One of the biggest mistakes when it comes to purchasing any business or website is failing to look past the reason why a great investment opportunity is offered to you on a silver platter. You must be vigilant and see why they want to let go of a business with huge potential.

Is it because they have a promising plan for the future of their company, or is it because the business is starting to lose steam and is on its way down the drain?

You need to be smart and strategic with your investments. It’s not enough to see the potential on the surface level. You also need to dig deep and understand its structure and operations.

If you want to succeed in securing and improving a new investment opportunity, you must execute due diligence before you proceed with the acquisition.

• Due Diligence Checklist
• What is Website Due Diligence?
• What Should be Done Before Due Diligence?
• What is Due Diligence Checklist?
• Is Due Diligence a Legal Requirement?
• What Should a Buyer do During Due Diligence?
• Stock Due Diligence Website
• 10 Step Website Investing Due Diligence Checklist
• Domain Name Due Diligence Checklist
• Due Diligence Empire Flippers
• What do You Look For in Due Diligence?
• How Long Does Due Diligence Take When Buying a Business?
• What Documents do You Need For Due Diligence?
• Can Buyer Back Out During Due Diligence?
• What is The Purpose of The Due Diligence Process in The Purchase of a Business?
• What Are The Types of Due Diligence?
• How do You Prepare a Due Diligence Checklist?
• What do You Check During Due Diligence?
• How do You Assess a Business Before Buying?
• What Should You Look For When Assessing a Business?

Due Diligence Checklist

Here are some of the factors that you should include in your due diligence checklist for online businesses and websites:

1. Owner and organization of the company

In traditional businesses, it is practically a given that you should meet with the owner of the business you’re dealing with if you are serious about planning to purchase the company.

You may think that doing this is a given at all times; however, you’ll be surprised to know that not all online buyers verify the identity of the online business owner before they go forward with a deal. It could pose a problem in the future, especially when you encounter issues with the online business, and you cannot hold anyone liable anymore.

Read Also: How to Start an eCommerce Business in 2022

In online businesses, it’s technically not required for you to meet with the owner of the online business before you go forward with a deal. But you should at least know that their identity is verifiable. At the very minimum, you should be able to see them on social media sites like Facebook, Twitter, and LinkedIn.

By doing so, there’s less likelihood for you to be dealing with a scam. Plus, you can trace back accountability when something amiss happens in the online business.

2. Financial Information

One of the most critical pieces of information, you should have this before you go ahead with any online business or website purchase. As a smart investor, you should be aware of the previous and current financial situation of the business you’re buying.

At the same time, make sure that the online business follows all legal measures when it comes to tax returns and affiliate statements.

You should also require a live screen share with the seller when it comes to accessing the back end of the website. Online banking portals should be checked as well to verify the financial information provided and prove the legitimacy of ownership.

Before signing on the dotted lines, it would also be useful to trace all liabilities, debts, and loans associated with the online website or business you’re purchasing.

You can never be too careful when reviewing financials. Your goal is to earn from that online business or website. As such, acquiring a company that’s already on its way down is not something that you should do.

Assess the financial situation of the business you’re planning to reach out to before you sign anything remotely related to the company you want to purchase.

3. Taxes

As mentioned, you should make sure that the business you’re acquiring has been vigilant in paying the appropriate taxes for their online business or website. The last thing you want is a long-winded legal battle about back-paying proper taxes that were previously left unpaid before.

Otherwise, you could end up losing more than the tax required. Just imagine seeking the assistance of legal representatives who won’t be able to defend you fully because of your lack of due diligence.

Every legal business transaction will leave footprints, especially when it comes to online businesses and websites. With simple mining of data, people will be able to tell if your taxes do not match the necessary amount needed relative to your income.

As a potential business owner, having access to this data is vital if you want to have an efficient and effective online business or website for the years to come.

4. Employee or contractors’ information

Any company wouldn’t be able to function well without the work rendered by its employees or contractors. That is exactly how it works with online businesses and websites as well.

Since practically everything is digital nowadays, people tend to forget that behind every function is a real person performing his or her job well.

As a potential online business owner, you need to familiarize yourself with the employee structure and the use of contractors within the company you’re looking to purchase.

Are there any gaps when it comes to the division of work? Perhaps there are irregularities with the service provided by your online business relative to the work produced by the contractor?

It would be useful to know exactly what happens behind the digital façade of the company. Allow yourself to have a full grasp of the culture and structure of the human elements in your future business.

5. Legal verification

It’s one thing to purchase an online business with a sure ticket to success. It’s another thing to make sure that the online business itself is working within the regulations that bind the laws of the land.

If you’re buying an online business from someone, you must make sure that they operated their business legally, and that you will continue to operate it under the rule of law.

Some of the biggest issues when it comes to online businesses, apart from problems in direct transactions, are trademark infringement and image licensing. It would be useful to study these terms.

Learn how the previous business owner managed the business legally, and apply that to your future business operations. By doing so, you can ensure the high possibility of continuity and growth within your company.

Avoid legal issues in your future online business now by performing diligent legal verification. As soon as you spot irregularities, raise it to your legal adviser or the business owner and see if they can resolve them easily.

6. Technology and intellectual property

When you acquire an online business, you often receive everything that comes with it, including intellectual property. This matter should be dealt with seriously, as IPs deal with licensing and ownership of a certain material.

If you are planning to purchase an online business, you should inspect their intellectual properties and see how you can enforce it properly.

One of the first things you should do when exercising due diligence in intellectual property is confirming the rights of the business owner on the IP. Once you confirm that their claim is valid, you must make sure that the contract includes active and direct reinforcement against third-party companies.

It would be helpful also to identify possible issues. Some of these issues are the IP’s lack of teeth in enforcement and the exploitation of existing technology to block the operation of your intellectual property.

The digital world is so vast that it’s hard to pinpoint exactly where to focus when discussing due diligence. But in a field where you have to stand out to succeed, having unique concepts protected by IP will definitely help you along the way.

7. Website traffic information

One way to gauge the success of an online platform is to see the traffic report of visits, clicks, and conversions in an online business. The more traffic the online business attracts, the more potential clients and consumers will be incentivized to purchase the items you offer.

If the company you’re looking at has good traffic, you should research it and see the reason behind good traffic and if it’s legitimate.

Nowadays, there are many ways to manipulate online traffic or make it seem like you’re getting an overwhelming number of online visitors in a short time. An example of that would be buying spam and bot accounts for automatic traffic.

However, you can link up your pages and generate traffic by using legal methods like boosting, displaying ads, and using other online marketing methods.

When performing due diligence on website traffic information, you need to check the following:

• Average time spent on the page
• Number of pages visited by visitors
• Traffic versus conversions
• Analysis of where online traffic is coming from

8. Operational process

Before purchasing the business, you must make sure that you know how to operate the business independently. That means that from the number of responsibilities to the smallest of tasks, the new potential owner should understand the operational process of the online business.

Essentially, you need to understand your business to inspire growth. Learn the inner workings of the company, absorb the most critical issues faced by the business owner, and study the way the original business owner handled the issues on their own.

The task ahead, which is helping the company develop, should be no problem at all when you understand the size of the task at hand.

9. Products and services offered

As an online business, probably one of the key aspects of your company are the products and services you offer. At the end of the day, people will only visit your online business if they see potential in your business or if they’ve already experienced your excellent services beforehand.

If the business you’re eyeing is product-centric, you should look at the supply chain and seek to improve the processing and delivery of the items. If your business is more on the service-provision side of things, then you must provide the best customer experience in order to inspire patronage.

10. Customer information

Study and analyze the existing customer information from the previous management. See the behavior of the customers and check whether they’re strictly following the community guidelines within the webpage of the business you are trying to buy.

If you are not confident in pulling this off alone, there are software programs available online that can help you do the following:

• Consolidate customer information from all sources
• Screen violators and recommend sanctions
• Automate beneficial owner verification
• Real-time screening from your CRM
• Storing due diligence documents
• Harnessing existing relationship networks

These are just some of the principal aspects you should look into when it comes to establishing online businesses. To have a smooth and hassle-free turnover, having a checklist like this will help you tremendously.

What is Website Due Diligence?

Due diligence is an investigation or audit of a potential investment or product to confirm all facts, that might include the review of financial records. Due diligence refers to the research done before entering into an agreement or a financial transaction with another party.

In simple terms, it’s an an audit done by the buyer of a website before buying the website. The audit is needed to ensure all information about the site is correct, and that the product you buy (the website), indeed is what you expect it to be.

It’s probably one of the most over-looked aspects of buying websites, especially for new-comers to the website buying-space. But it is still one of the most important if you want to withhold a solid, long-term website portfolio.

What Should be Done Before Due Diligence?

1. Review and verify all financial information.

This includes audited financial statements over the last three years. Keep in mind that most small business financials have been compiled by the seller with the goal of minimizing taxes, so they will need to explain everything in detail, including the owner’s benefit (SDE) and cash flow.

Your accountant should meet with the seller’s accountant to review, verify and possibly recast all the numbers.

• Financials: Income statements, cash flow statements, balance sheets, general ledger, accounts payable and receivable
• Credit report
• Tax returns for at least the past three years
• All debts, their terms and any contingent liabilities
• Analysis of gross profit margins
• Analysis of fixed and variable expenses
• Gross profits and rate of return by each product
• Inventory of all products, equipment and real estate, including total value

2. Review and verify the business structure and operations.

Take a closer look at how the business is structured and how it makes its money. Any information about competitors, market penetration or trends in the industry could be useful in determining the company’s future earnings potential.

This is your opportunity to review and verify the business model, customer base, products and services, as well as labor, materials and operational costs.

• Company’s articles of incorporation and amendments
• Company’s bylaws and amendments
• Summary of current investors and shareholders
• All company names and trademark brand names
• All states where the company is authorized to do business
• All products and services, including production cost and margins
• Business compliance requirements
• Marketing plan, customer analysis, competitors, industry trends
• Company’s brand identity, including logo, website and domain

3. Review and verify all material contracts.

Does the business have any partnerships or joint ventures with other companies? Does the business have any existing loan agreements, lines of credit, equipment leases or other indentures? Find out what obligations or agreements are in place that you may be expected to comply with or respond to that are part of doing business.

• All nondisclosure or non-compete agreements, any guarantees
• Company purchase orders, quotes, invoices or warranties
• Security agreements, mortgages, collateral pledges
• Letters of intent, contracts, closing transcripts from mergers or acquisitions
• Distribution agreements, sales agreements, subscription agreements
• All loan agreements, material leases, lines of credit or promissory notes
• Contracts between officers, directors or principals of the company
• Stock purchase agreements or other options

4. Review and verify all customer information.

Review all customer lists and databases. Find out who are the largest customers in terms of sales, as well as what they’ve purchased over the last 2-3 years. How are these customers acquired and retained? Are they on renewable subscription agreements?

• All customer databases, subscriber lists and sales records
• Copies of standard communications and correspondence
• All advertising programs, marketing programs and events
• Purchasing policies and refund policies
• Any customer research data, white papers or research
• All attorneys and law firms representing the company, area of practice
• Pending litigation or threats of litigation
• Any unsatisfied judgements
• All insurance coverage and policies
• All professional licenses and permits

5. Review and verify all employee information.

Ask for the company’s employee roster and an organizational chart. Find out who the key employees are and what their responsibilities entail. This may be an important opportunity to find out if any employees plan to leave the company after it’s sold and if you should offer them some sort of incentive to stay.

• Employee roster and organizational chart
• Employee contracts and independent contractor agreements
• Payroll information and employee tax forms
• Human resources policies and procedures
• Employee benefits, retirement plan and insurance

6. Check for any legal issues.

Are there any outstanding legal issues or ongoing litigation that you need to know about? Who represents the company? Does the company have proper insurance in place? Does the company have all the proper licenses and permits in place?

7. Review and verify all physical assets and real estate.

Get a full inventory of all the company’s property and its current market value, including automobiles, equipment, real estate and inventory.

• Real estate, including office locations, warehouses, current leases and titles
• A schedule of all fixed assets, including product inventory, furniture, fixtures and equipment
• Any automobiles or boats

8. Review and verify all intellectual property.

This includes trademarks, copyrights, patents or other exclusive intellectual information that is owned by the company.

• All company’s patents, trademarks and copyrights
• Product inventions, formulas, recipes, or technical know-how
• All rights owned data and digital information
• All work-for-hire or consulting agreements

What is Due Diligence Checklist?

A due diligence checklist is an organized way to analyze a company that you are acquiring through sale, merger, or another method. By following this checklist, you can learn about a company’s assets, liabilities, contracts, benefits, and potential problems. Due diligence checklists are usually arranged in a basic format. However, they can be changed to fit different industries.

A due diligence checklist is also used for:

• Preparing an audited financial statement or annual report
• A public or private financing transaction
• Major bank financing
• A joint venture
• An initial public offering (IPO)
• General risk management

The main reason you need a due diligence checklist is to make sure you don’t overlook anything when acquiring a business. Having a due diligence checklist allows you to see what obligations, liabilities, problematic contracts, intellectual property issues, and litigation risks you’re assuming.

Most of the documents and information on your due diligence checklist is available on request. Once you have the information, it’s up to you to analyze it and decide whether it’s a good investment.

Another reason a due diligence checklist is important is that the buyer needs to know if the company is a good fit for its business. If the selling company provides a service the buyer doesn’t, it becomes beneficial. It also provides a way to measure the length and cost of integration, as well as potential revenue.

Company sales, mergers, and acquisitions should all follow the same checklist to avoid unforeseen issues. Sellers might also create a reverse diligence checklist to analyze the buyer.

Is Due Diligence a Legal Requirement?

The term “due diligence” includes both financial and legal due diligences. A buyer or investor undertakes both these due diligences through experts in the field to assess a situation, identify risks, lacunae or liabilities which an entity or property carries and analyze them, thereby helping the buyer or investor to make an informed decision and minimize their own liabilities in entering into the transaction.

Legal due diligence is the process of collecting, understanding and assessing all the legal risks associated with a transaction. It is an investigation into a business by reviewing documents and interviewing employees. A legal due diligence investigation is completed when a business or investor is interested in buying a business or investing in that business.

A legal due diligence investigation is seeking information about the business to make sure that the investment or purchase is beneficial. The investigation seeks to reveal all important facts and potential liabilities. Once the facts are collected and analyzed, an informed decision can be made.

Legal due diligence is a crucial component of any proposed acquisition. When done properly, a legal due diligence review provides valuable information to further the process of an acquisition and protects parties from unforeseen responsibilities.

Performing expert legal due diligence will save parties tremendous costs later on after an acquisition has been completed.

What Should a Buyer do During Due Diligence?

The due diligence period is a negotiated period of time during which a buyer has the opportunity to conduct their “due diligence” before deciding to move forward with the purchase of the home. For both buyer and seller it can be a tense period of surprises and decision-making.

Usually the due diligence period is somewhere between 14 and 30 days and it begins as soon as the contract is signed by both parties — once you are “under contract.” During this time, the buyer will have a professional home inspection, HVAC inspection, and termite inspection completed.

They may also have other inspections such as a septic inspection or radon inspection. Buying an older home may come with a need for additional inspections.

Unless negotiated otherwise, all inspections are paid for by the buyer. (One exception to this is if the buyer is using a VA loan, in which case the buyer is actually prohibited from paying for the termite inspection in all but nine states.) Other items that may be addressed during due diligence include an appraisal, survey, reviewing title documents and deed restrictions or HOA covenants, securing homeowners insurance and obtaining financing.

One thing worth noting here is that the due diligence period does not apply when purchasing new construction.

The due diligence period allows a buyer to discover any items that need repair or are of concern. The buyer will then decide if there are any major repair items they will ask the seller to fix before closing. With the help of their realtor, the buyer has a variety of options to negotiate a deal they are happy with in light of any major discoveries from the inspection.

One option is to simply have the seller agree to fix or remedy items, at their own expense, prior to closing. Another option is to ask for a financial concession from the seller, for the amount necessary to do the necessary repairs, in the form of closing cost help or a reduction on the purchase price.

If these options are not workable for both parties, there may be other aspects of the contract that can be negotiated. For instance, the sellers may agree to pay for certain repairs if the buyers agree to the sellers’ preferred closing date.

Stock Due Diligence Website

In the interest of teaching you how to become a better investor, we have compiled a list of the best investment sites that can help you make informed investment decisions. Our best-of-the-best online resources appear below under the general categories of Education, Research, News and Tools. (Our Cabot website, of course, covers all of the categories extensively!)

Cabot Wealth Network: cabotwealth.com

Cabot’s website contains a wealth of free information describing our investment advisories and expert analysts, showing our latest stock picks, and providing a daily market update.

The education section has valuable information on such topics as Stock Market Analysis, Market Timing, Selling Stocks, Technical Analysis, and many others. Additional information is available on Growth Investing, Value Investing, Emerging Markets, Options Trading, and Small-Cap Stocks.

Best Investment Sites for Education

AAII Investor Classroom: aaii.com/classroom
Contains various lessons covering everything from managing risk to evaluating dividend stocks. Best of all, you can easily find guidance on a specific investing topic. The cost to join is only $49 a year.

Investopedia: investopedia.com
This is an excellent source for definitions of financial terms. In addition, the site has tutorials and articles broken down by investment level and style, such as Beginners, Active Traders, and Retirement. Free.

Best Investment Sites for Research & Analysis

Security analysis falls into two broad categories: fundamental analysis and technical analysis. Fundamental analysis involves analyzing the characteristics of a company in order to estimate its value. The process includes examining a company’s financial statements and financial health, its management and competitive advantages, and its competitors and markets.

By contrast, technical analysis focuses on the price and volume activity of a stock. In its purest form, technical analysis assumes that all the fundamental factors of a company are reflected in the price of its stock. Technical analysis studies the market supply and demand in an attempt to identify where a stock’s price will go in the future.

AAII Stock Screens: aaii.com/stock-screens
The Stock Screens area on the AAII site offers both education and investment ideas for members looking to construct and manage a stock portfolio. The area profiles more than 60 strategies grouped by investment style.

Members can read about factors that make each approach unique, see how a hypothetical portfolio following each approach has performed during various market environments, and access stocks filtered by each screen. The cost of an annual membership is $49.

Morningstar: Morningstar.com
Morningstar.com is a reliable source for fundamental stock data including historical data, financial statements, and price data for individual companies. Morningstar is also the leading source for mutual fund and ETF data, offering a wide range of performance information.

The site also includes a comprehensive screener and mutual fund ratings. The basic service is free, which includes five years of data. The premium service ($199/yr.) offers 10 years of data and comprehensive research tools including portfolio tracking, analysis, and optimization.

SEC EDGAR: sec.gov/edgar/searchedgar/webusers.htm
The Securities and Exchange Commission (SEC) publishes filings for publicly traded companies in its EDGAR system. Pay particular attention to Form 10-K, which is a company’s annual report and a gold mine of information. Form 10-Q includes complete quarterly information. Free.

Seeking Alpha: seekingalpha.com
Seeking Alpha publishes quarterly conference call transcripts for many companies. These transcripts can offer insight into a company’s performance over prior quarters and management’s outlook for the future. Registration is free.

StockCharts: stockcharts.com
Many sites offer price charts, but StockCharts is more advanced with additional charting options, educational content and extensive technical analysis. StockCharts also offers a broad collection of scans for technical conditions, including candlestick and point & figure patterns. Free real-time price charts. The basic service is free; premium service varies by service level but starts at $14.95/month.

Stockrover: stockrover.com
The site provides a stock screener, sorting capabilities, charting, individual company information, technical data, and a portfolio tracker. The basic service is free, but a premium subscription allows you to download data into a spreadsheet at $250/year.

Zacks Investment Research: zacks.com/earnings
Offers comprehensive data for more than 5,000 companies, including sales and earnings estimates, revisions, and past surprises. The basic free service offers lots of information; the premium services include even more and start at $79.99/year.

Best Investment Sites for News

Barron’s: barrons.com
Barron’s includes its own articles, and articles from some of the other best investment sites – The Wall Street Journal, Dow Jones Newswires, and MarketWatch. A subscription is required to read the actual articles from Barron’s and The Wall Street Journal. The $52 per year introductory rate is well worth the money.

Bloomberg: bloomberg.com
Bloomberg offers extensive economic, business, and stock market news plus live streaming video. The site also carries a comprehensive economic calendar.

CNNMoney: money.cnn.com
CNNMoney aggregates news articles from a variety of credible sources along with fundamental and technical data for each query. The site does a good job of highlighting breaking news. Free.

MarketWatch: marketwatch.com
Another good company news website. MarketWatch features articles from leading sources including WSJ.com, Barron’s, TheStreet.com, and Seeking Alpha. The site also contains company press releases to give you “unfiltered” news about a company as well as articles with an analytical slant. MarketWatch also provides historical stock prices with charts. Free.

YahooFinance: finance.yahoo.com
Yahoo is one of the best investment sites for industry and sector news. The site also offers the top business news, company briefs, and personal finance. Type in a ticker symbol, and you will receive a current quote, flexible chart, message boards, and the latest news on your company. Free.

Best Investment Sites for Tools

Bankrate: bankrate.com
This site featured up-to-date rate comparisons for bank accounts, CDs, mortgages, credit cards, and insurance. Bankrate also offers an extensive collection of personal finance calculators, income tax resources, and tools. Free.

Discount Brokerage Research
We have accounts at two discount brokers and they both offer research on stocks and mutual funds from third-party services. While the research offerings differ, most top discount brokers give their customers free access to research reports from companies such as Morningstar, Thomson Reuters, and Standard & Poor’s.

Investor Relations Websites
Simply type the company’s name or ticker symbol followed by “investor relations” in a search engine such as Google. The investor relations section of a company’s website can offer a large amount of information including presentations, annual reports, dividend history, press releases and a calendar of upcoming events.

A Simple Stock Screen That Works
Although we use free websites mostly to double-check our data and conclusions, we also use some free sites to find stocks. My brokerage firm’s handy website provides screening tools to find stocks fitting my requirements (listed below). Your broker likely has similar screening capabilities.

Holding a good portion of your portfolio in companies that meet this list of criteria will greatly reduce your chances of suffering large losses during unforeseen market declines.

Our best screen, using Standard & Poor’s data, is easy to create and filters to find companies that meet the following four criteria:

• S&P (Standard & Poor’s) Star Ratings of 4 or higher (5 is best)
• S&P Fair Value Rankings of 4 or higher
• S&P Quality Ratings of A- or higher
• Dividend yield greater than 1.0%

10 Step Website Investing Due Diligence Checklist

Website due diligence is huge because buying a website isn’t like buying some product on Amazon, because no two vendors or websites are the same. It’s not even like buying a house, because there are relatively fewer ways in which you can make money buying houses. So when buying a website, there’s a lot you have to check to make sure that you’re getting exactly what you bargained for.

And to make things more complicated, you’re often under time pressure when buying a website online. If the website is of good quality, then there are definitely other bidders circling the prospect.

1. Business Model

One of the first things you should check is to make sure you understand the business model and how it operates. For example, is it an eCommerce site that sells products? Is it a SaaS software that provides services? Does it carry any inventory or not?

If you’re unsure about the business model, make sure the owner clarifies:

• The hourly time commitment, broken down by task
• Any technical expertise required to operate the business (ex: knowledge of WordPress, Amazon Affiliates, etc.)
• Monetization Methods

2. WhoIs History

You can verify the owner by checking the site through a WhoIs lookup.

Personally, we recommend whois.domaintools.com. From there, search for the domain and scroll down to whois history. Click through some whois records to see if the owner has changed recently.

For example, here is Flippa.com’s WhoIs history.

If the domain is under privacy, you can also check the hosting history and see if there have been any IP address, hosting provider and domain registrar changes. This will not tell you with 100% certainty that the owner has changed, but if all three have changed (around the same time, +/- 3 days), it is likely.

3. Get to Know the Seller

Your due diligence process can be a dream if you establish a good business relationship with the current owner. That doesn’t mean it would be a nightmare if you don’t, but certainly leverage the opportunity to get to know the seller on a personal level if possible.

In online business purchases it remains fairly unusual for the buyer to meet the seller or the seller’s agent in person; after all they may well be located worlds apart.

However, it is good practice to establish the seller’s business profile, history, and reputation. While somewhat subjective, using social media platforms such as LinkedIn provides a valuable means of background checking.

An authentic seller will be confident in the business and will have genuine reasons for wanting to sell the business at the present time. The current owner will have a clear sense of how the business is performing and, just as importantly, trending. Additionally the vendor may well have ideas for the next stage development of the business which would be useful to the purchaser, even if the buyer decides not to follow that particular growth strategy pathway.

Sellers should always be open to detailed questions from a prospective buyer as a result of the due diligence process. It is sound, and increasingly common, practice for the seller or the seller’s agent to agree to a conference call discussion with the buyer, to respond to questions or concerns raised by the due diligence.

It also enables alignment of the buyer’s and seller’s expectations of the transfer. No reasonable seller expects a buyer to part with hard-earned money just on the basis of the buyer’s enthusiasm and blind faith.

4. Business Operations

You should investigate the operations behind and around the website. Who does what when using what?

Most successful businesses today standardize their procedures, which streamlines work and improves revenue. If the website is linked with another company or user a vendor, find out how it all works.

Make sure to get a clear understanding of the owner’s responsibilities, including the time to perform the tasks and the technical experience necessary.

What time and effort commitment is being invested by the current owner and what is the cost value of this? The seller should be open and specific about the details of this investment. Is this within the buyer’s capacity of expertise and time availability to sustain, and if outsourced what will it cost?

While a lot has gone digital, there are still people behind any technology. If you’re purchasing a website/online business with multiple employees, you should also speak to the employees.

Thoroughly understand the employee structure of the business and get to know the employees beforehand. They may be working for you once you’ve purchased the website, so should you know their roles in running the day-to-day business.

You would want to continue that process to ensure the traffic and sales grow or at least remain steady.

As always, if you have any questions, make sure to ask for clarification from the current owner.

5. Plagiarism Check

Checking for plagiarism isn’t just something college professors do. Verify that the site has original content will help confirm that the website is built using whitehat SEO tactics.

Our personal favorite tool to use is copyscape.com.

This will show if there are other copies of the site out there. If you spot very similar sites, it may mean that the site is either using someone else’s design, the theme is very popular, or the seller has other competing sites.

In case of blogs, it is recommended to check a random sample of 5-10 articles, to verify they are original and not stolen from elsewhere.

6. Establishment Claim

To verify if the business has been established for as long as the seller has claimed, go to: archive.org and search for the domain. Always check for more than one screenshot, something from the beginning, middle and end.

Note: If the business is very young (less than 6 months), archive.org might not have that domain archived yet.

One thing to look out for is big gaps in archived pages as this may indicate that the site was down during that time. Below as an example is Flippa.com:

You’ll notice that from 2005 to 2008 there’s almost nothing archived. In this case, you would need to take a look at the last and first screenshot from that gap. In many case this will show that the domain was parked, meaning that most likely it had not been used for the entire time.

In this particular case, it was parked and redirected to seeq.com.

Sometimes archive.org may show something like this:

In this case, click on the link to the robots.txt file. Sometimes the seller has blocked archive.org by mistake and sometimes it is intentional, if they want to hide the true age of the site for example. But in either case, you would need to be cautious.

If you see that robots.txt has disallowed all spiders apart from Google and Bing, it’s not a red flag. But if you see that they have disallowed archive.org specifically, this would raise a red flag.

7. Non-Compete

A non-compete form prevents a seller from competing with the site you just bought from them for a pre-determined amount of time (typically 2-3 years).

If the seller says that they can’t sign it, find out why and if this can be negotiated. For example, in some cases, they don’t want to sign a very broad non-compete, which is understandable, but if it is very specific, most sellers are willing to sign it.

Another example would be that they have another similar site, in which case, ask if they would be willing to include it in the sale for the right price.

8. Trademarks

Check if there is a trademark for the business name or domain name. If there is a trademark in a similar niche, ask the seller if they own the trademark and will include it with the sale or if they have the right to use that trademark.

Also check that the domain isn’t infringing on any trademarks, for example, iphone7.com or theandroid.com. Note though that trademarks in names are fine if the site is in no way infringing, i.e iphoneyou.com is fine if it is a blog about phone calls, called “I phone you” but not fine if it is an eCommerce site selling iPhones (unless the have permission from Apple to use the name).

For more on trademarks:

US trademarks: https://www.uspto.gov/trademarks-application-process/search-trademark-database

Australian trademarks: http://pericles.ipaustralia.gov.au/atmoss/falcon.application_start

European trademarks: https://www.tmdn.org/tmview/welcome

9. Refund/Chargeback Rate

For certain business models, such as eCommerce, it is important to check the refund and chargeback rate of the business. It should never exceed 2%. Anything over and the payment processor may terminate their account. Often this happens without prior warning, but usually a month of high refund rates is not an issue, only if it is a trend.

If the current owner hasn’t already disclosed the refund/chargeback rate, follow up with them to get an idea about the business.

10. Top-Level Domain Transfer

Check that the domain can be transferred to anyone. Some top level domains have specific registration requirements. Examples:

• .com.au – buyer needs to have Australian presence, either reside in Australia or have a business registered there.
• .com.mt – buyer needs to have presence in Malta
• .ca – buyer needs to have presence in Canada

You can check the requirements by Googling the top level domain. The Wikipedia page for a particular TLD will have the requirements. For example: https://en.wikipedia.org/wiki/.au

Technical Operations

Successful online businesses all rest on relatively sophisticated technical operations, with not only base platforms but also plugins and extensions. It is essential to audit these and ensure that every element of the platform has been paid for or licensed, and that these are to be transferred with the business.

SaaS and software businesses, as well as eCommerce sites, will be reliant on source codes and it is important to confirm that they are clean and also modifiable for the future.

Other assets which must be transferred include all domain names, subscription lists, customer records, product images and all third-party contract and communication details.

Domain Name Due Diligence Checklist

Domain name due diligence requires specialized attention. Domain name due diligence is separate and distinct from website due diligence, which involves verifying traffic, search engine optimization, revenue generation, operational costs, technical aspects, etc. Domain name due diligence is much narrower and involves verifying the following:

• Current title/right to use and chain of title — checking WHOIS records and verifying registration dates
• Transferability of ownership
• Research regarding seller’s related but unused domain name registrations
• Review and research for potential trademark infringement claims related to the domain name
• Review of domain name landscape for infringing similar names

For each category, the seller should provide the relevant information that can be confirmed by the buyer. For example, the seller should provide a list of all domain names registered, whether in use or “parked.” The information must identify who is the registrar, the current registrant, the history of the domain name and who holds current administrative rights.

In general, domain names are not “owned” in the traditional sense. Domain names are allowed or authorized by a not-for-profit organization called the International Corporation for Assigned Names and Numbers (“ICANN”). ICANN authorizes commercial businesses, like GODADDY.com, to assign domain names.

Such companies are called “registrars” and the person or entity to whom the domain name is assigned is a “registrant.” A registrant has the right to use the domain name. The registrant is often the same person/entity who has administrative control — that is, the administrator who can make or request changes related to the domain name.

It is important to verify that the seller is the current registrant, the current administrator and that the seller has a good “chain of title” going back to the original registration of the domain name.

If not, Seller should be required by the Purchase Agreement to provide documentation sufficient to clear any title irregularities and ensure that the buyer obtains verifiable status as the registrant and administrator.

In general, to clear title, Seller should provide relevant Transfer/Assignment of Domain Name Agreements or Releases of Claims to Domain Name. Due diligence with respect to right to use and chain of title will also verify the ability of the seller to transfer rights to the domain name to the buyer.

The seller should provide a similar list with respect to potentially infringing domain names. The seller is in the best position to know what domain names have been created to compete with and potentially syphon off traffic and revenue.

The buyer should verify this list and conduct independent research. Attention should focus on domain names that are the same except for different extensions like .net, .org, etc.

Due Diligence Empire Flippers

If you want to become a better buyer, then you should understand how due diligence works.

Due diligence is both a simple and vast subject. It is different for every buyer. In short, it is the process of researching a business to make sure it meets all the various criteria before spending your hard-earned cash on acquiring the asset.

Some buyers on our marketplace confuse vetting with due diligence. While there are some similarities, it is important to keep in mind that due diligence is very different from vetting.

When we talk about our vetting process, our team analyzes businesses to make sure they’re legitimate. We look through their profit and loss statements, their traffic analytics, and other key metrics to make sure the business is doing what the seller tells us it is doing to the best of its ability. The nice thing about the vetting process is that it makes our marketplace a curated marketplace.

That means you’ll only ever see legitimate businesses making a positive net profit cash flow every single month. You’ll never have to worry about if a business is truly producing revenue unlike other marketplaces or if you went the private sale route.

A due diligence framework is a tool that you must develop as a buyer.

It is a series of checklists and criteria that a business must meet in order for you to acquire the business. This tool is useful when it comes to speeding up your actual acquisition process. Most experienced buyers will have a due diligence framework that has multiple levels to it.

The first level is to weed out 99% of the bad opportunities for them. They use this 5-minute check to disqualify businesses as fast as they can so they can move on to the ones that really make sense for what they’re doing.

Their next level will take a closer look at the remaining businesses with the same goal of eliminating bad fit businesses. The final level is likely where they actually get on the phone with the seller to talk in depth about the more intimate details of the business.

Every due diligence framework is different from buyer to buyer because each buyer has slightly to vastly different goals.

One buyer might be looking for nearly perfect businesses that they can just maintain. Another buyer might be looking to pursue aggressive growth and for brands with potential for expansion.

A buyer might shy away from a site that has a Google penalty, while another buyer has Google penalized sites as a crucial element to their framework because they’re masters at reversing penalties, which allows them to acquire “undervalued” businesses for their portfolio.

It all depends on who you are, what your business goals are, and what your current skill sets and team capacity are.

What do You Look For in Due Diligence?

Small business due diligence can be a long, complicated process. It involves digging through a business’s records, checking references, making sure everything checks out, and searching for items the business might have hidden.

Don’t conduct business due diligence alone. Hire an accountant and a lawyer who have experience in this area. While you can certainly be involved and look over documents, it’s best to have professionals on your side. They know how to look for red flags that you may have missed on your own.

When you start the business due diligence process, you will sign a confidentiality agreement with the other business owner. By signing, you agree not to contact people or businesses for additional information about the business or product without the other business owner’s approval. This prevents others from prematurely finding out about the sale before it is finalized.

Next, go through a due diligence checklist with your accountant and lawyer to make sure you hit all parts of the due diligence process. Your lawyer or accountant might have a checklist, but you can create your own.

When you do due diligence, you will look at several aspects of the prospective business or product. Below is a business due diligence checklist to help you work through the process. This checklist is geared more toward acquiring a business, but you can easily adapt this for acquiring a product. Also, make sure you work with your accountant and lawyer to make sure you add or remove any necessary steps.

Financial due diligence

Financial due diligence, also called accounting due diligence, looks at the economic situation of the business. You’ll look for consistency among accounts, assets, and liabilities. You’ll also look at historical trends, projections, and tax risks.

• Look at past annual and quarterly financial information, including:
  • Income statements
  • Balance sheets
  • Cash flow statements
• Review sales and gross profits by product.
• Look up the rates of return by product.
• Look at the accounts receivable.
• Get a breakdown of the business’s inventory.
  • How much inventory is on hand?
  • What is the value of the current inventory?
• Make a breakdown of real estate and equipment.
  • List the name, model number, and valuation of all equipment and furniture.
  • Note the size and current market value of land or buildings.
• Review past projections and actual results.
• Take a look at the owner’s future projections, including:
  • Quarterly and annual projections
  • Projections by product
• Inquire about the assumptions the owner used to make projections.
• Get a history of pricing policies and past increases.
• Ask for all business tax details.
• Retrieve a summary of debts and their terms.
• Get a summary of all current investors.
• Get a summary of all shareholders.

Legal due diligence

Legal due diligence looks at legal contracts and other documents to look for hidden risks and lawsuits.

• Look at all copies of contracts, including:
  • Leases
  • Purchase agreements
  • Distribution agreements
  • Sales contracts
  • Employee and contractor agreements
  • Trademarks, copyrights, trade secrets, and patents
  • Articles of incorporation
  • Business registration documents

Operational due diligence

Operational due diligence investigates the actual operations of the business, such as the business model, the market, and competition.

• Identify customer patterns.
  • Compare the number of first-time buyers compared to repeat customers.
  • Determine peak purchasing times.
  • Find out what the popular items or services are.
  • Learn what the popular price points are.
• Study the business’s marketing.
  • Look at past and current marketing tactics.
  • Review the business’s previous sales and discounts, along with how well the promotions did.
  • Go over how much the business spends on marketing and calculate the ROI.
  • Learn the results of past marketing efforts.
• Conduct a market analysis.
  • Research the demographics of the surrounding area and the business’s target customers.
  • Study the geographic economic outlook.
  • Find out who are the business’s competitors.
• Find out how people perceive the business.
  • Learn what customers and potential customers, suppliers, and lenders think about the business.
• Research industry trends.
  • Find out if the business’s industry is growing or slowing.
  • Research profit margins for the industry.
• Learn more about the business’s competitors.
  • Look at each competitor’s strengths and weaknesses.
  • Compare the competitor’s products, costs, and earnings to those of the business you want to acquire.
  • Determine any threats competitors pose to the business.
  • Find out how much market share each competitor holds.

Product due diligence

Product due diligence allows you to learn more about the product the business provides.

• Get a list of all provided products.
  • Learn the cost to create each product.
  • Determine how profitable each product is.
  • Look at past and projected growth rates.
  • Investigate what enhancements have been made to products and what future enhancements are possible.

How Long Does Due Diligence Take When Buying a Business?

Typically, the due diligence period lasts for 45-180 days, depending on the sophistication of the buyer and the complexity of the deal.

With more complicated deals, it could last six to nine months.

For an individual buyer of a MidStreet-size ($1M-$25M in revenue) company, due diligence usually lasts 30-45 days.

For a private equity group or strategic buyer of a similarly sized business, it usually lasts longer; from 60 to 180 days.

What Documents do You Need For Due Diligence?

Due diligence documents are the research and analysis of a company or organization done in preparation for a business transaction (such as a corporate merger or purchase of securities). Due diligence documents typically include the following categories; legal, financial, sales and marketing, and human resources.

Looking at the due diligence documents required under their headings, the list looks something like the following – with some differences based on the specifics of your business, industry or geography.

The list below is covering the most important documents that should be prepared ahead of a deal.

1. Legal Due Diligence Documents

• Shareholder certificate documents
• Local/state/federal business licenses
• Occupational license
• Building permits documents
• Zonal and land use permits
• Tax registration documents
• Power of attorney documents
• Previous or outstanding legal cases

2. Financial Due Diligence Documents

• Up to date tax returns documents
• Audited financial statements (at least 3 years)
• Auditor’s correspondence for last five years
• Copies of all loans and credit agreements
• Details of company investments (bonds, marketable securities, etc.)
• Capital structure
• Projections, capital budgets, and strategic plans
• Up to date tax and pension liabilities
• Details on when contracts and leases are renewed and whether the terms change
• Details of stockholders (percentage holdings, voting rights, etc.)
• Foreign exchange reserves
• List of unrecorded liabilities
• List of collateral for debt
• Details of owner withdrawals (if any)
• Revenue by client (if possible)
• Gross margins analysis
• Fixed/variable expenses analysis
• List of non-operational expenses
• General ledger

3. Sales and Marketing Due Diligence Documents

• Detailed overview of sales and marketing strategy
• Marketing/sales coordination protocols
• Revenue listed by customer
• Exhibit relationship between marketing expense and revenue growth
• Details of existing sales contracts (and when they expire)
• List of top 10 suppliers
• Sales reports by category of product or service
• Details of credit terms with customers
• Current market share (if possible)
• Percentage of sales owing to each sales channel (e.g. online, offline, direct sales, etc.)

4. Human Resources Due Diligence Documents

• Provide a list of current employees and independent contractors
• Employee rules of conduct handbook and safety policies
• Detail past employee disputes (if any)
• Detail employee and independent contractor terms of employment
• Detail updated employee resumes
• Outline policy of working with labor union (if any)
• Outline training conducted with existing employees
• Worker’s compensation/unemployment claims history
• Outline policy of bonuses, incentives, commissions and deferred commissions
• Detail policies for sick days, paid holidays, paid vacations and overtime pay

5. Property, Plant, and Equipment Due Diligence Documents

• Equipment
• Real estate
• Technology
• Inventory

6. Contract Due Diligence Documents

• Customer contracts
• Supplier contracts
• Joint venture/partnership agreements
• Settlement agreements
• Franchising agreements
• Accounts receivable schedule
• Accounts payable schedule
• Equipment leases
• Non-compete agreements
• Employee contacts
• Loans, credits, and guaranties agreements

7. Intellectual Property Due Diligence Documents

• Trade secrets
• IP claims and litigation
• Domain names
• Issued patents
• Patent applications
• Design patents
• Design patent applications
• Industrial designs
• Industrial design applications
• Liens on intellectual property
• Copyrights
• Licenses
• Licensing agreements
• Trademarks
• Agreements/documents regarding ownership and rights of use of advertising copy, trade-marks, logos, and slogans

8. Company’s Good Standing and Organization Due Diligence Documents

• Organizational Chart
• Shareholders/percentages owned
• Voting trusts, subscriptions, calls, puts, options, and convertible securities agreements
• State of incorporation status reports for the last three years
• Assumed names
• Company minutes book
• Company bylaws and amendments
• List of the states and countries where the company has employees, owns assets, leases assets, and does business
• The Articles of Incorporation/amendments.
• Annual reports for the last three years.
• A Certificate of Good Standing from each Secretary of State where the company conducts business

Can Buyer Back Out During Due Diligence?

“Due Diligence” is the buyer’s opportunity to engage in a process of further investigation of the property and the transaction as described in the Offer to Purchase form within a period of time agreed to by the seller and buyer. The buyer will want to inquire about anything bearing on a decision to either move forward with the contract or to terminate it.  

Some common considerations of the “Due Diligence” period are; home, pest, and septic inspections, property survey, appraisal, title search, loan qualification and application, repair negotiation, etc.

The buyer has until 5:00 PM on the expiration date of the due diligence period to terminate the contract for any or no reason at all. The due diligence fee is Non-Refundable however, if the buyer terminates the contract during the due diligence period, the Earnest money deposit is refundable.

Deciding how much due diligence time is needed requires thinking about how long it will take to schedule appointments for inspectors to come out and inspect the home and how long it takes to review documents like the HOA rules and regulations.

During the due diligence time the buyer is able to cancel the contract for any reason, or no reason at all.  Due diligence money is non-refundable The good news is the money is typically credited towards the purchase of the home at closing.

What is The Purpose of The Due Diligence Process in The Purchase of a Business?

Due diligence is generally conducted after the buyer and seller have agreed in principle to a deal, but before a binding contract is signed.

Conducting due diligence is the best way for you to assess the value of a business and the risks associated with buying it. Due diligence gives you access to important and confidential information about a business, often within a time period specified in a letter of intent.

With this information, you can assess the business’s financial position and identify risks and ongoing potential. It is your chance to answer any questions you might have about the business.

The due diligence process ensures that you get good value for a business. Done correctly, it can be the difference between buying a business that makes you money and buying a business that costs you money.

What Are The Types of Due Diligence?

As due diligence investigation is such an exhaustive activity, there are many different types of due diligence that can apply. The importance of each will vary according to the industry and the type of transaction.

Financial due diligence

Financial due diligence is a crucial assessment of the financial health of the business where the company’s historical and current financial performance is scrutinized. It’s aim is to establish future forecasts with any and all potential risks taken into account.

A key part of financial due diligence is reviewing financial statements, assets, debts, cashflow and projections to determine whether they are true and accurate. This helps the buyer get a better understanding of the company’s core performance metrics.

Legal due diligence

Legal due diligence is an essential part of any transaction and a mandatory consideration before entering into any merger or acquisition. It is an exercise in risk assessment to investigate any potential liabilities of the target company that could impact a successful transaction.

Legal due diligence will typically include a careful examination of all material contracts, including partnership agreements, licensing agreements, guarantees, and loan and bank financing agreements.

M&A tax due diligence

Tax due diligence is the process of examining all the different taxes applicable to a business, depending on its tax obligations and which jurisdictions it sits within.

Corporate tax due diligence is a review of all the taxes a company is required to pay. It assesses the company’s total tax liability and the level of compliance with tax laws. This includes the validation of documents like tax returns (usually for the last three to five years), information pertaining to tax audits, and agreements with tax agencies. It aims to ensure all the company’s taxes are being paid and reported.

Operational due diligence

Operational due diligence covers all a target company’s main operations and considers all of its operational facilities and processes. In M&A transactions, operational due diligence assesses whether operational improvements could create additional value in the transaction, or if there are operational risks that should be addressed.

Intellectual Property due diligence

IP due diligence is an in-depth assessment of the quantity and quality of a target company’s intellectual property assets. While these assets are intangible, they are often an important contributor to the company’s overall value and something that can set them apart from their competition.

In IP due diligence, patents, copyrights, trademarks and brand are evaluated, along with how well they are protected and covered.

Commercial due diligence

Commercial due diligence (also called market due diligence) is an important step in validating the opportunity strategically. This process looks at the market size, market share, customer base, competitors and potential future returns. Commercial due diligence aims to assess if the deal is financially viable and the likelihood of realizing value from it.

Information Technology due diligence

IT due diligence is an audit of a company’s IT infrastructure and processes, frequently with a focus on security assessment. This type of due diligence allows the acquiring company to evaluate existing IT structures and identify any potential security risks. Among other things, this includes how sensitive data is managed and protected.

HR due diligence

HR due diligence is one of the most underestimated and extensive due diligence types. It covers the entire spectrum of the workforce and all documentation pertaining to employees and management.

HR due diligence checks are essential for getting a full picture of the company culture. It can identify any people-based risks before proceeding with a transaction, such as the likelihood of key roles exiting the business.

HR due diligence covers employee contracts, salaries, benefits and bonuses, as well as any problems or grievances. All HR policies and procedures are also carefully analysed.

Ensure you have all the right company human resources information and that it’s structured correctly.

Regulatory due diligence

Regulatory due diligence is becoming increasingly important for ensuring compliance amid a changing regulatory landscape. It’s crucial that companies undertake regulatory due diligence to identify areas of legal or regulatory risk that usually have a zero tolerance policy.

This type of due diligence is particularly important in heavily-regulated industries such as Healthcare and Finance.

Environmental due diligence

Environmental regulation is important for a company to demonstrate, as risk of non-compliance can lead to heavy penalties and even operational shutdown. Environmental due diligence is the means by which companies review all environmental permits, licenses, and methods of disposal to ensure all regulations are being followed.

How do You Prepare a Due Diligence Checklist?

Four tips for preparing your company for the due diligence process:

Tip #1—Start With a Due Diligence Checklist

When a potential buyer assesses your company they will want to fully understand your financial, legal, operational, technical and HR affairs—in other words, everything. Put yourself in the buyer’s shoes and anticipate what they will want to know.

Most buyers will provide you with a due diligence checklist, but don’t wait; get a sample due diligence checklist now and ensure that company records are up-to-date and organized.

Ideally, everything necessary for the due diligence process should be able to be organized in a virtual data room over the course of a weekend, if not in hours. Not only is this necessary in the event of an acquisition, it’s also a valuable discipline to maintain as your company grows.

Tip #2—Stage the Sharing of Sensitive Information

Buyers want to fully understand every aspect of your business. They will ask for information about your products, customers, sales pipeline, financial statements, technology, personnel and everything else.

And, while the diligence process is about transparency and full disclosure, it’s important to understand that as a seller your job is to disclose the information necessary for a buyer to make a decision, but at the same time protect your intellectual property.

You can expect the buyer to show a commitment to the transaction commensurate with the volume and sensitivity of the information they request. Generally, manufacturing processes and unpublished patent applications won’t be shared until it becomes clear that the partner is serious enough to merit it. A virtual data room is ideally suited for staging the sharing of information in this way.

Tip #3—Address Liabilities

Are there any lawsuits or threats of litigation that could surface during the due diligence process? Threats of litigation are major red flags for buyers, however, it’s not uncommon for the owners of the selling company to be unaware of litigation exposures until the due diligence process reveals them.

These exposures can be associated with ex-employees, past or present customers, vendors, intellectual property issues, and can even be related to company practices that are no longer in use.

Unresolved litigation will reduce deal value and should be dealt with well before a buyer shows interest. Once the due diligence process has started, unresolved litigation is much more difficult and costly to address and will delay and potentially kill a deal.

Review unresolved and potential litigation with an attorney, put the relevant documents into your data room, and resolve issues before they affect how attractive your company looks to a buyer.

Tip #4—Hold the Buyer’s Hand

During the due diligence process the buyer is attempting to learn and appreciate in weeks something that it took you years to create. It’s your job to facilitate the due diligence process. Don’t be afraid to guide the buyer through the learning curve. If there are requests for missing data, respond promptly.

You gain great credibility with a buyer and give them much comfort about the quality of your business when your respond to their due diligence requests in an organized, detailed and complete manner. This is another great advantage of a virtual data room; if a buyer requests more information, you can provide it to them in a matter of minutes.

What do You Check During Due Diligence?

The following list will help you uncover everything you need to know about the home you’re purchasing. They’ll also help reinforce your decision to move forward with the transaction, or walk away. Keep in mind, these tips may not apply to every real estate transaction, and in some cases, may not be worth the added expense.

1. Get A Professional Home Inspection

One of the most common (and important) things to do when purchasing a home, is to get a home inspection. A good home inspection will uncover current and potential issues with the home.

Lasting anywhere from two to four hours (or more), a thorough inspection will cover the entire home, from top to bottom, inside and out. Inspectors look at appliances, plumbing fixtures, electrical, windows, decks, the roof, stairways, attics, fireplaces, siding and more.

You name it, the inspector has it on their list of items to take a look at. In Georgia, some will even do a short term Radon test, for an additional charge.

When choosing your inspector, it’s important to find someone that is licensed, insured, and has plenty of experience inspecting the type of home you’re purchasing. In most states, nearly anyone can call themselves a home inspector, so it’s important to vet an inspector before hiring them.

Your agent should be able to recommend an inspector with a solid track record of providing inspections with accurate assessments of problem items and be able to clearly report their findings. Finally, don’t let cost play a major role in your decision of who to hire. After all, you usually get what you pay for.

2. Have The Property Surveyed

Some buyers make the mistake of thinking the property lines they see on Google Maps, Bing Maps or those available through the county appraiser’s office, are 100% accurate. Usually these are just estimates, and they won’t show exactly where property boundaries and structures are located.

Unless the seller has already provided a recent survey of the property, you may want to have one done. In addition to property boundaries, a survey may also show the setbacks, right-of-ways, easements, encroachments, utility locations and more.

While nice to have, surveys can be expensive, depending on the company you hire and how complex the job is. While I won’t say they’re unnecessary in subdivisions with uniform lots and fairly clear lot lines, you may want to consider whether the investment is worth it.

However, if you’re concerned about things like a shared driveway, zoning restrictions, existing improvements, or if you anticipate putting up a fence or building an addition in the future, a survey can give you some peace of mind that your future plans can be carried out as you wish (barring other restrictions).

3. Get Lead-Based Paint Testing

If no part of your home was built on or before 1978, you shouldn’t have to worry about this one. However, if you’re buying a home built pre-1978, you should at least educate yourself on the effects of lead-based paint found in and around the home.

Since lead has been found to cause a variety of health problems when absorbed into the body, it’s imperative to know the risks before you buy, especially for those with young children or expecting.

Testing a home for the presence of lead can be done by a licensed lead-based paint inspector. Specialized testing can be done to determine if samples from the home show a presence of lead in things like paint, soil, flooring, drinking water, household objects and dust in the air. If lead is present, the home may require the work of a qualified contractor experienced in removing or covering lead-based paint, to ensure minimal exposure.

4. Pump And Inspect The Septic Tank

Many homes in cities and dense metropolitan areas are on public sewer, but that’s not the case everywhere. A lot of rural properties, and even those in the suburbs of metro areas, still use septic tanks for sewage.

If that’s the case for a home you’re purchasing, it’s probably a good idea to have it inspected, even if the current homeowner has been routinely pumping the tank (every 3-5 years). The inspection can uncover repairs that need to be made, or even worse, the replacement of the entire tank and drain field, which can be very costly if they fail.

In order to properly inspect the septic tank, it typically has to be pumped first. Because the inspection will likely require the seller’s yard to be dug up, you may want to address it in the contract to purchase the home.

The inspection is going to set you back at least a couple hundred dollars, so make sure to budget for it. Better yet, negotiate for the seller to have it done as part of the contract, since it will still be of benefit to them, even if you don’t move forward with the purchase.

5. Mold & Air Quality Testing

According to the EPA: “In the last several years, a growing body of scientific evidence has indicated that the air within homes and other buildings can be more seriously polluted than the outdoor air in even the largest and most industrialized cities. Other research indicates that people spend approximately 90 percent of their time indoors. Thus, for many people, the risks to health may be greater due to exposure to air pollution indoors than outdoors.”

This means, assessing the indoor air quality of a home is important, especially for buyers with allergies or children. Before deciding on air quality testing, ask yourself these questions:

Does the current homeowner have pets? Do they use allergen reducing air filters (changed regularly)? Is the HVAC system operating properly and is the home properly ventilated? Do they smoke in the home? Are pesticides or dangerous building materials present in or around the home? Have proper humidity levels been maintained? Is there or has there been any water damage? Do you notice any strong odors when inside the home?

6. Get A Termite Inspection

Metro Atlanta is a hotbed for termite activity, and a home left untreated could be at major risk. Before moving forward with your purchase, you’ll probably want to make sure your new home isn’t on the menu for a colony of these wood eating critters.

Left unchecked, termites can cause major damage to a home, feasting on any wood they can get to. To the untrained eye, signs of damage from termites can be hard to spot, yet they’ll silently destroy the foundation, walls, furniture and more.

Most major pest control companies also do termite inspections and treatments. Many of them do a free inspection, then suggest a treatment plan if there is evidence of current or past activity. If the home is currently covered under a termite bond, see if it’s transferable and what the policy covers, as you may be able to keep the current bond.

The initial treatment of a home can cost $500 – $1,000, or more, depending on the treatment type. Maintaining the bond usually costs a couple hundred dollars a year, so it’s an expense you’ll need to budget for down the road.

7. Test For Electromagnetic Fields

Although not very common, testing for electromagnetic fields is a topic of interest among home inspection associations and even included in some new home builder contracts. While most scientists agree more research is needed, some tests have shown that strong electromagnetic fields can have a negative effect on people. One condition, identified as Electromagnetic Hypersensitivity, is a psychological disorder caused by exposure to electromagnetic fields.

Having a test done to identify electromagnetic fields in and around a property is probably overkill for most homebuyers. However, identifying nearby power lines and power sources is probably a good idea, since it can impact the home’s marketability and resale value. If you’re buying a home near power lines, do some additional research on the effects before moving forward.

8. Check Flood Maps

Flooding causes billions of dollars worth of damage every year; and homes in nearly every state are susceptible. It only takes a few inches of water entering the home to cause tens of thousands of dollars in damage. Those living in flood zones are particularly vulnerable to flooding.

Homes in low lying areas, and those near rivers, streams and other bodies of water, are typically at a higher risk. If a property is in a high-risk area, mandatory flood insurance may be required by the lender, which can get it expensive.

Luckily, it only takes a few minutes to check whether a home is located near a flood zone. Simply visit the FEMA Flood Map Service Center to download a free flood map. Search by address, then view or download the map (image) to find out if the home is located in a high-risk area.

If any part of the property is near an elevated risk zone, you should check with the seller to see if flood insurance is required and if they’ve experience any issues in the past. Your lender should also be able to pull a flood certification to determine if flood insurance is required.

9. Check Community Restrictions, Financials & Amenities

If you’re buying a home in a neighborhood with an HOA or any type of recorded restrictions, you’ll want to know what you’re signing up for ahead of time. Usually, the more information you can get, the better. If possible/applicable, obtain and review copies of covenants, restrictions, declarations, plat maps, meeting minutes, treasurer’s reports and association budgets.

You should also check the condition of community amenities and find out if there are any restrictions on use. Understanding what your monthly/annual assessment is, how you can use your property and your rights as a homeowner, is very important, but often overlooked.

Unless the documentation you’re looking for is available to the public on the internet (most times it isn’t), you’ll need to get this information from the seller.

Unless negotiated in advance (in the purchase contract), the seller might not be obligated to get you the information, so it’s a good idea to request this stuff in writing up-front. Either way, getting this documentation from the management company or board of directors can take time, so start requesting it right away.

10. Review Zoning, Setbacks And Permits

Buying a home that violates zoning restrictions, setback requirements, or features un-permitted work, can be extremely costly. The last thing you want to do is completely tear down that nice new addition to your new home, right?

Lazy contractors, and homeowners looking to fly under the radar, sometimes ignore local building requirements when adding on to a home or making major renovations. If the proper paperwork isn’t filed, permits pulled and inspections done, you could be looking at paying fines, or worse, having to completely redo shoddy work.

If you suspect any additions were made to the home, or if the current square footage doesn’t closely match what’s listed in the tax records, you may want to do some digging. You can start by contacting the local municipality’s code enforcement, building and/or planning departments.

They may need to send someone out to verify the existing structures, compare it to what is on file, and take measurements. If everything checks out, or has been grandfathered in, you shouldn’t have anything to worry about.

How do You Assess a Business Before Buying?

Once you have agreed in principle to purchase a business, you need access to the confidential files, data, and information that will help to determine whether (or not) to proceed with the transaction. Here are the components to evaluate within a due diligence process:

• Assets. Understand the equipment, supplies, and products that the business has and owns outright. These should be prepared on a checklist and verified. What items still have outstanding amounts owed or are under agreement for a lease, loan, or rental? The financial terms of these agreements should be incorporated into the sales contract.  
• Financials. This is the bread-and-butter of due diligence and includes reviewing the certified financial statements, cash flow statements, balance sheets, and tax returns for several years prior to the sale. Be sure to gauge owner income versus business profits and whether the profitability data is in keeping with industry norms. 
• Legal. You will want to look at any documents related to how the business is incorporated and other formation documents, including partnership agreements and other binding contracts. The legal review also includes all warranties, guarantees, and product liability documentation, not only those that cover the company, but also the guarantees which is provided to customers. Any regulatory obligations should also be reviewed and any litigation where the company or its owners were plaintiffs or defendants should be reviewed. 
• Employees. You will want to see organizational charts, job descriptions, and personnel files for all senior-level employees. Any employment contracts should be considered, as should information on professional advisors (accounting, legal, financial, insurance). Classifications of independent contractors should also be considered.
• Products and services. If the company sells products, you want to be sure you can still sell them, meaning you need catalogs of products and services available, prices paid, and how those goods are delivered. 
• Customers. In addition to reviewing accounts receivable, you will want to get a full rundown on the company’s major customers, including what percentage of revenue they account for, how critical they are to profitability, and what they have purchased in the past. Are the relationships with the existing owner or are they loyal to the company/brand?

Once this due diligence is complete, you will want to create your own valuation for the business to determine if the sales price is fair. There are three basic valuation models, the most common of which for small businesses is a market-based valuation, which looks at the industry and compares the value to similar companies.

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Other models are asset-based, which is usually used when the business is no longer profitable, and income-based, which evaluates the company’s potential for future income.

What Should You Look For When Assessing a Business?

There are at least six important areas you need to examine when you do your business performance assessment: processes, organization, technology, financials, competition, and clients. Ask yourself questions concerning each vantage point, examine the business practices you currently have, and then answer the questions honestly and completely.

1. Processes

Identify processes that are crucial to the effectiveness and efficiency of your business. There are six core processes that can and should be used to enhance your business:

• Your business intake process (How do you generate leads? Where do you look, find, and get leads? What is your process in lead generation?)
• Your business financial planning process
• Your business risk-management process
• Your business investment planning and management process
• Your business client service process
• Your business client planning and review process

Assess your current situation and define areas of improvement so you can work on building strategies, implementing new processes, or refining current ones.

2. Organization

This particular point is based on the roles and responsibilities of each leader and team player in the organization. You will need to assess three things: yourself, your employees, and your management team.

Assessing yourself: Your business is a direct reflection of who you are. Examine both your negative and positive qualities so you can determine your impact as a leader and manager.

• What are your strengths and weaknesses?
• How can you improve your skills to better manage your business?

Assessing your employees: Employees are a crucial aspect of your business. Hire people who will maintain the vitality of your business lifeline.

• Do you employ the “right employees,” ones who contribute to making your business run smoothly, or are you forced to rely on a small percentage of key employees to get the job done?
• Does your business suffer from a high employee-turnover rate?
• Do you feel the pinch when a few employees are absent from work?
• Do your employees know what is expected of them?
• Do you know employees’ strengths and weaknesses? List abilities such as business acumen, business-development capabilities, product and services knowledge, technology and presentation skills, time-management skills, business-tracking capabilities, and business-planning skills.

Assessing your management team: An ideal management team is one that has members with diverse skills that complement each other, and works well as a unit to help achieve your vision for your business. Analyze the value your management team brings to your business by asking:

• What does each member bring to your team?
• Do their strengths and weaknesses create a strong balance?
• What training can you offer them (internal or external) to complement their skills?

3. Technology

Small and mid-size businesses often shy away from investing too much in technology, especially when one operates the business single-handedly. However, when analyzing business performance, you should assess the need to streamline and integrate business processes (see “Processes”) to determine how technology can help things work easier, faster, and better.

Basic requirements are:

• A customer relationship management (CRM) tool
• A financial planning tool
• An investment planning and management tool
• Office software such as Word, Excel, and PowerPoint
• Specialized tools where appropriate, like an inventory manager
• Information-based tools

4. Financials

It is crucial that you know how to effectively manage your finances. This includes keeping financial records up-to-date and plotting future cash flow. Managing your finances will allow you to know where your business currently is and where it is going. Ask yourself:

• Do you consistently forecast upcoming sales, cash flow, and profits?
• Are your forecasts reasonable and accurate?
• Have you noticed a decline in sales this year compared to previous years? Can you identify the reasons for the sales decline?
• Have financial difficulties caused you to get behind on payments for supplies or taxes? Get turned down for financial assistance from the bank?
• Are overhead costs outrunning your profits?

You also need to maintain a working budget and be sure it includes an area that’s often overlooked: client marketing expenses and business marketing expenses, whether for collateral material, education, consulting services, etc.

5. Competition

Every business will always have competitors. A working knowledge of your competition will help you determine where you can make business improvements.

• Do you know who your competitors are, and what their strengths are?
• Do you use benchmarking tools to see how you measure up to your competition?
• How would your customers compare you with your competitors?

6. Your clients or market

When assessing business performance, don’t forget to consider your clients. They are the reasons why you have a business in the first place. A viable market means a profitable business for you. Determine the following:

• What are the demographics of your market—who are your customers?
• What portions of your customer base are most and least profitable?
• Do you anticipate entering new markets?
• What acquisition methods work/have worked for you? If a method worked before, keep doing it.
• How well do you know or not know a client? How can you leverage/improve relationships?

Finally

Due diligence is a very detailed process that will give you a much clearer and more well-rounded picture of the company you are about to purchase, whether or not the asking price is fair, and its future earning potential.

With the assistance of an experienced business broker, as well as your attorney and accountant, you should be able to uncover any problems or issues and make a sound decision as to whether or not to purchase the company.