10 Potential Risks to Consider When Buying a Website or Online Business

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Over the past decade, a growing number of companies and individuals have recognized the opportunities involved with acquiring online businesses. This trend accelerated during the COVID-19 pandemic, with 2020 and 2021 seeing massive demand from buyers and an influx of investor funds.

Despite the potential for success and profitability, buying an online business comes with significant risks that must be carefully considered and addressed. This article covers some of the noteworthy risks that should be considered when evaluating a potential acquisition.

Risk

1. Buying a Business That’s Not a Good Fit for You

One of the most significant risks in buying an online business is purchasing one that’s not a good fit for you. This can happen when you’re unfamiliar with the industry or niche or when your skill set and expertise do not align with the requirements of running the business.

It’s crucial to understand that not every successful online business will be the right fit for you. Your background, industry knowledge, skills, and even your passion and interests matter when running the business.

Being unfamiliar with the industry or niche can result in a steep learning curve that could affect the business’s profitability and sustainability. Similarly, lacking the necessary skill set and expertise can lead to critical mistakes that could ultimately result in failure.

How to Prevent It

To prevent this from happening, consider the following:

  • Assess your skills and interests: Look at your skills and interests and determine if they align with the business you’re considering.
  • Research and educate yourself: Take the time to research and educate yourself about the industry or niche before making any purchase decisions.
  • Consider working with a business partner or hiring an expert: If you lack specific skills or knowledge, consider partnering with someone who has them or hiring an expert to guide you.

2. Seller Dishonesty

Another significant risk in buying an online business is dishonesty from the seller. Unfortunately, some sellers may exaggerate financials or hide crucial information that could significantly impact the value or desirability of the business.

This may include misrepresenting revenue and profitability, hiding the business’s flaws, and failing to disclose legal or regulatory issues. Such dishonesty can result in a buyer paying more than the business is worth or acquiring a business that’s not as profitable or sustainable as initially thought.

How to Prevent It

To avoid being deceived by a seller, consider taking these steps:

  • Do your due diligence: Before buying an online business, make sure to do thorough research on the seller and the business. Check their reputation, reviews, and ratings. Look for any red flags.
  • Ask for documentation: Ask the seller for documentation that proves their claims about the business, such as financial statements, tax returns, and customer data. Verify the authenticity of these documents by cross-checking them with public records and other sources.
  • Hire a professional: Consider hiring a professional to conduct a thorough due diligence investigation of the business. A professional can help you identify any hidden risks or liabilities that the seller may not have disclosed.
  • Use escrow services: Use escrow services to protect your investment. Escrow services hold the funds until the transaction is complete and both parties are satisfied. This ensures that the seller will not disappear with your money.

👉 Download our free due diligence checklists from The Vault. We have separate checklists for content-based websites, e-commerce websites, and Amazon FBA businesses.

3. Key Person Risk

This refers to the risk that the business relies too heavily on one individual, and if that individual were to leave, the business would suffer. This could be the owner, a key employee, or a supplier.

Key person risk can be particularly significant in online businesses, where owners are often heavily involved in day-to-day activities. If the owner has unique knowledge or skills, the business could be severely impacted when they’re no longer involved.

How to Prevent It

To mitigate key person risk, there are several steps you can take:

  • Find out exactly what the owner’s role is: Talk to the owner/seller about the day-to-day operations, how much time they spend working on the business, and the specific tasks they handle themselves.
  • Get documentation: Ensure that key knowledge and skills are documented and shared with other employees. This can help to ensure that the business can continue to operate if the key person were to leave.
  • Develop a succession plan: The plan should outline who will take over key roles in the event of an unexpected departure.
  • Get assistance from the seller: Get the seller’s involvement after the acquisition by agreeing to a transition period or consulting contract. This will provide time for you to learn about the business and its operations, reducing your reliance on the key person.

4. Google Algorithm Updates

Google algorithm updates present a significant risk for online businesses that rely heavily on search engine traffic. These updates can drastically impact search rankings and organic traffic, decreasing revenue and profitability.

While Google has always updated its algorithm, the frequency and severity of major updates have increased over the past few years. Many websites and online businesses have been devastated by these updates.

If you purchase a website that gets the majority of its traffic from organic Google searches, this is a risk you must consider.

How to Prevent It

Here are some ways to lessen the impact of Google updates:

  • Acquire websites with diverse traffic sources: Relying solely on search engine traffic can put your business at risk. Look for sites that get traffic from multiple sources, or work to establish this diversity after the acquisition. Consider investing in other channels such as social media, email marketing, or paid advertising.
  • Focus on quality content: Google’s latest algorithm updates prioritize high-quality content that provides value to users. Therefore, creating original, informative, and engaging content that meets the users’ needs is essential.
  • Stay up-to-date with SEO trends: SEO is an ever-evolving field, and it’s essential to stay up-to-date with the latest trends and best practices. Follow reputable SEO blogs and forums to keep up with the latest changes in the industry.
  • Use white hat SEO techniques: White hat SEO techniques are ethical and follow Google’s guidelines. These techniques include optimizing website speed, using descriptive meta tags, building high-quality backlinks, and creating a mobile-friendly website.
  • Monitor your website’s performance: Regularly monitor your website’s search engine rankings, traffic, and user engagement metrics. This will help you identify any sudden drops or changes in your website’s performance and take corrective action promptly.
  • Maintain a long-term view: Almost every website will be negatively impacted by a Google update at some point. However, recovery could be just an update away (that’s one of the benefits of frequent updates). It’s important not to throw in the towel too quickly if your site is impacted because the rankings and traffic may bounce back.

5. Shifting Trends and Market Conditions

Another risk to consider when purchasing an online business is the ever-changing market conditions and trends. What may be popular and profitable today may not be tomorrow.

How to Prevent It

To mitigate the risk of changing trends, there are a few steps you can take:

  • Research market trends: Before purchasing an online business, thoroughly research current and future market trends related to the industry. This will give you an understanding of potential risks and allow you to make informed decisions.
  • Avoid businesses that rely on trends or fads: Instead, focus on evergreen topics and industries.
  • Diversify your products/services: Don’t rely on one single product or service for the success of your business. Offer various products or services to cater to different market trends and customer needs.
  • Stay adaptable and agile: Be prepared to adapt and pivot your business quickly if market conditions change. This could mean introducing new products or services, targeting a different audience, or utilizing new technology.

6. Overpaying

You must ensure you’re not overpaying for the acquisition when buying an online business. Overpaying can result in a longer time required for ROI (return on investment), lower profitability, and financial strain.

How to Prevent It

To avoid overpaying for an online business, consider the following tips:

  • Compare it to comparable businesses: Look at the online business’s industry and compare it to other similar businesses that are for sale or have sold recently. This will give you an idea of what other businesses in the same industry are worth and whether the asking price is reasonable.
  • Seek professional advice: Consider hiring a lawyer or accountant with experience in buying online businesses.
  • Negotiate: Don’t be afraid to negotiate with the seller. If you feel that the asking price is too high, make a counteroffer that reflects the true value of the business.
  • Know what the business is worth TO YOU: When determining how much you’re willing to spend, consider the way you will run the business after the acquisition and the ways you’ll make money. The business operations and financials may be different post-acquisition compared to what it is currently.

7. Accessibility Issues

One risk that is often overlooked when purchasing an online business is accessibility issues. Accessibility refers to the ability of all individuals to access and use a website, regardless of any disabilities they may have.

Failure to ensure accessibility can lead to legal and financial risks for your business. In fact, the number of demand letters and lawsuits related to accessibility have increased drastically over the past few years.

How to Prevent It

To prevent accessibility issues, there are a few things you can do:

  • Conduct an accessibility audit: Before purchasing a website, get an accessibility audit done to determine what changes will need to be made, if any. accessiBe offers a comprehensive free audit.
  • Use a tool like accessiBe: accessiBe is an automated AI-powered web accessibility solution that improves a site’s accessibility without coding.
  • Monitor accessibility with regular audits: Once you’ve made any necessary changes, it’s essential to monitor the website’s accessibility to ensure ongoing compliance regularly. Again, accessiBe offers ongoing audits, along with documentation you can save to show the date of the audit and the results.
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8. Intellectual Property Issues

When buying an online business, it’s essential to consider the potential intellectual property (IP) issues you may face. This could include copyright infringement, trademark disputes, or stolen content.

IP issues can become costly and time-consuming to resolve, impacting your business’s operations and reputation.

How to Prevent It

To prevent IP issues when acquiring an online business, consider the following tips:

  • Conduct a thorough due diligence: Look into any existing or potential IP issues before making the purchase. This could include searching for similar trademarks, checking for copyright infringement on the website, and reviewing any licensing agreements.
  • Get written confirmation: Ensure that all content on the website, including logos, images, and written material, is owned by the seller or has proper licenses. Ask for written confirmation to protect yourself in case of any future disputes.
  • Transfer ownership correctly: During the acquisition process, make sure to properly transfer ownership of any intellectual property from the seller to you. This includes transferring trademark registrations and any licenses or agreements.

9. Tech Stack Issues

Another risk that’s easy to overlook relates to the technology used by the website or business. This could include outdated software, unsupported plugins, or reliance on a single technology provider.

If these issues are not addressed, they can lead to operational and financial risks for your business in the long run.

How to Prevent It

To prevent tech stack issues, consider taking the following steps:

  • Conduct a tech audit: Before purchasing an online business, conduct a thorough tech audit to identify what is currently in use and identify any potential issues.
  • Plan for updates and maintenance: After the acquisition, make sure to allocate time and resources for regular updates and maintenance of the website’s tech stack. This will help prevent any issues that may arise from outdated or unsupported technology.

10. Employee/Contractor/Freelancer Transition Issues

Finally, when acquiring an online business, it’s crucial to consider the potential issues that may arise during the transition of employees, contractors, or freelancers. This could include issues with contracts, availability, or employee morale and retention.

How to Prevent It

To prevent issues with employees, contractors, or freelancers, consider taking the following steps:

  • Review all contracts: Before finalizing the purchase, review all contracts with employees, contractors, and freelancers to ensure that they are valid and legally binding. This will also give you an idea of the current work arrangements and commitments.
  • Communicate openly: Be transparent with all parties involved in the transition process. This will help alleviate any concerns or confusion that may arise during the transition and ensure a smoother transition for everyone involved.
  • Provide training: Provide training to all employees, contractors, and freelancers to ensure they’re familiar with your business processes and procedures. This will help them transition smoothly and minimize any disruptions to your business operations.

Final Thoughts

Purchasing an online business can be a tremendous investment, but it also comes with its fair share of risks. By conducting thorough due diligence and taking proactive steps to prevent potential issues, you can minimize these risks and ensure a successful acquisition.