Website Business Due Diligence

When it comes time to sell your online business venture it is very important to prepare your business presentation and get your documentation organized. Even though a business appears to be attractive in its presentation, many deals will stall and fail to close because of a lack of clear historic documentation of the business financials and stats.

Due diligence is the act of scrutinizing the details of an online business for sale as offered to verify and corroborate all claims made in the listing. Many buyers fail to provide adequate data that convinces a potential buyer to sign a formal purchase agreement and close a deal.

Once a buyer submits a written offer – called a Letter of Intent (LOI) – and it is accepted in principle by the seller, there is a due diligence period where the buyer is provided with detailed financial information and business statistics that prove the claims of the offer.

These should include most of the following elements:

• Merchant credit card statements
• Bank statements
• Third Party payments – ie Amazon, clickbank, Google adsense , or other affiliate revenues and subsequent reports
• Tax returns – if available
• Site traffic stats – off the server or Google analytics including unique visitors, pageviews, referrals country of origin etc, Alexa ranking, etc
• Keyword search engine rankings
• Trademark/Copyright records
• Unique website content proof – www.copyscape.com – checks for duplicate content Issues.
• Costs of goods sold expense reports – invoices and wholesale pricing proof
• Inventory accuracy and physical count
• Online advertising expense reports – ie google adwords and Yahoo, MSN etc Pay Per Click (PPC) campaigns.
• Legal leans or pending or past law suits clearance
• Employee verification – payroll expenses and payroll tax to confirm employees and Expense.
• Site optimization issues – linking methods – verifying if there are any paid links, or ‘spammy’ techniques for getting lots of links that may cause issues in the future.
• Background check on seller - check WHOIS ownership of URL etc.

Customer database, email/newsletter subscribers list, Vendor list and vendor contracts/agreements are extremely sensitive information and will only be given upon signing of a definitive binding purchase agreement. Of course the agreement stipulates the corroboration of this data for the deal to close, so the buyer should not be concerned about the specifics as the deal will be terminated if this data proves false or misleading.

There are likely to be other items to check off the list depending on the business model, but this should be the bulk of the due diligence items to prepare in advance. If a seller has these in order, it will not only expedite the due diligence period leading to a quicker closing, but it will also provide a level of trust and comfort for the buyer that will compel them to complete the website for sale transaction as agreed upon in the LOI (non binding).

David Fairley

President,

www.websiteproperties.com