20.8% of retail purchases took place online in 2023. Online sales is a massive industry, and it keeps growing year after year. There are plenty of online businesses out there for sale, just waiting to make you money.
If you’re not a website owner yet, now is a great time to enter the industry. And to maximize your chances of making a successful acquisition, you must do your due diligence.
As with any acquisition, purchasing an online business requires going through a due diligence checklist.
The Best Website Due Diligence Service Providers
Not everyone wants to do website due diligence by themselves. Luckily there’s several services available to help you on this part of the website acquisition process.
To begin, let’s introduce the companies that provide the best ecommerce due diligence services out there.
Durkin Group
- Financial Health Assessment: Durkin Group delves into the financials of the target online business, providing thorough reviews of financial statements, accounting practices, and potential risks.
- Operational Review: Beyond just numbers, they evaluate the operational aspects of an online 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.
Centurica
- Financial Due Diligence: Centurica rebuilds the Profit & Loss (P/L) statement to verify the accuracy of the online business seller’s financials.
- Operational Due Diligence: Centurica delves deep into the operational aspects of the online 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.
Instrinsic, LLC
- Financial Health Assessment: In-depth website due diligence, including 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 online business.
Marcum LLP
- Financial Health Assessment: Financial reviews, record analysis, and strategic evaluations.
- Due Diligence Process: They collect and analyze all documents necessary for a buyer’s due diligence, including contracts, financial statements, and corporate governance records.
- Risk Analysis: Marcum LLP aims to identify and address potential issues well before they emerge during the transaction, helping with a seamless progression.
Flippa
- Three Levels of Due Diligence: From high level risk assessment to a 36 month analysis with financial and traffic information.
- Financial Health Assessment: Verification of seller-provided data against source documents.
- Risk Analysis: Flippa aims to identify and address potential issues well before they emerge during the transaction, helping with a seamless progression.
Due Diligence Checklist Part 1: Purpose and Fit
Whether you hire help or do your own due diligence, the first step in online business website due diligence is assessing its purpose and how well it fits with your objectives.
This is the part where you look for reasons to quickly remove a potential online business from your shortlist.
Here are key aspects to consider.
Alignment With Your Objectives
Let’s make sure the website’s core operations and market position align with your long-term business objectives.
- Personal Interests: If the acquisition is for personal reasons, assess how the online business content and audience align with your interests and expertise.
- Unique Offerings: Identify what unique content, products, or services the website offers.
- Competitive Edge: Assess how the website stands out from competitors in its niche.
- Synergy with Current Operations: If you own other online businesses or websites, evaluate how this website and its business model could synergistically integrate with them.
- Resource Allocation: Assess the resources needed to maintain and grow the website and whether they align with your current capabilities.
Target Audience and Market Niche
- Audience Demographics: Understand the demographics of the online business current audience, including age, location, and interests.
- Market Niche: Evaluate whether the website operates in a niche market that complements or expands your current portfolio.
Scalability and Future Potential
- Growth Opportunities: Look into the potential for scaling up the website’s operations and expanding its reach.
- Adaptability: Consider the website’s adaptability to future market changes and trends.
If this first step in website due diligence shows any red flags or doesn’t match your investment criteria, just ignore and move on.
Due Diligence Checklist Step 2: Traffic Analysis
Traffic analysis is a crucial aspect of website due diligence. This information is invaluable in making an informed decision about the website’s acquisition and future development strategies.
Use tools like Google Analytics or Ahrefs for this part of due diligence.
Here are the key areas to focus on.
Traffic Volume and Behavior
To assess a website’s performance and audience engagement, we look at traffic.
- Overall Traffic Volume: Assess the total number of visitors to gauge the website’s popularity.
- Traffic Sources: Break down the traffic sources (organic search traffic, paid, referrals, social media) to understand how visitors are finding the website.
- Geographical Distribution: Look at the geographical spread of the traffic to determine market reach and localization needs.
- Bounce Rate: Analyze the bounce rate to assess visitor engagement and content relevance.
- Average Session Duration: Evaluate how long visitors stay on the site, which reflects on content quality and user interest.
- Page Views per Visit: Check the number of pages viewed per session to gauge content depth and navigability.
- Traffic Trends Over Time: Examine historical traffic data to identify growth patterns, seasonal variations, or declining periods.
- User Demographics: Understand the demographics of the website’s audience, including age, gender, and interests.
- Conversion Rates: Look at the conversion rates for key actions (purchases, sign-ups, contact form submissions) to evaluate the effectiveness of the website in achieving its goals.
- Funnel Analysis: Analyze the conversion funnel to identify drop-off points and opportunities for optimization.
Mobile Traffic and Usability
- Mobile Traffic Analysis: Assess the proportion of traffic coming from mobile devices and the user experience on mobile.
- Cross-Device Compatibility: Ensure the website is optimized for various devices and platforms.
Conducting a thorough traffic analysis not only reveals the current state of the website but also uncovers potential areas for improvement and growth.
Due Diligence Checklist Step 3: Revenue Verification
Revenue verification is an essential step in the website due diligence process.
This process helps in evaluating the financial viability of the website and projecting its future earnings potential. This step is vital in making an informed investment decision and planning for post-acquisition strategies.
Key areas to focus on include:
Financial Document Review
- Identify Income Sources: Identify and verify all sources of income, such as advertising, product sales, affiliate marketing, and subscriptions.
- Historical Revenue Data: Review historical revenue data to understand earnings trends and stability over time.
- Bank Statements and Tax Returns: Request and examine bank statements and tax returns to cross-verify reported revenues.
- Profit and Loss Statements: Analyze profit and loss statements for a comprehensive view of the website’s financial performance and net profit.
Revenue and Income Sustainability
- Consistency of Earnings: Assess the consistency of revenue over different periods to gauge its reliability.
- Sustainability of Revenue: Evaluate the sustainability of current revenue streams in the context of market trends and potential changes.
- Advertising Revenue: Examine the performance of ad campaigns, including click-through and conversion rates.
- Affiliate Revenue Details: Review contracts and performance metrics for affiliate partnerships.
- Product Sales Analysis: If applicable, analyze the sales data for products or services sold directly through the website.
- Customer Lifetime Value: Calculate customer lifetime value to assess the long-term profitability of the customer base.
Revenue Growth Potential
- Growth Opportunities: Identify areas with potential for revenue growth, such as new markets or monetization strategies.
- Market Comparisons: Compare the website’s revenue performance with industry benchmarks.
Through meticulous revenue verification, you can ensure that the website is financially sound and has a stable foundation for future growth.
Due Diligence Checklist Step 4: Expense Assessment
Expense assessment is a critical component of due diligence when buying an online business. Accurate assessment of expenses is crucial for forecasting profitability and determining the financial health of the website.
Here are the key areas to focus on:
Operational Costs
- Hosting and Domain Fees: Review the costs associated with web hosting and domain name renewal.
- Content Creation and Management: Assess the expenses related to content development, including payments to writers, editors, and content managers.
Marketing and Advertising Expenditures
- Marketing Costs: Evaluate the budget allocated to marketing activities, including digital advertising, SEO, and social media campaigns.
- Advertising Spend ROI: Analyze the return on investment for advertising spends to determine their effectiveness.
Technical and Maintenance Expenses
- Website Maintenance: Consider the costs for regular maintenance, updates, and technical support for the website.
- Software Licenses and Subscriptions: Review expenses for any software or subscription services used in the operation of the website.
Staffing and Administrative Costs
- Employee Salaries: If the website employs staff, review the salary and benefits expenses.
- Administrative Overheads: Assess administrative costs, including office expenses, if applicable.
Legal and Compliance Costs
- Legal Fees: Account for any ongoing legal fees, including those for compliance with regulations such as data protection laws.
- Compliance-related Expenses: Evaluate costs associated with maintaining legal and regulatory compliance.
Analysis of Cost-Efficiency
- Cost Optimization Opportunities: Identify areas where expenses can be reduced without impacting the quality or performance of the website.
- Comparison with Industry Standards: Compare the website’s cost structure with industry benchmarks to evaluate efficiency.
Future Expense Projections
- Predicted Cost Increases: Anticipate potential increases in costs due to scaling, market changes, or other factors.
- Investment Requirements: Assess any upcoming investments required for improvements or expansion.
Due Diligence Checklist Step 5: Legal Compliance
Legal compliance is a crucial aspect of the due diligence process when purchasing an online business website. This step involves ensuring that the website adheres to all relevant laws and regulations, which is essential for avoiding legal complications and potential financial liabilities.
Ensuring legal compliance protects both the buyer and the ongoing operations of the website.
Key focus areas include:
Intellectual Property Rights
- Content Ownership: Verify that the website owner has the right to use all the content, including text, images, videos, and trademarks.
- Copyright Compliance: Ensure that the website is not infringing on the copyrights of others, which could lead to legal disputes.
Regulatory Compliance
- Privacy Policy and GDPR Compliance: If the website collects user data, ensure compliance with data protection laws like GDPR (for European users) and other regional regulations.
- User Consent and Data Handling: Review the processes for obtaining user consent and managing personal data to ensure they meet legal standards.
- Industry-specific Regulations: Depending on the website’s niche, check for compliance with industry-specific regulations (like health information, financial services, etc.).
- Advertising and Marketing Laws: Ensure that all marketing and advertising practices comply with legal standards, including disclosure of affiliate links and sponsored content.
- T&C Clarity and Enforceability: Review the website’s Terms of Service and User Agreements for clarity, fairness, and enforceability.
- User Agreements: Check if these documents are regularly updated to reflect changes in operations or regulations.
Legal Issues
- Required Licenses: Verify that the website has all necessary licenses and permits for its operations, especially if it involves e-commerce or digital products.
- Software and Tool Licenses: Confirm that all software and tools used by the website are properly licensed.
- Litigation History: Investigate any past or ongoing litigation involving the website.
- Legal Disputes: Be aware of any potential legal disputes that could affect the website’s operations or reputation.
Legal compliance is a critical step in safeguarding your investment and ensuring a smooth transition of ownership without legal hurdles.
Due Diligence Checklist Step 6: Content Quality and Ownership
Content quality and ownership assessment is an essential part of due diligence when purchasing an online business.
This step involves evaluating the quality, relevance, and originality of the content on the website, as well as confirming the ownership rights to ensure it is free of plagiarism or copyright infringement. Never assume the current owner treats content with the same standards as you.
High-quality and legally owned content is crucial for the website’s credibility, user engagement, and SEO performance. This is true for content sites and ecommerce sites.
You can use Google Analytics to help with this part of the due diligence process.
Key aspects to focus on include:
Quality and Relevance of Content
- Quality Assessment: Evaluate the overall quality of the content, including writing style, accuracy, and presentation.
- Relevance and Value: Ensure that the content is relevant to the target audience and adds value, whether through information, entertainment, or solving user problems.
- Plagiarism Check: Conduct plagiarism checks to confirm that the content is original and not copied from other sources.
- Unique Voice and Perspective: Assess whether the content offers a unique voice or perspective that differentiates the website from competitors.
Content Consistency and Update Frequency
- Consistency in Tone and Style: Review the consistency in tone, style, and quality across various pieces of content.
- Update Frequency: Look at how often new content is published and whether old content is regularly updated to remain relevant.
Content Legal Compliance
- Ownership Verification: Verify that the website has the rights to all content, including text, images, videos, and any other media.
- Licensing and Permissions: Check for proper licensing and permissions for any content that is not originally created by the website’s team.
- Compliance with Laws: Ensure that the content complies with legal standards, including regulations related to advertising, sponsored content, and user-generated content.
- Sensitive Content Review: Review for any sensitive or controversial content that could pose legal or reputational risks.
Content quality and ownership are integral to the website’s long-term success. They directly impact user experience, search engine ranking, and the overall credibility and trustworthiness of the website. Thorough assessment in these areas is vital for a successful website acquisition.
Due Diligence Checklist Step 7: Social Media and Online Presence
Assessing the social media and online presence of a website is a crucial component of the due diligence process. A strong online presence, especially on social media platforms, can significantly enhance a website’s reach and influence.
Evaluating the social media and online presence of a website provides valuable insights into how the brand is perceived and engaged with online.
Key areas to focus on include:
Social Media Profiles and Activity
- Platform Presence: Review which social media platforms the website is active on and the relevance of these platforms to its target audience.
- Engagement Metrics: Analyze engagement metrics such as likes, shares, comments, and follower growth rate to gauge audience interaction.
- Public Perception: Assess public perception of the website through reviews, ratings, and social media sentiment analysis.
- Brand Consistency: Ensure consistency in branding and messaging across all online platforms.
Content Strategy on Social Media
- Content Quality and Relevance: Evaluate the quality and relevance of the content shared on social media.
- Frequency of Posts: Assess how frequently new content is posted and how it aligns with audience engagement.
- Influencer Collaborations: Review any collaborations with influencers or notable figures in the website’s niche.
- Reach Analysis: Analyze the reach of social media posts and campaigns to understand the website’s influence.
Audience Demographics and Insights
- Audience Analysis: Understand the demographics and preferences of the website’s social media audience.
- User Interaction Patterns: Look into patterns of user interaction and engagement on social media platforms.
Digital Marketing and Campaigns
- Marketing Campaigns Effectiveness: Evaluate the effectiveness of past and current digital marketing campaigns.
- Email Marketing: If applicable, assess the website’s email marketing strategies and subscriber engagement levels.
Due Diligence Checklist Step 8: Technical Assessment
Technical assessment is a critical stage in the website due diligence process. It involves evaluating the website’s technical infrastructure, performance, and scalability. This process is crucial for avoiding future technical issues and additional investment for improvements.
Key areas to focus on include:
Website Infrastructure
- Hosting and Server Performance: Assess the quality and reliability of the website’s hosting service, including server response times and uptime statistics.
- Platform and Technology Stack: Review the underlying technologies and platforms used (such as CMS, e-commerce platforms) for their robustness and suitability.
- Security Measures: Evaluate the security measures in place, including SSL certificates, firewalls, and malware protection.
- Data Backup and Recovery: Check the data backup systems and recovery processes to ensure data safety in case of breaches or technical failures.
- Website Speed and Load Times: Test the website’s load times and overall speed, as this impacts user experience and SEO.
- Scalability: Assess the website’s ability to handle increased traffic and growth without performance degradation.
User Experience and Design
- Design Quality and Responsiveness: Evaluate the website’s design for its aesthetic appeal, user-friendliness, and responsiveness across different devices.
- Navigation and User Interface: Review the navigation structure and user interface for ease of use and accessibility.
Technical SEO
- SEO Health Check: Conduct a technical SEO audit to identify issues that might affect search engine rankings, such as broken links, improper redirects, or missing meta tags.
- Mobile Optimization: Ensure that the website is optimized for mobile users, a critical factor for search engine rankings and user experience.
Integration and APIs
- Third-Party Integrations: Assess the integrations with third-party services and APIs for functionality and reliability.
- API Dependencies: Evaluate any dependencies on external APIs and ensure they are stable and well-documented.
Due Diligence Checklist Step 9: Competitive Analysis
Competitive analysis is an essential part of the due diligence process when purchasing a website. It involves assessing the website’s position in the market relative to its competitors.
Key areas to focus on include:
Market Position and Share
- Market Share Assessment: Evaluate the website’s market share compared to competitors.
- Position in the Market: Determine the website’s position in its niche – is it a leader, a challenger, or a new entrant?
- Key Competitors: Identify and profile major competitors, including their market strategy, strengths, and weaknesses.
- Unique Selling Propositions (USPs): Compare the USPs of the website against those of competitors.
- Offerings Comparison: Compare the products or services offered by the website with those of competitors to identify gaps or advantages.
- Pricing Strategy: Assess how the website’s pricing strategy compares to the competition.
SEO and Content Strategy
- Search Engine Rankings: Using tools like Google Analytics and Ahrefs, compare the website’s search engine rankings for key terms against those of competitors.
- Website Traffic Comparison: Compare the website’s traffic to that of its competitors to gauge market presence.
- Social Media Presence: Analyze the website’s social media presence and engagement in comparison to competitors.
- Content Quality and Strategy: Evaluate how the website’s content strategy stacks up against competitors in terms of quality, engagement, and SEO effectiveness.
Customer Base and Loyalty
- Customer Demographics: Compare the demographics of the website’s customer base with those of competitors.
- Customer Loyalty and Satisfaction: Assess the website’s customer loyalty and satisfaction levels in comparison to the competition.
Due Diligence Checklist Step 10: Growth Potential
Evaluating the growth potential is a key aspect of the website due diligence process when considering a purchase. Understanding the growth potential of a website is about looking beyond its current state and envisioning its future possibilities.
Key expansion opportunities to examine include:
- New Market Segments: Identify opportunities to reach new customer segments or geographic markets.
- Product or Service Expansion: Assess the potential for introducing new products or services that complement the existing offerings.
- Monetization Opportunities: Explore additional monetization strategies such as new advertising models, affiliate programs, or e-commerce capabilities.
- Pricing Model Optimization: Evaluate the scope for optimizing pricing strategies to enhance revenue.
- User Acquisition Strategies: Consider the effectiveness and scalability of current user acquisition strategies.
- Community and Engagement: Assess the potential for building a larger and more engaged community around the website’s content or services.
- Technological Advancements: Evaluate how adopting new technologies or innovative features could drive growth.
- Platform Scalability: Assess the website’s technical infrastructure for its ability to support growth and increased traffic.
- Brand Strengthening: Look at opportunities to enhance the website’s brand recognition and reputation.
- Marketing and Promotion: Analyze the potential for scaling up marketing efforts to increase visibility and reach.
Partnerships and Collaborations
Also think about your competitors. How many of them could you turn into allies and partners?
- Strategic Alliances: Consider the potential for forming strategic partnerships or collaborations to expand market reach or enhance offerings.
- Synergies with Existing Assets: If you have other business assets, evaluate how the website could synergize with them for mutual growth.
- Building on Strengths: Identify the website’s key strengths and how they can be leveraged for growth.
- Differentiation Opportunities: Assess how the website can further differentiate itself from competitors to gain a competitive edge.
Bonus: Monetization Strategies
Monetization strategies are a critical aspect website due diligence. This involves assessing how the website generates revenue and identifying potential avenues for increasing income.
Check for Current Monetization Methods
- Advertising: Review the effectiveness of current advertising models, such as pay-per-click (PPC), display ads, or sponsored content.
- E-commerce Sales: If applicable, evaluate the revenue generated from product sales, including digital products or merchandise.
- Subscription Models: Assess the success of any subscription-based models, including membership fees or premium content access.
- Affiliate Programs: Analyze the performance of existing affiliate marketing programs and their contribution to revenue.
- Partnership Agreements: Review any existing partnerships or sponsorships that contribute to the website’s income.
Potential for New Monetization Methods
- Diversification Opportunities: Explore potential new revenue streams, such as launching an e-commerce section, adding paid features, or offering online courses. Here are some marketing methods you should consider to grow your new online business.
- Content Monetization: Consider opportunities for monetizing content, such as through gated content, licensing, or content syndication.
- Conversion Rate Optimization: Evaluate strategies to improve conversion rates for existing monetization channels.
- User Engagement: Assess how increased user engagement can be leveraged for higher revenue generation.
- Leveraging User Data: If applicable, explore ethical and legal ways to monetize user data, such as through targeted advertising or market research.
- Growth Potential of Current Models: Assess the scalability of existing revenue models and their capacity to grow with the website.
- Sustainability: Evaluate the long-term sustainability of current monetization strategies in light of market trends and consumer behavior.
- Tech-Driven Monetization: Consider the role of technology in enhancing or creating new revenue streams, such as through mobile apps or AI-driven personalized recommendations.
Conclusion
You now know the necessary steps for thorough website due diligence. This due diligence process should reveal any hidden red flags or profit potential, leaving you with an easy decision to purchase or not.
Remember that due diligence can be arduous and time consuming. If you need help, don’t hesitate to contact Centurica with your questions.
