Today we are sitting down to talk about due diligence from specific examples that Dave and I have both gone through in the past few weeks. With large deals coming through both of our laps, this topic is top of mind, and we walk through the entire process from A-Z and share our experiences with you.
If you imagine website due diligence as a funnel similar to the sales funnels we know all about in online marketing the top of the funnel can be considered to be the deal listing itself. Within that listing you need to consider your budget, the type of asset you want to acquire, monetization method, and some cursory checks of traffic and revenue metrics.
After this preliminary check is done and you decide you’re ready to make an offer then further due diligence is necessary. This includes a deeper dive in traffic, revenue, transferability, risks, and real versus declared costs of operation. The data involved in this step will usually include read-only access to the site’s Google Analytics and getting a copy of revenue reports or P&L statements. Now is when you’ll want to dig in to the details of traffic and revenue.
Assuming the traffic and revenue profile of the site looks good it’s time to look at how transferrable the monetization methods are. For example, Paypal subscriptions are not transferable and a subscription method via PayPal would need to be recreated another way. Not a deal breaker, but definitely something to consider.
The last stage of due diligence on a deal is the seller themselves. Why are they selling? What other assets does the seller have in the same space, and are they willing an asset that they’ve cared for or one that’s been neglected? Also to be considered here is whether the seller will sign a non-compete agreement for the specific niche you’re looking to operate in. This can prevent future issues down the road.
Some of the tools that we use to analyze prospective deals are:
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