Inflated traffic numbers, hidden operational issues, bloated revenue figures… The fear for a website investor is real.
If you’re not using the best due diligence services, you might end up pulling the trigger on a website that looks good on the outside, but is absolutely worthless on closer inspection.
For any significant investment, partnering with a due diligence company specialized in online businesses is a must. They can dissect, analyze, and present the unvarnished truth about your target company so you can make an informed purchase decision.
In this article, I’ve listed 5 due diligence professionals specializing in online business transactions, to make your investment a success.
Top Due Diligence Services For Online Business – Overview
FE International, with CEO Thomas Smale, stands as a beacon of trust and expertise when it comes to online business acquisitions.
In just 2019, FE International advised over 150 acquisitions in the SaaS, e-commerce, and content business sectors globally. FE International has showcased its prowess in handling deals of all magnitudes, including several high-profile eight-figure acquisitions.
Their impressive lifetime achievement of nearly 1,000 acquisitions boasts a staggering 94.1% success rate, ensuring that clients are in capable hands.
FE International is not just about transactions. They ensure that each acquisition is safe, secure, and successful for both sellers and buyers.
Their advisors and due diligence consultants, experts in the online business realm, guide buyers from start to finish to streamline the acquisition process.
Clients consistently applaud FE International for their meticulousness, professionalism, and skillful handling of acquisitions.
Due Diligence Focus Areas:
- Traffic Analysis: FE International provides access to tools like Google Analytics to verify the traffic sources, backlink profile, and other relevant metrics.
- Financial Verification: While many online businesses might not have audited books, FE International performs extensive pre-listing due diligence on financials. They provide supporting documentation such as PayPal statements, invoices, and credit card statements. They also facilitate live screen-sharing sessions with sellers to authenticate ownership and validate financial figures.
- Maintenance Analysis: Since many online businesses are owner-run, it’s crucial to understand the owner’s daily, weekly, and monthly tasks. This helps in assessing the cost and effort of outsourcing or taking on those tasks.
When you choose FE International for due diligence, you’re not just selecting a service. You’re partnering with a globally recognized leader dedicated to ensuring your investment is sound, profitable, and future-proof.
Centurica offers unparalleled insights and expertise when it comes to online business due diligence.
Centurica’s meticulous approach ensures clients are well-informed. Their due diligence consultants delve deep, sharing strategies and advice tailored to the ever-evolving digital marketplace. This reflects in a track record of effective due diligence.
For example, in this case study, they illustrate how recognizing fake financials saved a client from a potentially catastrophic deal.
They even offer a free and comprehensive 2023 Buyer’s Guide, which provides invaluable data on average valuations, median asking prices, and future predictions for various internet business categories.
Centurica’s Due Diligence Advisory Services:
- Financial Due Diligence: Centurica rebuilds the Profit & Loss (P/L) statement to verify the accuracy of the seller’s financials.
- Operational Due Diligence: Centurica delves deep into the operational aspects of the business to identify the biggest risks. They also pinpoint value creation opportunities, ensuring that potential buyers are aware of areas where they can enhance the business’s performance.
- Commercial (Market) Analysis: An in-depth market analysis is conducted to identify the most significant growth opportunities. Centurica ensures that the future of the business is sustainable by analyzing market trends and potential shifts.
Why Choose Centurica?
- Experience: Centurica’s deep knowledge comes from reviewing thousands of digital businesses over the past decade, making them one of the most experienced firms in this space.
- Unbiased Analysis: As a third-party service, Centurica provides an unbiased review of every deal, ensuring that buyers can make informed decisions with full confidence.
- Expertise: Unlike traditional CPAs who might not be familiar with online businesses, Centurica dives deep into the financials, operations, and growth potential of the business, setting buyers up for success.
Most due diligence projects with Centurica take about 3-4 weeks. However, the exact duration can vary based on the seller’s responsiveness in granting necessary access and sharing required documents.
Quiet Light is an online business brokerage founded by Mark Daoust in 2007. The business was born out of a need to aid the online business buy/sell and transfer process.
Quiet Light began by using sales professionals to work with website sellers, with lousy results. They realized that the best person to truly understand buying and selling online businesses would have to be an entrepreneur themself.
That’s why Quiet Light’s staff are all entrepreneurs or business owners, which leads to snappy valuation, quick sales and rock solid due diligence.
With its foundation rooted in simplifying online business transactions, their goal is to offer every client an experienced broker’s guidance.
This explains that while the QL staff aren’t sales professionals, 47% of their business listings sell above the asking price. A vast database of vetted buyers and a structured selling process that includes post-sale support explains the countless satisfied customer success stories.
Quiet Light Due Diligence Services
Quiet Light offers a robust due diligence service for online business acquisitions, lead by their skilled sales staff, many of whom are entrepreneurs themselves.
The due diligence consultants conduct thorough vetting to confirm gross sales, net profits, traffic numbers, and other relevant information. This way they can provide potential buyers all of the necessary accurate data to aid their own due diligence process.
Why Choose Quiet Light?
When working with Quiet Light, you can be sure to get personal service by a qualified broker with entrepreneurial experience. While it’s not a firm specialized in due diligence, they will make sure you get all the facts necessary to make an informed decision about your purchase.
Website Closers is a renowned brokerage firm specializing in the sale of tech, digital, and internet businesses. Their vast experience in the industry, coupled with their hands-on approach, makes them a top choice for both sellers and buyers.
Preparing Businesses For Sale
Website Closers assists business owners in preparing their business for sale. This includes creating and analyzing financial models, ensuring clean financials, and preparing owners for initial buyer/seller conversations.
They collaborate with clients to identify the company’s unique value propositions and ensure financials are primed for a sale.
Leveraging their extensive database of comparables, they determine the highest possible market value for a company.
Recognizing key value propositions is crucial. They work closely with business owners to highlight differentiating factors that set the business apart from competitors.
Website Closers Due Diligence
Due diligence is a critical phase where the seller verifies the information presented. Website Closers emphasizes the importance of a thorough financial due diligence, records, strategies, and more before this phase.
They recommend the use of a data room to consolidate all necessary documents for the buyer’s due diligence. This includes contracts, financial statements, corporate governance documents, and more.
The firm believes in a proactive approach, ensuring all potential issues are addressed before they arise during the due diligence process.
Why Choose Website Closers?
Their vast experience in the tech, digital, and internet sectors sets them apart. They understand the nuances of these businesses, ensuring sellers get the best value for their assets.
Their team comprises attorneys, accountants, consultants, and serial entrepreneurs, providing a holistic service to clients.
Engaging with a firm like Website Closers ensures that sellers are well-prepared and represented throughout the sale process, maximizing the value of their online business.
Flippa is a popular online marketplace for buying and selling websites, domains, and apps. You might be surprised to hear that Flippa also offers a comprehensive due diligence service to help potential buyers verify the legitimacy and value of the online assets they are interested in.
The service aims to unlock insights, reveal performance benchmarks, and identify potential growth opportunities.
Flippa Due Diligence Services:
Flippa offers 3 clearly priced due diligence packages. Flippa’s due diligence team goes beyond the usual verifications. They delve deep into the operations of the online business, revealing insights, performance against benchmarks, and potential growth strategies for the new buyer.
The service aims to verify claims made by sellers and provide a clear picture of the online business’s operations, financials, and potential.
Red Flag Report ($1500)
This basic due diligence report focuses on the identification of high-level risks and opportunities.
- Limited financial and traffic information
- Covers a period of 12 months
- Compares the asking price for the business with prices for similar businesses based on net profit multiple
- Does not verify source financial documents like invoices or bank statements
Standard Report ($2000)
This due diligence report includes everything from the previous option, and:
- Covers a 24-month period
- Checks the information provided by the seller against source documents with limited coverage
Enhanced Report ($2500)
This is a more detailed due diligence report that focuses on the identification of detailed risks and opportunities. Includes everything from the previous option, and:
- Enhanced financial and traffic information
- Covers a period of 36 months
- Information provided by the seller is checked with enhanced coverage against source documents
- The report also includes an overview of the industry and key trends
Flippa’s due diligence consultants aim to ensure that buyers have all the information they need to make an informed decision.
What is Due Diligence and Why is it Crucial for Online Business Purchases?
In the context of online businesses, due diligence takes on a unique flavor.
Unlike brick-and-mortar establishments, digital assets come with their own set of challenges:
- Fluctuating traffic sources
- Evolving SEO landscapes
- Threat of digital security breaches
- Complicated ecommerce financials
The Stakes of Skipping the Due Diligence Step
Imagine this: You’ve just stumbled upon a promising e-commerce store. The revenue charts are skyrocketing, and the testimonials are glowing. Tempting, right? But what if, post-purchase, you discover that a significant chunk of the traffic is paid and not organic? Or worse, the business is on the brink of being penalized by search engines for shady SEO practices?
Without thorough due diligence, you’re essentially navigating the digital marketplace blindfolded. The risks? Overpaying for a business, inheriting unresolved legal issues, or facing unforeseen operational challenges.
The Protective Power of Due Diligence
Conducting rigorous due diligence is like having a protective shield when venturing into the online business arena.
- Clarity: A clear picture of the business’s health, potential, and challenges.
- Confidence: Assurance that you’re making an informed decision, backed by data and insights.
- Cost Savings: By identifying potential issues upfront, you can negotiate a fair price and avoid costly surprises down the road.
In the dynamic world of online business, where trends shift at lightning speed, due diligence is your compass. It ensures that you’re not just buying a business, but investing in a valuable asset with a bright future.
Especially when working with private equity firms or investment banking companies, a detailed due diligence report is usually the difference between getting funding and getting a cold shoulder.
By partnering with a reputable due diligence company, you can make an informed decision about your upcoming website acquisition. Investing in online businesses isn’t easy, and due diligence even less so.
I’ve introduced a few due diligence consultants here to help you on your venture, but there are plenty more out there. Remember that the best due diligence consultant is the one who is looking out for your benefit, not the one trying to sell you a website.