Due Diligence Tips When Buying an Online Business
The online business marketplace is one that’s grown by leaps and bounds, and increasingly, buyers and sellers are coming together to make deals concerning these sites. Whether the business is simply a blog with a large following or is a more complex e-commerce setup, there may be the feeling from both parties that due diligence isn’t necessary as it would be with traditional M&As, but that’s not the reality.
For internet entrepreneurs who want to purchase an online business, due diligence remains incredibly important. At the same time, however, due diligence when buying an online blog, website or e-commerce site is pretty different from what you would do when buying a local small business, for example.
Below are some ways you can make sure you’re doing proper due diligence before jumping in and becoming the owner of an online business.
Follow A Template
If you’re new to the concept of buying a business, it can be a good idea to start with a template or checklist that will walk you through each step of the process. For example, the Due Diligence Checklist” from Firmex can be a good starting point to help both buyers and sellers understand what they need to have before trying to close a deal.
Know the Risks
When you’re considering buying an online business, the risks are different than what you might run into with the purchase of a traditional business. For example, you may be presented with a certain level of traffic, but it might not be sustainable over the long-term. Another possible risk to keep an eye out for is how much maintenance would be required for the website to be up and running in the way visitors expect. If you think the technical considerations and maintenance are going to require outsourcing additional employees, this is something to factor into the price at which you’re willing to buy the business.
Analyze the Traffic
The seller of an online business might tell you about their traffic, but as a buyer, it’s up to you to do your own research and see what’s really happening. Google Analytics is the best tool to do this. You can break down the traffic patterns at a yearly, monthly and even daily level. You want to see what the growth trends look like, and also determine how well those can be sustained. If there’s a spike in traffic that might not be replicable, that could be a problem.
Understand the Source of Traffic
As a final note, it’s critical if you’re a buyer that you have an understanding of not just what traffic patterns look like, but also the sources of traffic. You want to see diversity in where traffic is coming from, and it’s the hope that organic search traffic is the largest contributing source. Also, think about the quality of traffic driven by each source. For example, how long are visitors spending on the site? Where are they looking? How many pages are they viewing per session? These are all important considerations when completing due diligence for the purchase of a website or online business.