Questions

I’m about to purchase an internet based business this month and wanted to know what due diligence should I do to make sure I won’t get scammed?

Also who are some trustworthy website brokers out there?

8answers

This is a question that requires far more than a simple 10-minute answer, as due diligence is an extremely complex subject and only having a few "quick tips" would put you in a very vulnerable position.

Generally speaking though, the key areas that you would want to focus on (depending on the type of the web business that you're about to buy) are:

* Financial verification - make sure to verify all income and expenditure, and never rely on screenshots or video proofs, as these are easily faked. Always require either live access to accounts/books or schedule a real-time screen sharing session with the seller.

* Make sure to fully understand the business model and its sustainability. This is easier said than done but it's perhaps the most important aspect of DD. You need to be able to make sure that the business is an actual, viable and sustainable business, rather than a fly-by-night website. I've written about this in length here: http://bryanoneil.com/the-most-important-website-due-diligence-question-that-buyers-rarely-ask/

* Take a very thorough look through the site's analytics (preferably you should request live access to its Google Analytics account) and make sure everything is in order. Also take a thorough look through the site's traffic sources and ensure that they're sustainable.

* Validate the claimed owner responsibilities so that you wouldn't end up buying a business that's actually a full time job. Sellers often misrepresent this part so it's important to perform a sanity check and ensure that the claimed hours match the reality.

But as I said, there's far more to due diligence than that. I've published a fair number of articles about this in my blog (http://bryanoneil.com) that you would probably find useful, but I would still recommend you to either do a lot of reading up on the subject, or to speak to a professional.

As for trustworthy brokers - I'm obviously a bit biased here as I run a brokerage myself (Deal Flow - http://dealflow.flippa.com/), but apart from us the other two larger brokers are Quiet Light Brokerage and FE International.

I'd recommend you to steer clear from brokers who either have too many listings (as that's an indication of sub-par vetting standards and therefore low quality listings), or brokers that haven't established themselves in the industry, as those newer brokers are rarely experienced enough to be able to properly validate the businesses that they list, and are often desperate to complete deals, leading them to intentional misrepresentation.

Hope this helps!
Bryan


Answered 5 years ago

You must be careful. Does the business have obligations you are unaware of? Is there an ongoing lawsuit? Does the business have debt you are unaware of?

I would recommend consulting a business attorney.


Answered 5 years ago

Like any business acquisition it's not always what your buying that needs to be evaluated the most but you yourself and your skills. When it's internet related I would say it has a completely different set of problems than a typical service business has. Here are just a few things you may want to consider:

1) Are you versed in handling the daily operations of a website?

2) Does this website require one or more full time staff to run?

3) If a small income generator are you prepared to fix the site when server problems exist, code changes, bug fixes and general website maintenance?

4) What platform or code is the website built. Is it an outdated PHP, hard to find personal for Perl or is it WordPress based etc?

5) Does this website or it's contents infringe upon any copyright violations?

6) Does it have a well written terms of service and privacy policy if users are able to submit content?

7) Has the domain name been banned or are there any alerts by virus scanning companies due to 3rd party links?

8) Is traffic bought or organic?

The questions related to purchasing any business could be countless. Many times you have to dive into a situation and take a leap of faith. I'd say the biggest things that plague website owners is getting code work done since there are so many code languages and people have different ways of solving problems. You can have ten people give you ten different answers on how to solve a problems and some of the problems related to a website are ongoing especially if it was not built proper code. If you understand code and can write your own code then you have an advantage. If not this could be your biggest challenge moving forward after purchase. Good luck!


Answered 5 years ago

In a nut-shell - there are 3 types of DD you need to make:
- Business (that you understand the business completely including distribution marketing channels, growth engines, customer service, how much does it cost to acquire a new customer etc.).
- Legal (let your lawyers do that, and DO NOT PROCEED WITHOUT ONE as there are many aspects to think about that you usually don't even imagine like taxes, anti-trust, money laundering and many more that might be relevant).
- Financial (to make sure all numbers are right and together with the legal DD gives you a real picture of the business).


Answered 5 years ago

The best thing to do when you are buying over a business is to get unbiased/ frank opinion from their existing employees, customers and vendors. Only they can give you the correct picture or state of affairs. If you don't have the skill or the bandwidth to do this, appoint a good third party to do this secretly.

Everything else like accounts, client base, revenue and profits are secondary.


Answered 4 years ago

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