What would you do with this business?

Author

Mike McLean
January 31, 2024

Hi,

It’s been a busy week with action on the biz buying front.

I did a light Quality of Earnings report on a business in my pipeline (I’ll share why and how), and it kickstarted some ideas.

Today I’m going to only discuss this one business and how I’m thinking about the options with it.

Today’s update

  • How I compensate for finance deficiency without spending $$$

  • I asked Twitter what to do with this business…

  • …and I’m asking you the same

Quality of earnings report

There’s a business in my pipeline you know about if you’ve been reading awhile. You can refresh the high-level details here.

It’s the type of business I’m building a rolodex of:

  • Amazing, aging owners with no exit plan

  • Established, niche business with a good client list

  • Low hanging fruit in plain sight (they’ve never spent money on marketing)

  • <$1m owner earnings

  • Off-market

This business has been top of mind for me for months. I’m in the process of soft negotiations, which I call “building a relationship.” I’m making my case that I’m a guy they can trust in a potential acquisition.

I think it’s a really good opportunity.

But… I have a weakness when it comes to knowing for sure that it’s a good opportunity.

I’m a FSOL — Finance Speaker of Other Languages. In other words, finance isn’t my first language.

I’m comfortable speaking operations, marketing, sales, etc. But I’m learning finance as I go.

This might sound stupid, but I have to focus extra hard when reading a Profit & Loss statement. I don’t have the reps yet.

For this reason, a Quality of Earnings or “QoE” report is essential for any potential transaction. A QoE is a deep dive into a company’s financials, making sure everything that’s reported in them is accurate and fair. Basically, it’s a service offered by an accountant to verify what’s reported financial checks out.

That’s what I need.

But there’s a problem. They’re expensive, and they’re designed for larger deals that you’re ready to close on. I’ve heard $15k+ for a standard QoE.

I’m not spending that money just to confirm this deal is what I think it is, but I still want someone who speaks finance to look at my deal.

So I found a middle ground: ProjectionHub’s “Sniff Test” QoE. It’s like a templatized QoE at a much smaller price than a traditional QoE (they charge $699).

Adam at ProjectionHub did a deep dive on the financials of the business in question. He recorded himself reviewing them, and gave me the templates to adjust the models myself.

I was thrilled with the result.

A note about small deals.

People will tell you “don’t do deals less than $1m EBITDA.” A common justification is that deal fees, like QoE, eat up too much margin on the deal. I agree, a small on a big deal’s budget doesn’t make sense.

I believe there are creative options to make small deals more sensical and strategic. This “Sniff Test” QoE is a good example.

By the way, Adam’s a personal friend and I was one of his first guinea pigs for this new service. I wasn’t asked or paid to write about it in this newsletter — I just think it’s a great service.

This process gave me a lot more confidence that the deal I’m looking at checks out from a financial perspective.

So… what should I do?

My status quo is to sit on this deal until the timing is right for myself or the right partner becomes available. Meanwhile, I’ll keep building the relationship with the sellers.

Why isn’t the timing right for me? This business requires either:

  1. A smart person to jump in full time and figure it out or

  2. Someone with a strong ecommerce system in place to tuck into.

At this moment, neither is me.

As I thought about it, I fired off this tweet:

I got a bunch of responses. Some reputable as great operators.

The response made me realize I need to ask the same question of my newsletter subscribers.

What would you do with this information if you were me?

My options

I see three options:

  1. Find an operator and buy the business myself

  2. Find a buyer and bring the buyer and owners together

  3. Maintain the status quo

What would you do if you were me?

I don’t have the right operator or buyer in mind, but I have a good idea of what that person might look like.

By the way, if you think you could fit that profile, read on.

What about you?

Writing online is all about the network for me. This week made me realize I should better understand that network.

 Who is reading my newsletter and what do they want?

Does a deal like this interest you?

I created a little survey for you to answer that question.

If you’re interested in this deal — as either a potential investor, potential buyer, or potential operator — please let me know. It will help me as I process what to do with this business and, hopefully, others in the future.

If that’s not you, you can skip the survey. If you’re just here to learn or because I’m your son (hi, Mom 😘), that’s totally fine. Hopefully you get something from following along.

If it is you… I’ll be in touch!

All the best,

Mike