100s of deals crossed my desk in 2022.
We invested in 19, and bought 7.
How do I decide which businesses to buy?
We invested in 19, and bought 7.
How do I decide which businesses to buy?
Here’s the 5-step due diligence process that will get you started:
Let’s say you’ve found a business you might want to buy.
Now you ask the owner for every detail, hold 12 meetings, analyze every number, then agonize over the decision for weeks.
OR…
Now you ask the owner for every detail, hold 12 meetings, analyze every number, then agonize over the decision for weeks.
OR…
You build a simple checklist.
These steps aren’t necessarily chronological, but they ARE necessary.
5 basic steps in the due diligence process:
5 basic steps in the due diligence process:
1. Basics from the business owner.
At this stage, DON’T:
• Ask for all tax returns since 1980 at your 1st meeting.
• Do 30 hrs of research before approaching the owner.
DO:
• Get a basic list of numbers
• Be light-handed and reasonable
At this stage, DON’T:
• Ask for all tax returns since 1980 at your 1st meeting.
• Do 30 hrs of research before approaching the owner.
DO:
• Get a basic list of numbers
• Be light-handed and reasonable
Sniff Test Checklist:
• Financials - annual revenue, MRR
• Cash flow - profit/loss, profit margin, income streams
• Expenses - monthly & yearly expenses on equipment, labor, maintenance
• Assets - equipment, real estate, machinery
• Financials - annual revenue, MRR
• Cash flow - profit/loss, profit margin, income streams
• Expenses - monthly & yearly expenses on equipment, labor, maintenance
• Assets - equipment, real estate, machinery
Get these spreadsheets, read them (or have your team do it), and flag.
If none of the flags are glaringly red…
If none of the flags are glaringly red…
2. Numbers deep dive.
Now let’s sink our teeth into this biz.
This is a good time to:
• Visit in person (if brick & mortar)
• Talk to competitors
• Reach out to customers or be a customer
• Ask the slightly more invasive questions
Now let’s sink our teeth into this biz.
This is a good time to:
• Visit in person (if brick & mortar)
• Talk to competitors
• Reach out to customers or be a customer
• Ask the slightly more invasive questions
Down & Dirty Checklist:
• 3-6 years of financials & taxes
• Expenses, annualized & monthly
• Revenue, annualized & monthly
• List hard & online assets & valuations
• Lease/real estate info
• Overview summary of the business's current state
• Customer concentration
• 3-6 years of financials & taxes
• Expenses, annualized & monthly
• Revenue, annualized & monthly
• List hard & online assets & valuations
• Lease/real estate info
• Overview summary of the business's current state
• Customer concentration
3. Letter of Intent
Now, the owner is within their right to ask a little something from you.
Some may ask you for a non-binding or binding letter of intent.
Now, the owner is within their right to ask a little something from you.
Some may ask you for a non-binding or binding letter of intent.
Letter of Intent Checklist:
• General timeline & outline of the process
• A sketch of major milestones, deadlines, checkpoints
• How you’ll pay
• A basic idea of structure for the deal & transaction
• Can they keep looking for other buyers? Can they talk about the deal?
• General timeline & outline of the process
• A sketch of major milestones, deadlines, checkpoints
• How you’ll pay
• A basic idea of structure for the deal & transaction
• Can they keep looking for other buyers? Can they talk about the deal?
4. Get your deal team involved early
Your biz-buying team has 2 MVPs:
An attorney and an accountant.
Your biz-buying team has 2 MVPs:
An attorney and an accountant.
Team’s Checklist:
• Accountant - give them the numbers/financials early on (but cap their time and expense)
• Attorney - don’t send your letter of intent until they’ve looked it over
• Analyst - not necessary to start, great to have later
• Accountant - give them the numbers/financials early on (but cap their time and expense)
• Attorney - don’t send your letter of intent until they’ve looked it over
• Analyst - not necessary to start, great to have later
5. The final deep dive
Collecting and reviewing all the info is one thing…
Now it's time to really piece EVERYTHING together.
This is the part that:
1) Scares newbies the most
2) Always gets overcomplicated
Collecting and reviewing all the info is one thing…
Now it's time to really piece EVERYTHING together.
This is the part that:
1) Scares newbies the most
2) Always gets overcomplicated
The Diligence Checklist:
This full checklist is a behemoth.
You can get it at unconventionalacquisitions.com.
But there are 3 big-picture questions you need to answer here:
• Are the financials real?
• Do you understand the risks?
• Do you understand the liabilities?
This full checklist is a behemoth.
You can get it at unconventionalacquisitions.com.
But there are 3 big-picture questions you need to answer here:
• Are the financials real?
• Do you understand the risks?
• Do you understand the liabilities?
You want to know TWO things:
Is what they're telling me real?
Can I count on the numbers to continue in the future?
Is what they're telling me real?
Can I count on the numbers to continue in the future?
These are the basics to get you on the right track.
What questions do you have on this?
Should we do a masterclass on it?
What questions do you have on this?
Should we do a masterclass on it?
Loading suggestions...