How to Perform Due Diligence on an Online Business

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How to Perform Due Diligence on an Online Business

In many ways, buying an online business isn’t any different from acquiring a bricks-and-mortar company. There are some advantages: no worries about the condition of building or equipment, or negotiating the transfer of a lease. But there are traps for the unwary and you’ll still need to approach your purchase with caution.

Due diligence can often be the lengthiest part of the buying process but it’s in the buyer’s best interest to conduct investigations as thoroughly as possible. Whatever the business type, due diligence will ensure you have all the information you need to make a decision to purchase at the agreed price and terms.

Naturally, the level of due diligence may well correlate to the size of the investment. Taking a risk on a £2K spend requires a different approach than does a £50K investment. The areas covered by due diligence should always include the following:

Verify Traffic Claims

Sellers will normally quote a traffic statistic – the number of unique visitors coming to the website on a weekly or monthly basis. As greater traffic volumes are usually reflected in a price premium, it makes sense to verify this data to your satisfaction. Any bought traffic – through sponsored links, for instance – should be documented together with costs. Don’t pay over the odds for a business that’s too reliant on Google searches – if the algorithm changes, your results could plummet.

Look at the number of backlinks that have been added over the last six months or so – do the figures stack up? Check SEO backlinks with Spyglass. The seller should grant you access to Google Analytics so you can see how long visitors stay on the site, how many pages they view and what the conversion rate is.

Financial Records

Check there are accurate and detailed financial records but don’t rely on audited accounts from past years. Instead, map merchant/affiliate statements against bank records to get a true picture of the business as it stands today. Buyers should also ask for a live screen share (via Team Viewer) to authenticate ownership and take a closer look at the back end of the website. It’s also worth tracing any debts and liabilities. Look up the seller on social media and check Scam to see if there are any skeletons in the closet.

Assess the Technical Risk

One of the most important things to assess from an operational point of view is the risk, if any, associated with the seller’s choice of technology. The last thing you want is to be left high and dry because of a technical glitch you can’t resolve. Has the seller developed his own platform or used a proprietary platform like WordPress? Will you be able to have code modified quickly and cheaply, should the need arise? If you don’t have the technical chops, it’s worth investing in an audit by an experienced programmer who will advise you on the level of risk involved.

What’s the Time Commitment?

Some sellers boast that their business can be run with just a few hours input each week. It’s up to you to verify the level of work required and make sure it fits with your existing commitments. Ask the buyer to break down weekly and monthly tasks in detail and estimate the number of hours required for each component. If you intend to grow your business, you’ll need to factor in additional time.

Good to Go?

If you buy an online business in the early stages of its lifecycle, you’ll take more risks, but the rewards will potentially be greater. Be aware of the risks of paying a lot for a business that’s reached maturity and could be on the decline, as you could find profits taking a dive shortly after you take the helm. Finally, make sure that the business you’re buying is legal to run from your location and that you’ve checked any issues regarding trademarks and image licensing. Good luck!

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