One of the concerns I’ve always had about buying an existing online business is that after it changes hands the traffic and revenue will evaporate. There are so many ways that someone could misrepresent their revenue, profit, traffic, etc. that it feels like it would take a good chunk of time for me to really verify I’m getting what I think I’m getting.
I think the most common trick I’ve seen people try is to dump a bunch of money into advertising but only show the revenue it generated. Here’s an example. Someone says they have an online business that makes $5,000/mo, you look at verified stats from Pay Pal or Shopify and confirm, it’s legit, they’re making $5,000/month. What you don’t know is that they’re spending $7,500/month on Facebook ads to do it, hence they’re giving you a business that’s actually losing money.
Unless you have experience buying and selling online businesses, which I don’t, the concept of spending tens of thousands of dollars feels pretty risky. All that being said, it has always been on my mind. While I don’t have the time to build a website from scratch, figure out content, monetization, etc. I do have a lot of interest in buying an asset where someone else has already figured all of that. So I’ve spent more time lately looking on Flippa and well, I don’t know how I missed this but this morning I learned that Flippa has a Due Diligence service, aptly named Flippa Due Diligence.
The general idea behind the service is to offer detailed due diligence on Flippa properties you’re looking at buying. The program offers three tiers of diligence, each one getting more detailed as you move up, here’s a quick overview of each level:
Red Flag Report – this is the first tier and recommended for online businesses in the $0 – $30k range. The report they generate covers one-year and ends up being 11-14 pages long.
Standard Report – recommended for businesses in the $30k – $200k range this report provides two years of analysis and is in the 21 – 25 page range.
Enhanced Report – as the top tier this is aimed at people looking at buying businesses in the $200k+ range, it covers three years of analysis and provides you a report in the 26 – 35 page range.
Flippa has done a great job showing all the data that is included in the reports based on the level you pick. Here’s a look at one of the many areas they cover – Seller Analysis:
You’ll find tables like these for all the different categories they cover like traffic sources, sales and marketing analysis, operations and legal analysis, industry and competition analysis, and recommended next steps all on this page.
I have to say, I’m impressed with how thorough this due diligence service is. Just looking at what’s included in the Red Flag report plan I think it would probably take me 40+ hours to do all that work so paying someone else to do it, that has a lot more expertise than I do makes a lot of sense.
So if you’ve been looking at buying a business on Flippa but, like me, you don’t want to end up with a dud, now you don’t have to do all the work yourself, Flippa has you covered
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