At FE International, we have built up a great reputation for selling quality businesses and one of the key reasons for that is our focus on how we vet websites before we list them. Whilst a sell-side broker has no obligation to perform due diligence on behalf of buyers, there are a number of mutually beneficial reasons for us carrying out this important work.
1. Success Rate
93% of businesses we list sell. It is in our best interests to ensure the businesses we are representing are legitimate so no party involved (the seller, buyer, or FE International) is wasting time on deals that may not close.
It can take years to build a good reputation (5 years and counting!) but it only takes a few bad deals to ruin it. In an industry full of brokers who come and go, our consistent and ever-improving approach to selling online businesses has seen us grow every year. We organically pick up business through recommendations and have happy buyers who return to buy more businesses.
3. Driving Industry Growth
In what is still a relatively new industry, it is important to build trust between participants and encourage newcomers to participate in the space. Most online deals are not completed face-to-face, creating a barrier for many used to completing deals more traditionally. Making sure participants enjoy seamless processes and importantly, success after sale, will only serve to drive this industry’s interest and popularity amongst investors.
4. Mutual Success
We are passionate about online business and entrepreneurship. We love seeing our clients succeed, we love successfully closing deals for our sellers and we are entrepreneurs at heart. We have actively invested in online businesses ourselves and have the mindset of a buyer ingrained into our culture.
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With years of experience in the industry both brokering the sale of (and buying) online businesses, FE International is well placed to conduct due diligence in advance of listing. Our pre-listing due diligence is second to none and a key component used to establish the legitimacy of a business, its owner and the valuation. This will ensure buyers deal with professional sellers and sellers receive a fair multiple for their legitimate and profitable business.
Due diligence, there are six elements due diligence can be broken down into. Every business is unique and requires different checks, but below are some of the most common questions we either look into or ask sellers about for the vast majority of listings at FE International. Once we have asked the question(s) we will then verify accordingly.
We look very closely at traffic when we vet websites before listing. This is the core metric by which we can benchmark average RPUs (revenue per user) across niches and ensure the numbers are broadly in line with what we would expect. It also helps us uncover hidden costs (such as paid advertising) that a seller may not have told us or forgotten about. To ensure we are happy to list a site, we generally look for some of the following:
- A range of traffic sources
- Reasonable time on site
- Low bounce rate
- Consistent history
- Google Analytics (or similar) installed
The financials are one of the most important elements of a business sale. We use a standardized format for all sites we list which keeps valuations consistent and allows for consistent analysis. This gives us the opportunity to compare the business to other similar sites and ensure costs seem reasonable. Some of the things we will look for:
- A range of revenue sources
- Costs in line with similar sites
- Fully verifiable
- A consistent accounting methodology (cashflow or accrual)
- Currency fluctuations taken into account
An important part of buying a business is the human element. A successful deal requires both parties to agree and work together collaboratively throughout the process. It is also important to know exactly who you are dealing with and make sure they legally own the business and are able to make sale related decisions. Some of the things we will look at include:
- Information we find in Google or on social media profiles
- Their ID/company registration documents
- Company/partnership agreements
- A past working relationship or referral
One of the most overlooked elements of a business sale is the operations themselves. Buyers often focus on financials and traffic but forget about running it. This is something we spend time looking at to ensure the business can be sold and then run without issues for a buyer. We want to see businesses that are:
- Easily transferable
- Documented time spent each day with processes documented
- A business where the owner is replaceable
- A team that will stay with the business
- Remotely run, no reliance on a physical office
We deal with a range of businesses and buyers with varying level of technical expertise. As such, it is important that before we list a business we are comfortable with the technical side and if there are any potential issues from similar sites we have sold in the past. Most websites we list can be run by beginners so we look for the following:
- A website on a well-known platform such as WordPress
- Properly licenced and transferable premium plugins and templates
- Original programmer or developer available post sale
- Proprietary code well documented
Whilst a website broker should never replace a lawyer or attorney in a process, we always ensure that the businesses we list are legal. Some may not agree with the ethics of particular sites,but we focus primarily on whether it can be run by a buyer anywhere in the world and if not, identify any possible restrictions upfront. The majority of business we sell are:
- Legal in the US/UK/Canada
- Does not infringe trademarks or has permission to use a name
- Has unique content
- Has properly sourced and licensed images
- Has no pending legislation
The above is a short overview of some of the main factors we consider when we vet websites before listing a business and why. It is by no means exhaustive and due diligence always remains the responsibility of a buyer, but the checks we go through mean that over 95% of businesses submitted to us are rejected and it is very rare to have a major issue in due diligence that will kill a deal. Buying a business is a time-intensive process, so we want to ensure buyers have the best possible experience and are not spending time and money on businesses with issues that could have been identified upfront.
By ensuring the legitimacy of all listings, many of our buyers go on to have great success with the businesses they buy. The sellers we work with know their business is only listed alongside other legitimate businesses which maximizes the likelihood of a smooth sale.