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I have to be honest, as we’ve built Enduring Ventures we’ve done both bad due diligence, and we’ve done good DD.
It’s been a bit of a rollercoaster, but we’ve learned a TON.
Do your best to avoid “bad” DD. It can kill you...
Here’s a few things we’ve learned
https://twitter.com/justinnicholast/status/1345828783174025216
It’s been a bit of a rollercoaster, but we’ve learned a TON.
Do your best to avoid “bad” DD. It can kill you...
Here’s a few things we’ve learned
https://twitter.com/justinnicholast/status/1345828783174025216
CULTURE.
Forget the numbers for a second and pay attention to the company culture.
Do the employees trust each other? Do they trust the owner? Do they “have each other’s back”?
If you sense a bad culture, run in the other direction. Its one of the hardest things to fix.
Forget the numbers for a second and pay attention to the company culture.
Do the employees trust each other? Do they trust the owner? Do they “have each other’s back”?
If you sense a bad culture, run in the other direction. Its one of the hardest things to fix.
Employee Tenure.
Have more than half the staff been around for less than 4 years?
Find out why
Things to look out for:
- poor culture
- employees are under paid (if you buy, you’ll have to change this which eats your profits)
- toxic coworkers/leaders
Have more than half the staff been around for less than 4 years?
Find out why
Things to look out for:
- poor culture
- employees are under paid (if you buy, you’ll have to change this which eats your profits)
- toxic coworkers/leaders
EBITDA Add Backs.
Owners may try to juice their EBITDA unfairly (not malicious, they just don’t know better)
Add backs to contest:
- their full salary
- CapEx
- PPP Loans
Make sure you allocate a fair salary to a new CEO who will run the company after owners gone
Owners may try to juice their EBITDA unfairly (not malicious, they just don’t know better)
Add backs to contest:
- their full salary
- CapEx
- PPP Loans
Make sure you allocate a fair salary to a new CEO who will run the company after owners gone
Hidden Spend.
This one is hard to catch, here’s an example with eComm companies.
To juice how their profit looks, owner may use a personal credit card for some of the marketing spend.
Since this cost is “off the books”, the company will look more profitable than it is.
This one is hard to catch, here’s an example with eComm companies.
To juice how their profit looks, owner may use a personal credit card for some of the marketing spend.
Since this cost is “off the books”, the company will look more profitable than it is.
Equipment Check.
If buying a company with a lot of inventory/hardware, check each piece of equipment yourself. It’s exhausting, but worth the effort.
Owners often forget what they have, and end up misrepresenting their inventory.
If buying a company with a lot of inventory/hardware, check each piece of equipment yourself. It’s exhausting, but worth the effort.
Owners often forget what they have, and end up misrepresenting their inventory.
Customer Calls.
Some owners may ask you to avoid calling customers because they don’t want to “spook them with any changes”.
I HIGHLY recommend calling customers randomly from a list. Introduce yourself as a “customer service consultant” for the company.
Some owners may ask you to avoid calling customers because they don’t want to “spook them with any changes”.
I HIGHLY recommend calling customers randomly from a list. Introduce yourself as a “customer service consultant” for the company.
Employee Interviews.
Some owners may not want to intro you to employees until after the sale because they don’t want to worry their employees.
Don’t let this fly.
You MUST talk to at least a few of the managers/leaders before buying the company.
Some owners may not want to intro you to employees until after the sale because they don’t want to worry their employees.
Don’t let this fly.
You MUST talk to at least a few of the managers/leaders before buying the company.
There’s so many more lessons to share... I’ll stop here for now and come back to this later.
Happy Monday!
Happy Monday!
