Thread by Sieva Kozinsky
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- Jul 27, 2022
- #Business #Investment
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Buying a business can be life changing.
But how do you know that you’re not acquiring a bad business?
A guide on due diligence that will help you identify GREAT businesses to acquire:
But how do you know that you’re not acquiring a bad business?
A guide on due diligence that will help you identify GREAT businesses to acquire:
I teamed up with @chrisxmunn who buys businesses at Fairfield Company to write this guide.
The purpose of due diligence is to understand a business well enough to get to a ‘hell yes’ or a ‘hell no’ on acquiring.
It can be a spiderweb of pathways to get to your end goal.
The purpose of due diligence is to understand a business well enough to get to a ‘hell yes’ or a ‘hell no’ on acquiring.
It can be a spiderweb of pathways to get to your end goal.
@chrisxmunn Here’s how we approach due diligence:
Financial Due Diligence
Operational Due Diligence
Customer Due Diligence
People Due Diligence
Industry Due Diligence
Seller Due Diligence
Growth Plan
Financial Due Diligence
Operational Due Diligence
Customer Due Diligence
People Due Diligence
Industry Due Diligence
Seller Due Diligence
Growth Plan
@chrisxmunn Financial DD
Financial diligence helps us understand the financial health of the biz.
A quality of earnings (QOE) report can spot financial ‘inaccuracies’ that can be tough to spot for someone who isn’t trained to look.
Reply below if you need a recommendation for a QOE firm.
Financial diligence helps us understand the financial health of the biz.
A quality of earnings (QOE) report can spot financial ‘inaccuracies’ that can be tough to spot for someone who isn’t trained to look.
Reply below if you need a recommendation for a QOE firm.
@chrisxmunn Is revenue growing or shrinking?
What about profit margin?
How’d the biz do during Covid or a recession?
Also, understand YOUR FCF after purchase.
Many times owners run biz very lean.
You may need to add people and software to biz after acquisition.
What about profit margin?
How’d the biz do during Covid or a recession?
Also, understand YOUR FCF after purchase.
Many times owners run biz very lean.
You may need to add people and software to biz after acquisition.
@chrisxmunn Operational DD
What systems does the owner use to run their biz?
What systems will you need to add when you acquire?
Document the roles of all employees. This will help with any org restructuring you may do in the future.
What systems does the owner use to run their biz?
What systems will you need to add when you acquire?
Document the roles of all employees. This will help with any org restructuring you may do in the future.
@chrisxmunn Customer DD (VERY IMPORTANT)
Who are the current customers?
How much customer concentration exists?
Talk to customers that left & learn why.
Talk to the big customers to learn what they love.
Talk to small customers to see if there’s an opportunity to upsell.
Who are the current customers?
How much customer concentration exists?
Talk to customers that left & learn why.
Talk to the big customers to learn what they love.
Talk to small customers to see if there’s an opportunity to upsell.
@chrisxmunn People DD
Who are key men/women in the organization?
If a key person were to leave, who could step up and fill their role?
Are people cross-trained?
Build out your ideal org chart and start the search to fill gaps pre-close.
Who are key men/women in the organization?
If a key person were to leave, who could step up and fill their role?
Are people cross-trained?
Build out your ideal org chart and start the search to fill gaps pre-close.
@chrisxmunn But with people, understand that many owners will have great sensitivity around speaking to employees pre-close.
Understand & acknowledge that.
But NEVER buy a biz w/o speaking to key employees.
Make this the last step in DD.
Understand & acknowledge that.
But NEVER buy a biz w/o speaking to key employees.
Make this the last step in DD.
@chrisxmunn Industry DD
You just bought into an industry and you’re not an expert.
Now what?
Join the industry association.
They put on trade shows, have lists of vendors in your industry, and have an executive board that you can contact directly.
You just bought into an industry and you’re not an expert.
Now what?
Join the industry association.
They put on trade shows, have lists of vendors in your industry, and have an executive board that you can contact directly.
@chrisxmunn Find brokers who have done deals in that industry.
2-3 brokers should be able to tell you what they see in the market for valuations, trends, etc.
Use them as a resource.
2-3 brokers should be able to tell you what they see in the market for valuations, trends, etc.
Use them as a resource.
@chrisxmunn Hire advisers!
There are always a couple of business owners in your industry that are true experts.
Then, find a business consultant specific to your industry.
Get on the phone and bring them along in your search.
Don't be shy to spend money on this step!
There are always a couple of business owners in your industry that are true experts.
Then, find a business consultant specific to your industry.
Get on the phone and bring them along in your search.
Don't be shy to spend money on this step!
@chrisxmunn Seller DD
On the other side of the table sits the seller.
Most important, be honest and transparent with them at all times.
You are building trust with every interaction.
On the other side of the table sits the seller.
Most important, be honest and transparent with them at all times.
You are building trust with every interaction.
@chrisxmunn If something doesn’t seem clear or seems ‘off’ don’t hesitate to dive in further with more questions.
Record ‘red flags’ as they come up. Too many and you may need to walk away.
Record ‘red flags’ as they come up. Too many and you may need to walk away.
@chrisxmunn What’s the seller like as a person/leader?
You aren’t just inheriting their biz, you’re inheriting their culture.
It can often be overlooked because it’s not on paper but it is hugely important.
You aren’t just inheriting their biz, you’re inheriting their culture.
It can often be overlooked because it’s not on paper but it is hugely important.
@chrisxmunn Growth Plan
To grow this biz, you must understand a few things:
Sales Process
Who sells? How do they do it?
Document the customer journey from A-Z.
Look for opportunities, ask the owner why or why don’t they do certain things.
Cross check this with your consultants.
To grow this biz, you must understand a few things:
Sales Process
Who sells? How do they do it?
Document the customer journey from A-Z.
Look for opportunities, ask the owner why or why don’t they do certain things.
Cross check this with your consultants.
@chrisxmunn What are their marketing channels?
Are there any opportunities to optimize there?
How do they acquire customers?
You will need to have your growth strategy ready to go day 1.
Are there any opportunities to optimize there?
How do they acquire customers?
You will need to have your growth strategy ready to go day 1.
@chrisxmunn This diligence list is just a start to get you going...
If you want my FULL Diligence Excel spreadsheet:
1. RT + Like the first tweet ❤️
2. Follow @SievaKozinsky and @chrisxmunn
3. Sign-up for my newsletter below (I'll send the diligence spreadsheet there)
If you want my FULL Diligence Excel spreadsheet:
1. RT + Like the first tweet ❤️
2. Follow @SievaKozinsky and @chrisxmunn
3. Sign-up for my newsletter below (I'll send the diligence spreadsheet there)
