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Website Due Diligence: A beginner’s guide

Due diligence can be a daunting phrase but don’t let that scare you off, it simply means ‘the gathering of information’ in the business world.

Due diligence can be a daunting phrase but don’t let that scare you off, it simply means ‘the gathering of information’ in the business world.

A period of due diligence allows the prospective buyer to make an investigation into every facet of the business, from the accounts to the day to day operations, making sure that there are no skeletons in the closet.

When buying a business, you will want to know as much as possible about your potential investment.  Due diligence, if carried out correctly and thoroughly, can be the difference between a business that makes you money and one that costs you more in the long run.

If the prospective business trades online, your website is your most valuable piece of property, albeit is a digital asset. In just the same way as a brick and mortar store, when looking to buy an online based business you need to apply some critical thought and avoid taking the owner's information at face value.  

Unfortunately, inaccurate, inflated and fraudulent figures have become common problems in the digital world. The Australian Competition and Consumer Commission recently reported that Australians have already lost $45 million to scams last year!

So here are just a few of those things you need to think about alongside those standard due diligence checks:

Assess the market

Firstly, assess the website’s position in its market. Make sure you look at how well your competition is doing, the current trends in the industry and how high the website ranking is.

It goes without saying that the better the website ranks in the search engines, the less work you’re likely required to do in the first few months of operating your new business, but you will still have to maintain your high position in search rankings.

Domain ownership

Don’t assume that the domain of the website is owned by the seller. It is always worth bearing in mind that the domain may have been purchased when the business was started in another person’s name.

Ownership of the design and content

The design and content of the website could be owned by the seller or it could be owned by the developer or designer if the rights were not specifically assigned at the date of creation.

Sometimes it can be tricky to determine which parts of the site you actually own, so make sure that you ask the seller if this is included during the due diligence stage.

Traffic maintenance

It works in the buyersfavour to purchase a website that already has a customer base for the product they are hoping to sell.

Don’t get lured into the trap of buying a website just for its high traffic rate. You need to be certain that the people drawn to your site can be leveraged for revenue, otherwise you could be buying a liability rather than an asset.

Go mobile

There's no way we can ignore the mobile experience within consumer culture any longer - after all 85% of Australians now own a smart phone

If the website you are looking to buy is not mobile friendly- one of the first things you should do as a prospective buyer is to optimise it. 

Given the choice, no small business owner would close their doors for an additional day each week for no reason. 

And not having a mobile optimised website has been likened to losing a full days revenue when compared to a brick and mortar store. 

Many small businesses are mistaken, believing that because their website is searchable on a mobile device that it is 'mobile friendly'. However, this is not the case and a lot goes into the process of ensuring your website is fit for mobile use

Linked accounts

We’re living an age where everyone’s obsessed with social media! Most businesses have social media accounts as well as websites, so make sure that these affiliated accounts are part of the purchase agreement.

Legalities

There are plenty of rules and regulations regarding trading online, make sure you look into these before you sign on the dotted line.

Does the site comply with the Fair Trading Act (1989) and online trading laws as well as: The Data Protection Act (1988), Intellectual property and copyright regulations and The Spam Act (2003) to name a few.

If the website collects information from its visitors about their browsing history (which web browser they are using etc.) it is also worth looking at the regulations on cookie law.

In most countries, the site must make the users aware that you are storing their information (often via a warning or a pop up) clearly explaining how you are using this information and why, even if you’re not based in the country that these laws apply to.

Security

In a world where website hacking is becoming more common, it’s important that your website has a good level of security, especially if you take electronic payments.

Providing online security is a crucial part of risk management and will help the site abide by the legal requirements.

Operating a website in a secure online environment will also keep both the owner and the consumer safe whilst building confidence and trust.

Many Content Management Systems (CMS) have additional software designed to increase online security. If in doubt, speak to a developer or an internet security specialist.

Overall good practice

As part of the seller’s disclosure, the buyer will be able to gain full access to the websites analytics.

Google, for example, have their own set of Webmaster Guidelines, if a site doesn’t abide by it can result in penalties.

Penalties can be caused by designated ‘bad behaviour’ (unoriginal content, backlinks etc) or a change in algorithm. Look for evidence of penalties in the analytics as these could be a liability and damage the sites ranking.

It is worthwhile getting the site looked at by an experienced online marketer who can provide a SEO report based on the analytics.

Thinking about the future

Content is one of the most important parts of running a website and search engines favour websites that are regularly contributing and well maintained over those that aren’t.

Do you have someone in mind to provide new content? If you are providing good quality, regular content it will be reflected in your search engine ranking.

During the due diligence process, it can be easy to focus on delving into a websites history. However thinking about the future and how you can maintain the level of traffic it is equally important.

Due diligence can be a difficult part of the buying process and if in doubt a little advice can go a long way. Which parts do you find particularly tricky?

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Melanie Luff

About the author

Mel wrote for all titles in the Dynamis stable including BusinessesForSale.com, FranchiseSales.com and PropertySales.com as well as other global industry publications.

@Be_TheBoss

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