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4. Complete Guide to Performing Due Diligence for Content Sites

Complete Guide to Performing Due Diligence for Content Sites

Any investment is accompanied by some level of risk, and when you’re buying something intangible, like a content site, evaluating that risk can be complicated.

At Empire Flippers, our goal is to help you minimize that risk by thoroughly vetting any business before it’s listed for sale in our curated marketplace. We want to make sure each business is legitimate, accurately represented, and profitable before exposing it to potential buyers. However, just because a business is real and is making money doesn’t necessarily mean it’s right for you.

This is where your due diligence comes in. By performing a proper inspection before purchasing a business, you’ll be able to determine whether or not the business is right for you. You’ll evaluate whether or not the investment and risk are worth the potential reward and if running and managing the site is a fit for both your skill set and your lifestyle.

Due diligence is a highly personal and individualized process. Each person is unique, but regardless of what a business does or who an investor is, there are some basic best practices that everyone should follow.

In this guide, we will provide you with a complete, step-by-step framework to evaluate a content site. You’ll be able to assess how close of a fit the business is to a potential acquisition and then determine how much profit potential the business has. By the end of the process, you’ll have a clearer idea of whether or not the content site you’re considering is a smart investment for your own purposes.

The Importance Of Due Diligence

First, let’s make a distinction between due diligence and vetting.

Vetting is what we do before we list a business for sale. Our vetting process is extremely thorough and sophisticated. We spend one to three weeks investigating a company and communicating with the seller before offering it up for sale.

Some factors we evaluate include:

• Profit verification
• Review Expenses
• Seller Ownership and ID verification
• Business ownership
• Backlink profile

Our vetting process ensures that any business you view on Empire Flippers is legitimate and accurately represented. We have firsthand access (or at least verifiable screenshots) of analytics data, affiliate portals, profit and loss (P&L) statements, and personal information about the individual seller. When you search our marketplace, you can rest assured that we’re not wasting your time with businesses that aren’t worth reviewing. In the end, wasted time for you is wasted time for us.

Remember, just because a business is turning a profit at the time it’s listed for sale doesn’t necessarily mean it’s a perfect acquisition.

As a buyer, it’s smart to perform your own due diligence. During this process, you should remain skeptical. We often advise buyers to look for reasons not to buy a business. This might seem counterintuitive, but it’s in your best interest to make your selection carefully and ensure your ultimate success. Every buyer has their own risk threshold, and understanding the risks involved in why you wouldn’t buy a business allows you to evaluate it against the potential rewards. Thereby, achieving a clearer picture of the return is in your best interest.

A key differentiator between vetting and due diligence involves growth potential. When we go through the vetting process, we look at historical figures and data; we don’t provide trends or forecasts. It’s up to you to figure out how viable a site will be in the future and whether you think it will grow or shrink under your ownership. For example, every potential buyer can potentially leverage his or her own unique skills and/or strengths to grow a business. Assessing a business relative to your own skill sets is one of the most effective ways to assess its potential.

During your due diligence, you should be evaluating and analyzing the individual business as well as its macro environment to decide whether or not the investment is likely to appreciate in value and, if so, by how much. We’ll provide some examples of sustainability and longevity later in this article.

Critical Due Diligence Steps

We’ve divided the due diligence process into the following three steps.

Risk Assessment

When you consider investing in an asset, the first task involves evaluating the risk. This approach isn’t quite as straightforward for content sites, so we’ve put together a step-by-step process.

Evaluate Traffic

Before purchasing a business, you should gain access to the seller’s analytics account, whether that be Google Analytics or Clicky. Then, it’s time to dive deeply into the traffic. Here are some indicators to look for:

• How much time are people spending on the site? If the majority of the traffic is spending less than 3 seconds on the site, then much of that traffic is likely comprised of bots.
• Where are the clicks coming from? Look at the traffic demographic data. If traffic is concentrated from locations that aren’t relevant, this could be a red flag. For example, if the content site is a gardening site aimed toward people in the southern United States but half of the traffic is coming from India, then you should be suspicious.
• What is the traffic source? Is the site receiving traffic from email? Social media? Paid ads? Organic methods? Find out where the traffic is coming from and decide whether or not you can maintain that strategy.

The more experience you acquire with the process of due diligence, the more efficient you’ll become at spotting red flags and noticing abnormalities.

Measure Earnings per Click

Just as is the case with traffic data, you might not know what is considered normal the first time you perform due diligence. However, a basic evaluation of the data should give you a hint as to whether or not the information you’re looking at makes sense.

For example, let’s say you’re considering purchasing a content site that makes its money from Amazon affiliate links and a handful of other affiliate networks. Look at the price range of the products being recommended, the affiliate percentages, and the overall earnings. If the items are relatively low-ticket yet the earnings per click seem excessively high, the data might be misrepresented.

Evaluate Site Flow

One of the smartest things you can do is visit the site and go through its flow. When you land on the home page, is the site easy to navigate? When you click on an ad or an affiliate link, are you being directed to the right place?

Is there a lead generation form? If so, opt onto the email list and determine whether or not you’re sent any kind of welcoming email series.

If the site is “broken,” then the chance that the data is being accurately represented is low.

Ensure the Origin of All Earnings

In the case of a site that’s monetized by the Amazon Affiliate Program, watch out for multiple websites using the same code. If this happens, then the site’s earnings may be inflated.

Look at the Financial Details

When you’re acquiring an asset, you have the right to see the financial data. When you evaluate the P&L statement, make sure everything adds up; if there are any discrepancies, ask the seller to explain them.

Consider Hiring a Professional

While you can’t necessarily outsource your due diligence, you can at least have a financial professional take a look at the finances to make sure everything is in order. In addition to ensuring peace of mind, knowing that you have to pay out of pocket for financial consulting can help you narrow your focus and only pursue businesses that you are genuinely interested in owning.

Perform a Content Audit

Content is subjective, but there are some basic quality parameters you can follow to evaluate whether the site’s content is high quality or trash. Ask yourself as you browse the site: “would a reasonable person obtain value from the information provided here?” If your answer is “yes,” then the site is likely worth pursuing. However, if the content sounds robotic, is stuffed with keywords, or is badly spun, then it’s certainly worth investigating how the business has earned any money at all.

Determine Longevity

Don’t fall victim to a trend or fad that won’t last. A blog that receives attention from Oprah or Reddit might encounter a giant spike of traffic and revenue, but once the fanfare fades, you could be left with a virtual ghost town.

It’s also wise to compare the site’s topic to the political and legal landscape. For example, if the site promotes something controversial, like guns, vaping accessories, hoverboards, or controversial supplements, you should ask yourself the following questions:

• Will my site be taken down or made illegal or irrelevant?
• What is the chance that favorable legislation will make my website more profitable?
• If things change and my competitors fall, can I weather the storm? Can I even come out ahead and dominate the space if everyone else leaves?
• What are the reasons for periods of growth or decline?

Many of these questions can also be asked during a buyer/seller conference call with the seller.

Investigate the Seller

While the vetting process ensures that the seller is indeed a real person and owns the business, there are still steps you can and should take to ensure that everything is above board. These steps include Googling the seller to look for anything that stands out (including reports of scam or fraud) and scanning their social media profiles to get a feel for who the person is (while also looking for anything suspicious).

We also suggest visiting the content site’s social media profiles. Do a deep dive into who is following the site and make sure the followers are real people and not fake accounts.

Lastly, you should communicate with the seller and determine whether or not this is someone you can see yourself working with. You aren’t only buying a business, you’re also entering a relationship with the seller. Communicating will help you get an idea of whether or not you believe this seller will give you thorough training. Every seller with Empire Flippers agrees to 30 days of training as a typical minimum, and as such, you want to make sure you can see yourself working with a seller for that full duration.

Watch out for Common Scams

The chance of falling victim to a scam on a curated marketplace like Empire Flippers is negligible, but again, it’s smart to do your own research, as well. Here are a few common scams to watch out for:

• False traffic reports; if the seller won’t give you access to their Google Analytics or Clicky account but offers to provide you with a video walkthrough, this might spell trouble. Video walkthroughs can be easily manipulated. If your only option is a video walkthrough, make sure you ask the seller several questions during the call. By asking them to adjust date ranges and segment reports, you’ll be able to trip them up and expose a scam.
• Fake leads being sent to affiliate partners; this happens when random people are filling info and getting paid for leads that aren’t real. You can potentially detect this scam by observing a significant increase in earnings without a significant increase in traffic.
• Sweetheart deals; the seller could have forged a partnership or contract that won’t transfer to the new buyer. Make sure you are aware of all these deals in advance. If your deal is particularly large, it’s worth reaching out to the major partners to ensure that all agreements will transfer with ownership. With Empire Flippers, you are protected, as any partnerships or agreements necessary to maintain the performance of the business are transferred over. If during the migration period the contract won’t transfer, then the deal is subject to a re-negotiation or cancellation.

Tools to Help You Perform Risk Assessment

There are several free and paid tools you can use during the due diligence process. Here are our favorites that will help you along the way:

Google Analytics or Clicky Get a full picture of traffic data over time. Try to review as much data as the seller has in their account. Ideally, the trailing 12-months will showcase any seasonality the business might have.

Ahrefs, SEM Rush or Moz
Use these tools to identify backlink profiles and keyword rankings. Investigating the backlink profile is extremely important. Make sure you are checking the links to see how they stack up with your SEO strategy. A lot of these tools offer free trials, which are great for performing Due Diligence during a short period.

Google 

Thanks to Google, the world’s knowledge is literally at your fingertips. Use Google to perform basic searches on virtually anything. You can also use Google Trends to determine whether a keyword or niche is trending up or down.

We also suggest finding out if a site has been up for sale in the past, which you can determine by typing the following into a Google search: [site: URL (the URL you are considering) Flippa]. Specifically, this exercise tells you whether or not the site has ever been listed on Flippa. You can also swap out the word “Flippa” for scam, fraud, etc. to detect any fraudulent activity.

Wayback Machine

This digital archive of the Internet will allow you to view past versions of a site so that you can determine whether or not it has drastically changed over the years. The content site you’re interested in purchasing will hopefully have remained in the same niche, which will ensure the backlinks are valid.

PBN Quality Assessment

In the content space, it’s not uncommon to encounter sites that achieve superior rankings through a PBN, or Private Blog Network.

A PBN is a collection of expired domains that still have authority in Google’s eyes—A.K.A. “link juice.” Therefore, several SEO professionals have developed a strategy of acquiring these domains and using them to link to their main sites, also referred to as their “money sites.” While PBNs are less common than they used to be, we still see them on the marketplace. We wrote a deeper dive on both the risks and rewards of PBNS a while back that explains PBNs in far more detail.

If you are purchasing a content site, then asking whether or not the site is linked to a PBN is a crucial question. PBNs are considered somewhat of a gray hat SEO technique, and they can be controversial. Although PBNs were a top SEO strategy for several years, recent changes to Google’s algorithm have somewhat limited their effectiveness.

Despite the controversy, PBNs are still used because they allow sites to have backlinks without being required to do email outreach, write guest posts, and hustle for editorial links. Backlinks often come at a price, so weighing the cost of building and maintaining a PBN versus paying for links and mentions is another important analysis you should perform.

If your content site acquisition is receiving help from a PBN, make sure you obtain the following information from the seller:

• Was the goal meant to be spammy or is it legitimate? For example, do the sites that are part of the PBN display high-quality content?
• Will the links remain active? Make a request to clarify if the seller will keep the links active following the sale of the website or try to negotiate a monthly recurring payment to keep the links live.

At the end of the day, if you’re comfortable with PBNs, then you can probably do well by maintaining this strategy or even starting your own PBN for your site. However, it’s also worth considering whether your time, money, and resources might be more efficiently spent building a backlink profile that adds value and helps you form relationships with editors, influencers, and related sites.

Identify Growth Opportunities

Once you’ve considered every possible reason to pass on a business, you can start looking at the upside. It can be tempting for buyers to perform the process in reverse, meaning they get excited about everything they can do to maximize a business’s ROI without considering the potential pitfalls.

Instead, make sure the business fits ALL your requirements before evaluating its growth potential. As you explore the site, look at the revenues and expenses and research the niche; if you do, then you’re bound to come up with several ideas as to how you can improve the business and maximize its potential.

Here are some ideas you may explore to help get the creative juices flowing:

• Lead Generation – Is the site collecting emails? Is there a welcome series? A follow-up series?
• Email Broadcasts and Segments – Is the site owner maintaining an email subscriber list and reaching out via broadcasts and segmented follow-ups when new content is published?
• Content Upgrade – Does the current content need an upgrade? If you have the skills and resources necessary to create infographics, videos, and other interactive media, you can immediately increase the profit.
• Social Media – Are there ways to enhance the site’s social media presence and then grow and monetize its followers?

A Final Tip

If you’re a healthy skeptic, then you’re bound to have questions for the seller. We’ll help you arrange communication updates. To ensure success and open dialogue, we do recommend that you be tactful with the seller.

When you’re putting your hard-earned money at stake, it’s only natural to want to challenge a seller about a potential discrepancy, and you have every right to do so. We recommend prompting the seller with a question like: “There’s something I can’t figure out. Can you help me resolve this issue?”

Ready to take the next step? Take our Buyer Persona Quiz to narrow down your specific interests to the type of business that suits you best. Or, schedule a criteria call where our industry-leading business analysts will help you find the perfect business that matches your goals.