How To Do Online Business Due Diligence
Buying an online business, whether it’s valued at $1 million, or $100,000 is a big deal, you need to have full confidence before going through with your purchase. And that’s exactly what I’m going to talk about today is due diligence for buying online businesses. Whenever I review a business, I’m looking to review the risk tolerance of the acquisition, I’m looking for growth opportunities, and I’m looking into the financial details. And I’m looking at a number of other various factors to figure out if this is going to be a good acquisition or not. Oftentimes, an under-optimized business is going to make for a much better acquisition with my strategy, because I’m looking for growth opportunities in that business. A lot of times other people are just looking for cash flow and looking to buy a business that’s already fully optimized. In my opinion, and more under-optimized business is a lot more appealing than a business that’s been fully optimized and doesn’t have a lot of room for growth. The reason behind this is an under-optimized business has a lot more chance for scaling up because a lot of times the previous owner is missing out on certain opportunities that I see in the business.
In this video, today, I’m going to share the three most important factors for online business due diligence. And if you stick around to the end, I’m going to share all the growth opportunities that I look for when I’m performing my own due diligence for online businesses. So let’s go ahead and dig into the first one. So you might be thinking about what actually is due diligence. So essentially, due diligence is taking a deep look into a business, looking at the financial data, looking at the risk tolerance of the business, and looking at a variety of other metrics to see if it’s going to make for a good acquisition, sometimes due diligence process can take up to a month, sometimes it can take a few days, depending on the size of the business, the complexity of the business, and a variety of other factors. Now starting off, let’s take a look at my number one most important factor for performing due diligence. So the first area that I start off with for due diligence is in the financial details, you really need to look at the profit and loss statements, and the p&l to comb through look for any discrepancies that might look off, you’re gonna need to verify a lot of these expenses. For example, I was looking at a p&l the other day and checking the expenses, I saw a one-time fee that wasn’t really easily explained anywhere. And this is something that you need to ask for further clarification, figure out all the expenses that are being performed on the business, look at all the profits,s and try to take everything line by line for the last 12 months. And even better, if you go further beyond that, the financial details are going to give you a basic indicator of the health of the business. And this basic indicator is going to be your foundation for figuring out if it’s going to be a good acquisition for your portfolio or not. The second area for due diligence is traffic data and analytics.
So this is going to be using tools like Google Analytics, which is essentially a free tool to look at how people are coming to the website, what their path is on the website, what pages are being viewed the most, what demographics are using the site, are they coming from the United States, or are they coming from India, a lot of this traffic is not going to be treated equally, and traffic from the United States is going to have a higher value than traffic from somewhere in India, just because those traffic trends normally convert at a higher rate? And they’re going to convert at a higher amount. So if you have 1000 people coming from the United States, you can probably allocate 10 to $15 versus a developing nation that might only have a fraction of that cost of conversions through that website. So I recommend taking some of the free Google Analytics websites to learn how to use Google Analytics. And then you’re gonna figure out what to actually look for. And again, you’re looking for these discrepancies. So maybe there’s a huge traffic bump in December. And maybe this was due to the seasonality. A lot of people were visiting the website for Christmas, or for other holiday shopping. You need to ask did this traffic spike in December? Did that actually translate into more profit for the business if he got a huge increase in traffic, but didn’t result in more sales and more profit? This is something that you need to continue asking more and more questions about. And when I’m performing due diligence, in every aspect, I’m writing down questions to ask the seller for more clarification on the business. So SEO or Search Engine Optimization is the third key area for due diligence. And again, due diligence is going to vary for a software business versus an Amazon FBA or E-commerce business. But these are just going to be general rules that are going to work for almost every business. So SEO or Search Engine Optimization, no matter whether people are getting traffic to their business through Google, Yahoo, Facebook, or Amazon, there are going to be some SEO metrics that you can look at on the business and figure out how people are coming to that website. So for a general website, I love to use h refs, you can essentially put the domain in, figure out which websites are backlinking to this business, is a risky backlink profile, and have they use any sort of Blackhat techniques to sort of grow their SEO over the years, a lot of times those businesses are going to be a little bit riskier than businesses that are using something more organically. So the reason behind this is you’re trying to get a grasp of the risk tolerance of buying one of these businesses, and then you’re gonna figure out all the things behind the SEO strategy, what they’ve been doing for link building, what their SEO approaches, and maybe this is gonna be an area that’s under optimize, you can acquire the business and implement your own SEO strategy, that’s going to have a big exponential growth on the business. So digging into the SEO, H refs have a really great free course and program out there, which you can take on YouTube, to learn the ins and outs of how to use h refs, and how to perform an SEO audit of a website to figure out if it’s a good key indicator to buy. Other than that, I also recommend looking at the number two to three competitors in the niche, putting them into h refs, and also doing an audit on those websites to see if there are any other opportunities or low-hanging fruits for acquiring these types of businesses.
Now, those are the three main areas of due diligence. Of course, a lot of those areas are going to have a lot more discrepancies, and other areas that dig deeper into the business. If you’re interested in learning more about that, leave a comment below. And I’ll be sending a full due diligence checklist for you. So you can go ahead and see every area that I’m looking at for an online business. Now moving on to the opportunities that come up when I’m performing due diligence, because one, due diligence is performing a risk analysis on the business. But it’s also looking at the opportunities for buying this business. Where can I grow? Where can I optimize? And where can I essentially start scaling this business from day one post-acquisition, some of the areas that I love looking for is because I’m a full stack marketer I look for, are running paid ads, are they running paid traffic is that a potential opportunity to grow the business, maybe they don’t have an email list. That’s something that I love implementing, it’s very easy and fast to start building one of these, or maybe they have an email list, which is really common, but they’re underutilizing it, maybe they’re sending one email a month, where you can start sending daily emails, weekly emails, or whatever structure you figure is gonna grow the business more.
A few other areas I love talking about and what love looking for in these types of businesses is the pricing plans, especially for digital products. A lot of times entrepreneurs haven’t actually tested different tiers, they haven’t tested different packages for the pricing. And that can be one of the fastest ways to optimize a business. Instead of getting more traffic, you’re just charging more for your packages. And that can be the easiest and fastest way to double or even triple your profit. I’ve used this time and time again, to optimize businesses that hadn’t tested any different pricing tiers, or any different types of packages. The last way that I love to look at is just CRO, which is conversion rate optimization. Essentially, if you have 1000 people going through a website, and they’re converting at five to 10%, you can go ahead and implement standardized CRO tactics to improve that 10% conversion to 15 or 20%.
So you’re already taking people who are visiting the website, and you’re essentially getting them to convert and buy your product or service at a much higher rate, which at the end of the day is going to increase your profit and volubility for the online business you acquired. Now, if you love these four tips, make sure you go ahead and leave a comment below. And I’ll be sending everyone who leaves a comment a copy of my due diligence checklist where you’ll get every item I look for when acquiring an online business. And go ahead and make sure you subscribe to this video. Hit the bell notification icon to get alerted about every new video that goes live and I’m publishing videos almost every day. So you want to make sure you go ahead and turn on the bell notification icon to get alerted.
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