“This is a list of questions I ask myself when reviewing a company”
How much does the company earn? Is that amount within the parameters I am looking for? Big enough to make a difference to the HoldCo but also within our buying capabilities?
Do I understand the product/service and how it is being offered? Could I explain it to my family at the dinner table?
With high conviction can I predict this product/service will still be consumed in this manner in 10 years?
How long has the company been around? Have their sales, gross profit, and net income been stable, slow growth, or hockey stick growth?
If the company has grown rapidly, how has that happened? Did they add products? Grow coverage area? Add clients? Increase gross margins?
How can I grow this business? Add products? Add locations? Add clients? Increase pricing?
Does any client represent more than 10% of sales? How many total clients does the business have? How long has the relationship existed?
Does any manufacturer represent more than 20% of sales? How long has the relationship existed? If I lost that relationship, how easy would it be to find a comparable product?
Is this business extremely relationship-based? If yes, who handles those relationships for the company? What happens if they leave?
Are there any regulatory issues that could come into play in this industry? Am I selling to government agencies?
Is this business highly seasonal? Does that impact its cash flow production and if so by how much?
Does this business have inventory? How much inventory do they hold versus yearly sales? Does the inventory go bad or become outdated and need to be discounted? If yes, how fast?
Does the business sell on credit? If yes, what are the terms? What has the collection history been? What type of customer receives credit?
Does this company have a lot of fixed assets? Do they need to be maintained/replaced regularly? If yes, how much would that cost?
How many employees does the business have? Is there a management structure? What is the average tenure of the employees?
Who will stay on post-transaction? Why are they staying? Are they vision-aligned?
Finally, how much do they want for the business? They generally want us to offer first, but initial conversations should give you a guide to their expectation.