Based in panama, rafael has 25 years of investment experience including private company acquisition, public markets, and real estate.

He looks to teach from experience how to be a better investor and business owner.

My No Filter

Rafael Quinn
Buying a Business
“Having a clearly defined No filter will pay dividends”

My “No” Filter

I have written previously about creating a strong “No” filter.  This enables me to quickly discard opportunities that do not have the characteristics I am looking for.  Here is a list of my “No” filters:

  1. Industry.  I have a small list of industries I do not invest in.  One of those is construction, there are others.  I prefer asset-light businesses which have a higher likelihood of converting earnings to cash flow.  If it is in an industry I do not invest in, it is a quick NO.

  2. Geography.  Is it located somewhere we are willing to operate?  Currently, that is the continental US or Panama.  If it is not in one of these areas, it goes to the NO pile.

  3. Earnings below $2,000,000 EBT.  I do not buy anything below this number.  Each time we close a deal this number goes up.  If it earns less than this amount, it is a NO.

  4. Lack of earnings history.  How long have they been earning above $1.5m?  I do not buy hockey sticks, they are an easy NO.

  5. Client concentration.  We rarely pursue a company dependent on 2 or 3 clients.  We want diversification, a company that is hard to kill.  Too high a client concentration is a NO.

    These first five I can generally spot on a teaser in less than 15 seconds.  This makes for an efficient process.  If the opportunity passes the first 5, I move on to some that are not as rigid:

  6. Product concentration.  If they are selling a product and they do not manufacture it themselves, who manufactures it?  Are they dependent on 1 or 2 brands?  Again, trying to assess the risk points of the company.  If they are reliant on 1 or 2 providers for their business that may be a NO.

  7. Is management willing to stay on?  In some teasers, they will mention that management is looking to stay on, or there is a well-developed team in place.  This one is trickier because if there is no mention of this it does not guarantee they want to leave.  Generally, requires a call with the owner.

 

This is my NO filter.  I built this filter by getting in the reps and looking at thousands of opportunities over the last 13 years. 

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