Inflated traffic numbers, irrational addbacks, hidden operational issues, bloated revenue figures… The fear for us investors is real.
If you’re not using a quality due diligence consulting company you might end up pulling the trigger on a company that looks good on the outside, but is absolutely worthless once it’s yours.
For any significant investment, partnering with a specialized due diligence company is a must. They don’t tell you if it’s a good deal or not, but instead they do the dirty work to dissect, analyze, and present the unvarnished truth about your target company so you can make a confident and informed purchase decision.
Here I’ve listed my top 5 due diligence professionals specializing SMB translations to help make your investment a success. If you want to get straight to the best option, check out our best choice.
Our Top Due Diligence Services:
- Centurica (Our #1 Recommendation)
- Durkin Group
- Intrinsic, LLC
- Marcum LLP
- Flippa
Centurica
Centurica offers reliable insights and expertise when it comes to business due diligence.
Centurica is in a special position, as upon founding over a decade ago they originally only focused on online businesses. This allows them to be a digital-first platform that understands the modern landscape. From there they went all-in on the SMB space. Search funds, blue collar service companies, private equity, ecommerce, SaaS, agencies, etc. They now do it all.
Centurica is a meticulous company, ensuring clients are well-informed. Their due diligence consultants delve deep, sharing strategies and advice tailored to the ever-evolving business marketplace. This reflects in a track record of satisfied clients, including myself (they did a great job for me).
For example, in this case study, they illustrate how recognizing fake financials saved a client from a potentially catastrophic deal. They do standard financial (rebuilding the P&L, quality of earnings) and non-financial tasks (inventory assessment, analytics, customer risk)
They also free and fairly comprehensive Buyer’s Guide, which provides data on average valuations, median asking prices, and future predictions for various 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.
- Quality of Earnings: A report seeing how a company gets it’s revenue. Is it one-off, recurring, or reoccurring? Cash or other? Net income isn’t always a great representation to how the cash flows.
- 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 businesses over the past decade, making them one of the most experienced firms in this space. From home service companies, to website investing, to SaaS, to Ecommerce, to traditional brick and mortar… Centurica has seen it all (I’ve used them myself many times), and I can vouch that they are one of the best due diligence companies around.
- 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 can handle companies of all types, diving deep into the financials, operations, and growth potential of the business, setting buyers up for success.
Durkin Group
Durkin Group, a distinguished professional services organization, has made its mark in the realm of financial due diligence and auditing for online business acquisitions. The company has carved a niche in providing exceptional support to lenders, investors, and middle-market enterprises.
Durkin Group has gained recognition for their careful approach to financial due diligence, field examinations, and comprehensive corporate accounting services.
Due Diligence Focus Areas:
- Financial Health Assessment: Durkin Group delves into the financials of target companies, providing thorough reviews of financial statements, accounting practices, and potential risks.
- Operational Review: Beyond just numbers, they evaluate the operational aspects of a business, assessing efficiencies, processes, and potential areas of improvement.
- Compliance and Legal Checks: They ensure that all compliance and legal aspects are vetted, offering peace of mind in the legality and legitimacy of the transaction.
With Durkin Group, clients are likely to get a thorough, detailed, and reliable due diligence process that safeguards their interests in any business acquisition.
Intrinsic, LLC
Intrinsic, LLC, established as a solid player in the financial due diligence and merger and acquisition advisory space, offers specialized services for private equity transactions and business acquisitions.
The company’s establishment stems from the necessity to provide meticulous and comprehensive due diligence for prospective acquisitions.
Intrinsic, LLC differentiates itself by employing a team deeply versed in the nuances of financial health and risk assessment of businesses. Their professionals, with backgrounds in finance and business analysis, bring an entrepreneurial insight into each project.
Intrinsic, LLC Due Diligence Services
Intrinsic, LLC offers comprehensive due diligence services focusing on private equity and M&A transactions. Their experienced team conducts a deep analysis of target businesses, covering crucial areas such as:
- Financial Health Assessment: In-depth evaluation of financial statements and accounting practices.
- Risk Analysis: Identifying and assessing potential risks associated with the acquisition.
- Operational Review: Analysis of the operational efficiencies and processes within the target company.
Why Choose Intrinsic, LLC?
Intrinsic, LLC offers due diligence services with a focus on financial expertise and understanding of M&A transactions. Their team provides analysis and insights for informed decision-making in business acquisitions, positioning Intrinsic as a competent advisor in this field.
Marcum LLP
Marcum LLP is a full-service accounting and advisory firm that specializes in financial due diligence, particularly for tech, digital, and internet businesses.
Preparing Businesses For Financial Analysis
Marcum LLP aids business owners in preparing their enterprises for financial scrutiny. This process includes the development and examination of financial models, ensuring the cleanliness and accuracy of financials, and equipping owners for initial discussions with potential buyers.
The firm collaborates with clients to highlight the unique value propositions of the business, ensuring financials are optimized for transaction readiness.
By utilizing its array of market data and comparables, Marcum LLP determines the highest market value for a company.
Marcum LLP’s Due Diligence
In the critical phase of due diligence, Marcum LLP underscores the significance of financial reviews, record analysis, and strategic evaluations. The firm advocates for the utilization of secure data rooms to amalgamate all documents necessary for a buyer’s due diligence, including contracts, financial statements, and corporate governance records.
Marcum LLP’s proactive stance in the due diligence process aims to identify and address potential issues well before they emerge during the transaction, helping with a seamless progression.
Why Choose Marcum LLP?
Marcum LLP’s expertise in the realms of tech, digital, and internet business sectors distinguishes them. Their understanding of these industries improves the odds that sellers achieve optimal value for their assets.
Flippa
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 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. However, they are less full-service than most of the other options.
Flippa Due Diligence Services:
Flippa offers three due diligence packages with clear pricing, each providing progressively deeper insights into the operations, financials, and potential of online businesses.
- Red Flag Report ($1500): A basic report identifying high-level risks and opportunities. It includes limited financial and traffic data over 12 months and compares the asking price to similar businesses, without verifying source financial documents.
- Standard Report ($2000): Building on the Red Flag Report, this covers a 24-month period and includes checks against source documents with limited coverage.
- Enhanced Report ($2500): The most comprehensive option, offering detailed risk and opportunity analysis. It extends over 36 months with financial and traffic information, and verification of seller-provided data against source documents. It also includes an industry overview and key trends.
Flippa’s due diligence service is designed to verify seller claims and give buyers a transparent understanding of the business, enabling well-informed investment decisions.
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 to help make your investment a success.
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.
Our Best Choice For Due Diligence Services
Centurica emerges as the top choice for due diligence services in business acquisitions. With their extensive experience, impartial analysis, and deep dive into the financials, operations, and growth potential of digital businesses, Centurica stands out.
Their approach is particularly tailored for the online business environment, offering insights and strategies that are critical for making informed and successful investment decisions. Their expertise and comprehensive focus make them an ideal preferred partner for investors in the digital marketplace.
Your Turn
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.
Updated: July 27, 2024
