who bought them, but did that mean they were any less of a scam?

To Flippa’s credit, they’ve largely eradicated this type of junk site from their marketplace, but there ARE still sites where you look at them and think “Is this a legit thing? Or is this dude trying to scam us?”.

In fact, one of my biggest fears when I was trying to learn due diligence was that I’d buy something that was a complete scam. 

Not just that the seller was lying about their numbers, but that they were also lying to the website audience itself. That would be a double whammy.

Personal Experience

My worst experience was when I bought a site that came with an eBook. My due diligence was focused around the eBook sales. I saw there was a very low refund rate, which was great. My initial worry was that someone could create a bunch of fake sales in order to boost their numbers, but I couldn’t see how $5,000 worth of sales for 3-4 consecutive months and only 1-2 refunds could be faked.

While these sales indeed weren’t faked, I later found out the eBook itself was based on completely made up stories. It was a weight loss guide, and the testimonials on the sales page were fake. After taking over the site, I started receiving an email from someone saying their IG images had been stolen, the quote wasn’t theirs, and the results they’d received didn’t come from purchasing this eBook. 

As it happens, the sales themselves were legit, but I felt terrible selling people a “scam” eBook so I had to get it re-written, changed the sales page to be legit, and ultimately saw a loss in conversions as a result. I slept better at night, but made less money.

This is a prime example of what I’m talking about when it comes to buying a site with false info. The sales data might be legit, but if the site is scamming people, that’s a small consolation.

There are other sites that I sometimes wonder about legitimacy too. For example, sites that review paid surveys. I used to wonder whether there were any legit paid surveys, or if these sites were just driving unsuspecting people towards scams. The same is true for people who positively review blatant scams like Binary Options or other BS “make money online” opportunities.

It turns out that there are plenty of legit surveys out there, as this site shows, and there are also plenty of make money online opportunities that are legit as well, which makes it even more important to be careful when reviewing a site like this. It can be quite nuanced.

You have to first ask, is this a legit niche? If it is, is everything on the site legit? Is this a site I’d be ashamed to show people?

Niches like trading, make money online, even dating, have a mixture of high quality products, and outright scams. Only experience and thorough vetting will help you buy the right websites.

Another thing to consider is what the long term prospects of the niche are. The payday loan niche for example was full of scams, but probably had a few legit sites that helped people with consolidation or just understanding whether or not they should take one.

Then in late 2013 Google released a “Payday Loan” update which pretty much ended that niche, thankfully. It likely ended some legitimate sites too though, as Google threw the baby out with the bathwater, but ultimately made the search results better.

If you’re looking at a site doing well in a new niche that might be called into question in future, that’s something you need to consider (and could well be why the seller is offloading the site).

For example, crypto back in 2017, or CBD sites now. Some of them will be genuine websites with quality products and information, others will be selling snake oil and get rich quick, or they’re selling products which make become illegal in the near future.

How To Avoid Buying The Wrong One

The easiest way is to simply not enter any niches where there’s a gray area, unless you’re experienced in the niche. That said, I still think it’s a worthwhile pursuit to learn about the site, the niche, and the things that could be legit or not. The more you become familiar with this type of site, the better you’ll get at due diligence (which was also the subject of my last post).

It’s perfectly fine to have no-pressure conversations with a seller. You’re not wasting their time, because you may conclude the site is legit and decide to move forward. 

The golden rule though is that if you’re unsure, just pass on the deal. You don’t lose money by avoiding a purchase.

My final word of advice would be to just be a little less naive, be skeptical of a site and look for reasons not to buy it, or not to trust the information on the site. If you can’t convince yourself it’s a legitimate business, then err on the side of caution.

This type of competency takes time to build, which might be disheartening for those of you who are new to the game.

One of the most intimidating parts of entering the website investing space is due diligence. Put another way, the scariest thing is getting ripped off, or buying a lemon. It can take some time before you become comfortable enough with the process.

That said, there are ways you can speed up your learning curve. There’s a lot more information available in 2020 than there was 8 years ago. The market has grown, more people create content around buying online businesses, and there are more tools available to assist you as well.

Start with Flippa

Aside from the Flippa blog, which you’re obviously familiar with already, a great source of insight  can be found reading the comments on particular listings. Sometimes these comments are uninformed noise, but most of the time, people ask insightful questions. 

By learning the kinds of questions people ask, and the variety of answers given, you start to learn what’s important to most buyers, which is usually something that would be important to you too.

In fact, the more listings you read in general, the more you’ll learn. You’ll see the twists people put on their sales pitches, you’ll see the types of businesses that are for sale and how they’re monetized, and you’ll learn why some businesses seem incredibly popular, while others get no real interest.

Even if you don’t get all the answers, you’ll start to learn the questions.

Other Content Sites

There are other blogs you can read as well. Brokers may have good content which covers the nuances of buying or selling a business, and a lot of that involves valuations. This article written by yours truly may be a helpful checklist.

Newsletters

You can also check out the burgeoning newsletter space. There are 3 or 4 that cover content related to this industry.

1. Richard Patey’s Website Investing Weekly 

Richard Patey covers the industry very well, does great interviews, and even does due diligence and deal recaps to his paid subscribers, essentially highlighting live deals and saying why he likes them. That alone is very insightful.

2. Alternative Assets

I’ve recently discovered Stefan’s newsletter, and am enjoying it. He doesn’t strictly focus on digital assets, which actually helps keep it more unique in my opinion. 

3. Website Flipping by Mushfiq

Mushfiq makes his newsletter unique by focusing on case studies of several websites he runs, which might not increase your due diligence skills directly, but will enhance your knowledge on growing sites post acquisition, which is still part of due diligence in my opinion.

4. Dealslfow.com – Digital Private Equity

Alex from dealsflow does another great job and is well worth following. He shares domains available for purchase as starter sites, as well as a good roundup of all the latest news.

If you follow the 4 above newsletters, plus watch out for any new ones that come out, you’ll learn a ton about the space in a very short time, and will no doubt improve your due diligence skills.

Paid Solutions?

Need something in a pinch? You could check out the reports and services that Centurica.org provides. While this is them doing the due diligence for you as a paid service, you’ll learn from their reports, plus they may save you if you’re about to buy a lemon. 

The main advantage from a learning perspective is that their reports are pretty in-depth and they explain their rationale.

Courses?

Jaryd Krause has a course over at BuyingOnlineBusinesses.com which definitely covers due diligence. There are a few other people working on courses too, though I’m yet to see any released.

Twitter

There are also a bunch of people discussing deals, growth of sites, and general happenings in the space on Twitter. 

A few accounts worth following (not an exhaustive list): 

• Me @TeamOnfolio
• Richard Patey
• Stefan Von Imhof
• Flippa
• Alex from Dealsflow
• ThomasSmale

Conclusion – Increase your education, exposure to deals, and experience.

At the end of the day, it is going to take a degree of time until you’re good enough at due diligence. However, you can reduce that amount of time by following those already sharing in the space, taking a course, hiring professionals, or simply by immersing yourself as much as possible.

Experience is the fastest way to learn, but it’s also the riskiest, so make sure if you DO just jump in, you do it with an amount of money you’re comfortable with losing, and that you at least understand what the risks are before you start. 

Rather than looking at buying a site from purely a commercial point of view, you need to look at it from other perspectives. The amount of SEO, design, and web development effort which have been put into a site should greatly influence the sales potential. 

This will give you a better idea about not just immediate value, but how much effort needs to be put in to grow it.

1. Value of Existing Content

One of the most important sources of website traffic is content. Search engines like Google place heavy emphasis on how well content meets search intent, no matter what the nature of the site is. However, you need to be aware that not all traffic is valuable traffic.

As an example of this, some sites may have a high traffic volume with very little actual commercial value. 

For existing content, try to analyze a few pieces and see how well they match Google’s E-A-T principles. The articles in general should demonstrate expertise, authority, and trustworthiness to fulfill some basic requirements.

Important Note: Be extremely cautious about websites with YMYL content. YMYL, or Your Money or Your Life, is any content which attempts to touch on subject matters pertaining to health, happiness, and wealth.

This type of content is tightly monitored by Google because it can have a profound impact on individuals.

2. Technical Aspects

Once you buy a site, you’ll need to be able to run and maintain it. Is the site built on a platform that you can manage? If not, you might have to hire someone to handle that for you, which is additional operational cost in the future.

You also need to take into consideration if the technologies behind the site are current and competitive. Some older technologies may take up more resources than necessary, which again, can lead to higher operational costs.

Migrating an existing site, particularly an older one, can lead to pretty hefty bills which should influence the price you pay for the site. Aside from potential problems with older technologies, you also need to factor in the competition.

Use the Web Hosting Secret Revealed Tool Tool to assess the site and a few competitors to see how they match up. This will give you greater insight to the technology that drives the different properties, then consider why.

Keep an eye on:

• What platform drives the site (e.g. WordPress, Drupal, Etc)
• Widgets or plugins used
• Analytics and advertising software used
• Content delivery network (CDN) used
• Security protection 
• Fonts and scripts needed
• Potential cost of outsourcing work

3. Traffic and Sources

Having visitors to a site is one thing, but you need to look beyond the here and now towards a more strategic perspective. Unsteady flows of traffic can be a cause of alarm and indicate inorganic methods of traffic building.

Look at the flow of traffic over time and consider:

• Has the increase in traffic been gradual?
• How quickly has it grown and why?
• Is the flow steady over 12-month periods?

Besides volume, you also need to take into account where the traffic is from. Organic traffic is the most desirable and should contribute the bulk of any website’s traffic profile. Always be cautious of social media traffic and be sure to verify how that has been obtained.

As a whole, it is good if you can get an idea of what marketing strategies the owner employs. This can give you a better idea of what you may need to do to either change, or maintain the type and volume of traffic.

4. Know the Demographics

If you have a target market in mind, make sure that you match the demographics of a site with your current target market. Sites tend to attract different crowds and even similar niches may have their own distinct ‘flavor’ of traffic.

For example, if you’re going to build on a tech site, make sure your intended direction of development matches the existing traffic demographics. Taking over a site that’s catering to server enthusiasts will likely not end well if you’re moving towards gadgets or mobile.

5. Domain Age and History 

Traditionally, websites grow from nothing and take some time to reach maturity. That’s why people don’t generally buy new sites.The age of a domain is a factor of consideration since (generally speaking) search engines do take that into account.

The longer a domain has been established, the better it’s reputation is likely to be with Google. This makes aged domains valuable for resale in many cases. Always take this into account when you’re looking to buy a site.

6. Potential SEO Problems

With so many ways to build SEO these days, it isn’t an easy task. Unfortunately, this has led to some website owners trying to take shortcuts to the top of the SEO charts. This is something to look out for, especially if the site sees a meteoric rise in web traffic over a very short amount of time.

That isn’t the only problem though. If a site’s traffic has been stagnant for a period of time despite having solid content and performance, it might be due to underlying issues. For example, updates in Google’s algorithms can lead to old content that underperforms.

If this is the case, you may have to spend more time and resources on fixing problems rather than simply moving forward. Some issues may be easy to resolve, but others not so much.

Some causes of SEO penalties to look out for include:

• Link cloaking
• Spammy link profiles
• Previously hacked websites
• Stolen or duplicate content

Stay Focused on Link Quality

Traffic can come at a high price and part of it is the time the website owner spends in building backlinks. Search engines like Google use backlinks as one of the indicators of the trustworthiness and authority of the site. 

This means that you need to look at not just the number of backlinks and links, but also their quality. A site can have 1,000 backlinks of very low quality and not match up to one with a handful or strong backlinks. 

There is no real way to assess this easily unless you use a commercial tool like Ahrefs or SEMrush.

7. Website Design

Yes, this was placed well down here for a reason – but it does remain one. Although you should generally favor performance over aesthetics, website design needs to be taken into consideration as well.

This is particularly true if you are buying a well-established site or one which has a load of existing content and graphic elements. The concepts of user interface (UI) design evolve over time, and new technologies tend to affect things as well.

A website that’s been around for ten years might be in need of a revamp, for example, to update graphic content (ie. icons, infographics, etc) or include mobile-friendliness and website response speed. Sites which are badly in need of a revamp may incur high cost to do so.

Landmines for Newbies

Seasoned website buyers are well aware of not just what to look out for, but also what might go wrong. If you’re looking to buy a website for the first time, you need to be aware of what might go badly as well. 

Avoid making these rookie mistakes:

Missing Due Diligence

Aside from factors I’ve described above, you need to make sure the financials of the site are in order. This is the most basic tenet of buying a website and should guide the surface of any purchase.

Working Outside a Reputable Website Selling Platform

If you’re new to the business, under no circumstance try to go at it alone. Platforms like Flippa exist for a reason – to help ensure your financial safety. They also perform basic due diligence of their own, helping guide you towards safer sales.

Some also have extended features which can provide invaluable, like valuation tools. These can provide extended levels of guidance that might surprise you.

Getting Greedy

Always start small and treat your first purchase as a highly valued experiment. Look at it from the perspective of a learning experience and don’t worry too much about how much you’ll potentially earn. Always keep your eyes out for red flags rather than only the silver lining.

Giving Up

Following on closely on the heels of getting greedy, one bad experience doesn’t mean the end of the world. That’s the reason I mentioned to start small and treat it like a learning experience. It paves the way for your next (and hopefully successful) purchase.

Conclusion: Dollars can be Blinding

By now you can probably tell that the money trail you see may not always give you a complete picture. Buying a website needs a lot more background work than simply looking at financial data.

Even if you’re buying a site to re-sell later on, the foundation needs to be strong enough for you to get real long-term value. There are also pitfalls to be aware of, especially if you’re new to website buying and selling.

It’s during this discovery stage that you find out the probability of your potential investment becoming a roaring success, or a complete failure.

You might stumble across a red flag, or even better, a hidden nugget. 

If done right, your due diligence will be the one thing separating you from making money, and losing it quicker than the drop of a hat…or a Google ranking.

Most people know the obvious things to look at during a content site due diligence process. These are actually among the things that Flippa makes it easy for you to check. Google traffic, Adsense income, and earnings screenshots.

Beyond that, you might have some conversations with the seller, feeling out their authenticity or looking for shadiness.

But, where do you go from there? What things are you overlooking? How do you know what you don’t know? How do you follow Warren Buffet’s first and second rules, and not lose money? 

In this post, I’m going to cover some of the items that I look at when doing due diligence on a content site which are often overlooked by others.

I’m not a genius who sees what other people don’t see. I’m speaking from direct experience evaluating dozens of content businesses per month, and doing some unfortunate learning from mistakes along the way.

There are things I look for that you may not have thought of, and equally, things you focus on that I might not care too much about!

Let’s get into them.

How You Approach Content Site Due Diligence Matters The Most

One thing that I should start with, is that your investing philosophy should dictate your due diligence. 

Are you looking for growth? Do you want to 3x your website in a short period of time and flip it? Or are you looking more for cashflow? 

When I look at sites for investors who use my services, I do it in two stages.

Stage one is the “Will this site still be making money in a few months or even years?” test. This is the stage where I’m evaluating the risk of a website and deciding if I feel confident that it will survive the test of time.

Stage two is the “How can I grow it?” test. This is actually of less interest to me. Not because I’m not interested in growing sites, but because I believe a deal needs to make sense WITHOUT growing a site, in order to be a good deal.

In other words, if I buy a site, pay 2-3 year’s earnings for it, and fail to grow it even a single dollar, is that still a good deal? 

This is the fundamental way to avoid losing money in your investments.

Too many people focus predominantly on the upsides and the opportunities, and I’ve seen people make the mistake of paying too much for a site in the belief (or vain hope) that the site will improve later.

If you do it this way, when the site fails to grow, you’re left holding a site that is either not very good quality, or is something you overpaid for.

By focusing on the risk and stability of a site first, and looking at growth later, you are filtering out the majority of junk deals that could turn out to be lemons.

You’re also much less likely to overlook some risks because you’ve become excited (blinded) by some of the “opportunities” you’ve uncovered.

It’s common sense, but something that people often leave behind once browsing the Flippa listings commences.

At the end of the day, website prices are such that you can buy a business, hold it, and make a very nice ROI even if it doesn’t grow. The real enemy of success in website investing is the risk, so if we can beat that, we are golden.

Top Things People Overlook When Running Due Diligence on a Content Site

Now that you’re doing your due diligence in the right order, what things should you make sure not to miss?

I’m not going to handle the obvious factors here, just the things you may not have looked at if this article didn’t exist.

Understanding The Context

It’s important to take into account when a traffic or revenue dip (or increase) is seasonal, and when it’s because a site has just been hit by a Google update. Unsurprisingly, a lot of sellers decide to part ways with their site shortly after a major Google update. It’s important to understand this, because it should affect the valuation.

It’s not necessarily a bad thing to buy a site that has been hit by an update, but you should discount any earnings it had prior to the update, when evaluating a fair price.

For example, a site that averaged $7,000 per month for the 10 months before an update, and then $3,000 for the next two months, will have a trailing-twelve month average of $6,333 per month, when in reality the site is only earning $3,000 now. If you paid $190,000 for that site (based off a 2.5 year multiple), you’d have paid $100,000 too much.

On the other hand, if a site absolutely crushes it in November and December, and then dips in January, it’s probably just a result of seasonality, and you’re fine to take the averages at face value.

Percentage of Traffic Occupied By Any Given Article

At the lower ends of the valuation spectrum, you’ll see sites where one or two articles account for 50% of that site’s traffic. This is somewhat risky, as the majority of revenue is likely being driven by a handful of potentially fragile keyword rankings.

It’s also a sign that Google doesn’t fully trust the site yet, as more authoritative sites will have more rankings. 

There’s no real golden rule here, and sometimes you may make exceptions, but it’s always important to at least look into these numbers when doing your due diligence on a content based website.

Equally important is if a site gets most of its traffic from Featured Snippets. If they lost the snippet, where would their rankings be now? It’s hard to know in light of the recent change Google made to snippets. Will they drop from position 0 (the number we use to denote a snippet) to position 1? Or will they drop to position 5? 

Be wary of sites where too much of their traffic comes from snippets, as they could be fragile.

Speed And Nature Of Growth

We all want to buy content sites that are trending up, but the speed of that trend, and what it was driven by is something we want to pay attention to. This is a good example of why we look at risk before opportunity, because otherwise we can get excited by crazy growth numbers and ignore the fundamentals.

Was this site powered by black hat SEO? Was a 301 redirect performed from another site? Is this sustainable? There’s a lot to go into this and beyond the scope of this article, but you always want to investigate this.

“Other” Paid Links

There is a massive obsession in the website investor space with PBN links. “I don’t want anything with PBN links” isn’t exactly a bad mantra, because PBNs are risky. The problem is that people often forget there are other dodgy links out there too. 

Scholarship links, sketchy, spammy niche edits, paid guest posts from low quality sites, the list goes on. Don’t just say “Did you use a PBN?” and feel happy when the seller didn’t. Dig deeper into all of their link building tactics when doing your content site due diligence.

Bonus: One thing people focus on that doesn’t matter as much as you think

Reason for sale

Everyone asks why the seller is selling, and while I do think it’s remiss not to ask, it’s almost formality. 

I can’t see it uncovering anything bad. Nobody will say “I’m selling because the site is powered by spammy links and it’s a ticking time bomb”. 

Instead they’ll say “I’m looking to invest the money in other projects”.

People sell for all sorts of reasons, so it really doesn’t matter what they tell you theirs is. The one time it could be useful, is if they are a motivated seller who needs to pay off some debts. Now you can negotiate.

Closing Thoughts

Due Diligence on a content site is as much art as it is science, and I’ve learned most of the above from years of experience (I bought 20+ sites in 2019 alone). The important thing to consider is, don’t get blinded by the opportunities and the dollar signs flashing before your eyes, and ask yourself, if I fail to realize any of the growth opportunities, will this still be a solid acquisition? 

If the answer is yes, then you’re halfway there.

If you want to start practicing your due diligence, here is a link to some content sites currently available on Flippa that are priced between a 1.5x and 2.5x annual profit multiple.

For most business owners, it’s usually mixed feelings when there is an opportunity for mergers and acquisitions (M&A). But whether you feel great or uneasy, you’ve probably come to terms with this reality.

To ensure your business is in a great position for potential investors or buyers, you have to be due-diligence ready. This means you need to get all the vital details about your business ready for review.

But while it’s great to be due-diligence ready in preparation for mergers and acquisitions, you should also do it as a normal business practice. Doing due diligence goes beyond making your business look good for an investor.

These details are also vital to running your business and improving your strategy for future operations. Having said that, what are the benefits your business gains when it’s due diligence ready?

In this blog post, discover 9 big reasons why your business should always be due-diligence ready.

1. Improve trust and belief in your business

It’s a common occurrence to find businesses involved in shady practices. Naturally, these businesses will try to cover their tracks by hiding these details from prying eyes.

This is one reason an investor might usually be sceptical of a business they’re not familiar with. However, when you provide all the necessary documents about your operations, employees, and products, it shows that your business is legitimate.

As a result of this, you gain trust with a potential investor. Furthermore, these pieces of information boost their belief in your business.

A tool like ContractZen can help you organize all your contract, legal and financial documents in one place, so that a potential investor can have access to them in a secure, cloud-based virtual data room. It also provides tools to hold meetings to discuss, sign these documents, and improve trust.

Another useful tool to consider is SecureDocs, which allows you to save time with deals and transactions by providing you with an intuitive virtual data room.

2. Displays the total value of your business

Understanding the total value of your business is impossible unless you analyze your assets and liabilities. What is the future prospect for your business?

Other pieces of information that could determine your business value include your employees, products or services, intellectual property, and rate of increase in your customer base. For service businesses like apps or software, the rate of usage by users also show the value of your business to an investor.

Furthermore, credit and loan obligations help to analyze the financial strength and value of your company. By doing due diligence, you can avoid underselling your business and ensure you set the right price.

With this knowledge, it’s also easier to take steps to improve the value of your business before the sale.

3. Determine market size

Any serious investor wants to know how they can recoup their investments in your business and make more profits. A major determinant of this is the market size.

A furniture maker who only serves New York is a different proposition from IKEA. Even though they’re in the same business, their market sizes are totally different. Gartner recommends viewing market size opportunity as a four-tiered structure, as illustrated below.

The market size shows the number of potential customers you can serve and ultimately, revenue. With an accurate assessment of the market size, an investor can think of expansion plans to increase the market size or how to maximize revenue from the current market size.

4. Shows the team structure and level of competence

The team structure of a company tells a lot about its operations. It also shows clearly who is in charge of various departments. Every business has a team structure that’s effective for their business operations.

In some cases, you can have different titles across businesses doing the same job. For instance, a chief marketing officer (CMO) in one business can be in charge of marketing, while the marketing manager will do the same job in another business. You can even use a free tool like Organimi to create an org chart that helps you visualize the hierarchies at play.

With your team structure, you can show the hierarchy of your employees and their duty in your daily operations. In some cases, this can help you find redundant posts that should be eliminated.

5. Know the employee headcount and output

A company is only as strong as its employees. Of course, the strength of a company isn’t only in the number of its employees but how effective they are.

However, the employee size is an important detail of any business since you have to pay salaries for these employees.

Apart from the number of employees, it’s also vital to analyze the contracts signed with each employee. This is vital information in the case an employee has to be fired.

6. Know the customer base size

The aim of every business is to increase its customer base and revenue per customer. However, without proper records, it can be difficult to know your customer base if you’ve been in business for a long time.

Another factor that affects customer base size is the type of business you do. Is it a subscription-based service or a product that customers can buy once?

Apart from the general customer base, doing due diligence will show your revenue per customer, the number of repeat customers, and big customers. From these details, you can see your potential to compete in the market. More so, you can adjust your strategy to gain more customers and increase revenue per customer.

7. Determine the potential for growth

Doing financial due diligence can help to track your performance in the past. How successful was your company in achieving its targets in the past?

Based on this analysis, you can identify weaknesses in your business operations that affect its sales and profits. By fixing these weaknesses, you set a platform to improve your business and its valuation during the process.

Also, it becomes easy to forecast revenues for a future period based on your current performance. Furthermore, you can use technology to make the process easier. In a study by Merrill Corporation, 52% of professionals believe technology can help with financial modeling while 41% believe it can help with visualizing financial performance data.

Through your financial due diligence, a prospective investor can identify your business’s potential for growth.

8. Keep track of stakeholders and board communications

For companies with stakeholders and board members, these people are involved in all important decisions for the business. If your business has a board of directors, doing due diligence means you’ll have to track their communications for a long period.

Likewise, you’ll see the contribution of each board member to the running of the company. Based on the board meetings, a potential investor can see the direction of the company.

Is the company conservative? Or they take pride in innovation even if it’s risky? Through this, an investor can decide to invest in a business that suits their operating model.

9. Helps an investor to make their decision

For an investor, buying a business is a risk. For instance, statistics show that half of businesses will fail within 5 years.

Therefore, an investor will naturally do their due diligence before putting their money in a business. Obviously, this is to avoid making a costly mistake.

But regardless of that, as a business owner, you should do the same. Because you’re more likely to get the most accurate information through internal due-diligence rather than an investor carrying out external due-diligence.

If you’re unable to do due diligence for a business you’re running, that shows a negative image of how well you’re running the business. By doing due diligence, you can help an investor decide whether your business is the right one for them.

Conclusion

Being due-diligence ready is an activity that every business should practice. It gets your business ready for mergers and acquisitions.

And, even without an acquisition in sight, being due-diligence ready can help you find weaknesses and growth opportunities to improve your business results.

“The goal of Due Diligence is to verify all of the information that has been presented. The offers that a buyer has made on a business is based on what has been claimed. During due diligence, the aim is to verify all of that information”.

In Brain’s talk, you will hear about what to expect as a Seller and he will walk you through a sample Due Diligence process.

Due Diligence takes place after the LOI has been signed by the Buyer and right up to the time of closing. This timeline can range from 1 – 2 weeks on the shorter side right up to 6 – 8 months on longer deals.

What is the purpose of Due Diligence?

1. Verify Claims
2. Identify Potential Risks
3. Assess Opportunity

What’s involved in Diligence?

Typically it is broken down into a few key stages:

1. Kickoff / Requests
2. Financial Verification
3. Operations Review
4. Sales/Marketing Assessment
5. Transition Planning
6. Growth Plan
7. Closing

There will be a lot of people involved in the process and it’s critical to keep it organized and start with a call between the buyer and seller. This sets the right expectations going forward.

“One thing that kills due diligence is when a buyer is send over an email every three hours. Keeping it all organized will ensure you don’t miss anything and move through the steps in a methodical process”

Key Tasks

1. Confirm P&L data
2. Show key financial trends
3. Explain operations by task and role
4. Breakdown key sales and marketing channels

What tools are used for Due Diligence?

There are hundreds of tools out there to help perform due diligence. Here is a link to a list of 60 tools that Centurica use for all of their DD clients.

Further to this, it’s really important to realise that there are still human interactions, people selling and people buying. A lot of times (more often than not) the potential buyer has not even purchased the product from the company. Often they have never been to the website and signed up for the email newsletter, talked to customer support, interviewed any of the employees. Tools are critical, but the human side of due diligence is more valuable than any tool.

Here is a link to a list of 60 tools that Centurica use for all of their DD clients. It’s really important to realise that there are still human interactions, people selling and people buying. A lot of times (more often than not) the potential buyer has not even purchased the product from the company. Often they have never been to the website and signed up for the email newsletter, talked to customer support, interviewed any of the employees. Tools are critical, but the human side of due diligence is more valuable than any tool.

Top 5 Due Diligence Issues

It is very rare that you get through a diligence process where no issues have come up. If nothing has come up, the due diligence process most likely has not been digging deep enough. All small businesses have issues that are potential risks. Here are the top 5 issues Centurica see when

1. Lack of bookkeeping/accounting

There are so many million dollar businesses that don’t use any accounting software. Xero does a fantastic job of this. Categorisation and verifiable transaction items is super important. If you have more than business make sure they are not commingled and it’s clear. Keep things clean for each business makes the sales process much easier. If you can hire a bookkeeper and let the experts take care of it.

2. Undisclosed violations or warnings

A lot if not most businesses have issues. This is ok. The issue arises when you are not forthcoming and do not talk about it with the buyer. If you get three weeks into the dd process and the buyer uncovers an issue, the buyer will start wondering what else you have haven’t told them about. Make sure people are aware of these issues so the deal doesn’t fall over at the 11th hour.

3. Transferability Issues

Some accounts with supplies can be difficult to transfer so make sure you have this in order being going to market.

4. Legal / tax issues

Make sure there are no outstanding tax issues that will roll over to the new owner. Work through this with the seller. Ensure taxes are registered and properly collecting taxes where you should be. Always check for trademarks. Some factories overseas have started to trademark American brand names and register a trademark overseas in China. If you are selling and you are an established brand Centric recommend doing a search overseas and registering trademarks in Europe and anywhere else you think you might trade in the future.

5. Loss of trust

This is the most common due diligence issue. All of this can be resolved by being upfront and transparent with the buyer. As soon as this is gone, it is the number one deal killer. You very rarely recover from this.

Due Diligence Tips

1. Let someone else represent your interest
2. Maintain open communication and transparency
3. Prepare for potential issues and questions
4. Share both positive and negative experiences
5. Provide operational guidance and support

Resources

For a more indepth checklist vist this post 
Brain’s tools list
Ecommerce Crew Podcast 274 How Due Diligence Helps Sell Your Business

When you’re buying an online business, everyone advises you to ‘do the due diligence’. Of course you must, that’s obvious, but exactly how do you do it with an online business acquisition? Unlike real estate or bricks and mortar retail and service businesses, there’s usually very little property, equipment or inventory being acquired with the purchase. You are assessing predominantly non-physical assets – but that doesn’t mean they are too intangible to inspect, assess and value.

Depending on the complexity of the business and the size of the purchase transaction, this stage is likely to take at least two weeks and will probably be the longest part of the overall sale process. Patience and staying grounded in this phase will really pay off in the long run, and if you decide to go ahead with your acquisition then you can do so with the fullest confidence.

Where due diligence fits in

Due diligence is different from the buyer’s initial consideration of the business as an appealing target for acquisition, no matter how carefully that has been done. It is a thorough and methodical analysis.

The due diligence phase commences once you have made a purchase offer in a formal letter of interest and the offer has been accepted in principle by the seller. There will probably be some mutually agreed variations written into the final specific details of the sale contract as a result of what is discovered in the due diligence probing by the buyer.

This is unlikely to be because of any deceptive claims by the business owner. Rather, the buyer may discover some impediment to the transfer of software licensing, other third-party arrangements or credit card processing arrangements, just for example, which need to be addressed in the final Agreement.

Remember that before gaining access to all the details of the business financials and operational systems, including all the external agreements in place and the level of owner expertise and time needing to be invested on a continuing basis, the buyer will need to have paid a substantial deposit or even full settlement amount, as negotiated, which is refundable and held securely in escrow. This is because otherwise some parties claiming to be authentic prospective buyers are merely attempting to gain access to the business financials and processes.

So, now at this stage it’s time to work quickly and efficiently, but still highly systematically, through the due diligence process. Discussed below are the key aspects to consider.

Take qualified advice

If you have lots of experience in the area it will all seem straight-forward and intuitive. On the other hand if this is one of your first acquisitions, overall or in the particular niche, gain the assistance of a more experienced guide who can lead you through the more technical aspects. If this is a trusted colleague then that’s ideal. However, the services of paid buyers’ advocates/consultants are readily available and not all that expensive. Ensure that anyone guiding your due diligence and the decisions based on it have no vested interest in the sale going through. Be wary of advice from brokers who, no matter how ethical, have a vested interest in promoting the value of the business.

Traffic analysis

The seller’s claimed traffic statistics need to be verified. Genuine sellers will readily cooperate in providing access to Google Analytics (or equivalent) over the long term so that the buyer can ascertain how many visitors the site has, how long they stay, what they view and whether they generally view multiple pages. If they stay for a low duration (under one minute) then it may indicate that the content quality or the UX is low. If visitors generally traverse multiple pages then the content quality and the UX is indicated to be high. Check the conversion rates for whatever monetization strategies are in place, and most importantly look for any emerging trends. Cross-check the financials with the traffic. How much revenue is each unique visitor generating on average? Does this outcome correlate with what the business model predicates?

Be alert to the possibility of any paid traffic or sponsored links driving traffic to the business. That is not inherently bad, of course, but it is an expensive strategy and a significant problem if the expense has not been disclosed by the seller. Over-reliance on unsustainable traffic sources is actually the most common single concern encountered by new owners acquiring online businesses.

Financial records

Assessing the audited accounts of income and expenses for as long into the past as possible is essential. Ensure there are no hidden expenses, such as software licenses or other licensing and registration fees. Ascertain the investment of the current owner’s time and expertise and put a dollar amount on this if the owner is not being financially recorded as an ‘employee’ cost. Be highly alert to the costs of all outsourced work such as content writing and website maintenance and ensure these are being fully disclosed. Don’t rely only on previous years’ financial records. Be vigilant about what the income and expenses are right now. Look for any indications of plateauing or even downturn.

Get to know the seller

Your due diligence process can be a dream if you establish a good business relationship with the current owner. That doesn’t mean it will be a nightmare if you don’t, but certainly your due diligence won’t yield all the positive information that it potentially could.

In online business purchases it remains fairly unusual for the buyer to meet the seller or the seller’s agent in person; after all they may well be located worlds apart. However, it is good practice to establish the seller’s business profile, history and reputation. While somewhat subjective, using social media platforms such as LinkedIn provides a valuable means of background checking.  

An authentic seller will be confident in the business and will have genuine reasons for wanting to sell the business at the present time. The current owner will have a clear sense of how the business is performing and, just as importantly, trending. Additionally the vendor may well have ideas for the next stage development of the business which would be useful to the purchaser, even if the buyer decides not to follow that particular growth strategy pathway.

Sellers should always be open to detailed questions from a prospective buyer as a result of the due diligence process. It is sound, and increasingly common, practice for the seller or the seller’s agent to agree to a conference call discussion with the buyer, to respond to questions or concerns raised by the due diligence. It also enables alignment of the buyer’s and seller’s expectations of the transfer. No reasonable seller expects a buyer to part with hard-earned money just on the basis of the buyer’s enthusiasm and blind faith.   

Technical and other asset issues

Successful online businesses all rest on relatively sophisticated technical operations, with not only base platforms but also plugins and extensions. It is essential to audit these and ensure that every element of the platform has been paid for or licensed, and that these are to be transferred with the business. SaaS and software businesses, as well as e-Commerce sites, will be reliant on source codes and it is important to confirm that they are clean and also modifiable for the future.   

Other assets which must be transferred include all domain names, subscription lists, customer records, product images and all third-party contract and communication details.

Owner’s operational commitment

What time and effort commitment is being invested by the current owner and what is the cost value of this? The seller should be open and specific about the details of this investment. Is this within the buyer’s capacity of expertise and time availability to sustain, and if outsourced what will it cost?

Legal aspects

Obviously, it is essential to check that the seller legitimately owns the business, its domain names and the assets being transferred, including all third-party agreements. It is unlikely that a site which is legal and unrestricted in its source territory will be illegal or prohibitively restricted in other territories which the buyer considers targets for growth. However, it is always possible and should be checked.

After the due diligence period and before committing to the final Agreement to purchase, it is important that the purchase contract be checked by a qualified legal practitioner with particular experience in the online business environment.

It is important to ensure that the seller has entered into a non-compete agreement for a specified period of time, and that this agreement is enforceable.  

Final considerations

It’s vital to be ultra-careful that all trademarks, propriety branding and any third-party brand licensing agreements are fully transferring with the business acquisition. Ensure there are no undisclosed debts or unpaid liabilities of any kind. In this regard double-check that you have an overview of the refunds policy and the potential liabilities arising from customer claims and returns once you have assumed ownership.

It is always wise to build into the sale contract a holdback provision. This allows the buyer to retain a percentage of the final sale price, usually 10 to 20 percent, for 30 to 60 days after the transfer. The advantage of this is that unanticipated delayed costs which were not incurred by the new owner can be debited against the final payment. Additionally, the seller will be motivated to assist in the ironing out of any issues in the transition which could not reasonably have been anticipated by the buyer on the information available.

Provided the final payout funds are securely lodged in escrow, a reasonable and ethical seller is unlikely to resist this provision as part of the purchase agreement.

There can never be a 100% guarantee against an unfortunate purchase. However, following these clear due diligence steps will provide very strong protection against disappointment and any possibility of falling victim to deception.