The idea of running a small business might make you think it’ll be like running your own life. You control your schedule. You make decisions quickly. If something breaks, you fix it yourself. That “one person doing everything” model can work for a long time. Think Steve Jobs and Apple. Most entrepreneurs can relate to this approach, because they’ve typically worked as investment bankers, consultants, PE associates, M&A lawyers. So they know their deals and models, and they have grown accustomed to being the smart person in the room. But then they go and buy a business and inherit someone else’s employees and customers. So they take on all the operational procedures, or lack thereof, that got the business to where it is. If the original owner also followed in Mr. Jobs’ footsteps, then there will likely be some challenges in the transition to the new ownership. Insight from an Operator’s Operator We spoke with Meredith Grace about this challenge of finding a company with good operations. She started off in operations, not deals, and has personally operated around a dozen companies. She now works in two main lanes: Helping ETA buyers with operational diligence and post-close execution. Helping burnt-out owners stabilize, turn around, and position their companies for a future sale. Her work ranges from “keeping the company from dying” to “getting it ready to sell for a lot more than it is worth today.” When she talks about operational misses, Meredith can pull from a growing list of mistakes made by real companies that she has worked with to correct. The Yin and Yang of Operations and Search Operating a company is almost the opposite of how most searchers are wired. When you’re searching, you tend to ask high level questions such as: What are we really buying and what type of person is selling it? Why does this company exist and what is the core purpose? What are the few goals that actually matter for the next couple of years? A searcher will use those answers to drive everything else in a deal: offer, pricing, priorities, hiring, what to stop doing, etc. But when you employ an operator’s mindset, you’ll ask much more practical questions. So practical that most searchers would prefer to call them “boring” questions. But Meredith knows from experience that there is a ton of value behind these questions. Here’s a few examples she shared with me: Are the chart of accounts and expenses in the right buckets? Is QuickBooks using the classes correctly so you can slice performance in a useful way? How often does the team meet, and what’s on the agenda? What is the company’s north star? None of these questions sound exciting in a deal memo. However, the answers give you exactly the kind of structure you need if you want the financials to actually mean what you think they mean. Apologies if you had to read that sentence twice. Meredith’s guiding standard is pretty simple. By the time a business is ready to sell, she wants the original owner to be able to hand a laptop to the new owner and say, “Everything you need to understand and run this company is in here.” Unfortunately, very few companies are actually at that point. Signs of Operational Fragility That Searchers Miss Financials alone will not reveal how sturdy or fragile things are in a company. In fact, profit is often a lagging indicator of a lot of behavior you do not see in the CIM. Meredith identified a few patterns she keeps seeing with different clients. Key person dependency You can have one excellent employee carrying five who are coasting. But you wouldn’t know this just by looking at the payroll. In other words, the P&L will look fine until that one person quits. Operationally, you want to know: Who does everyone go to when there is a problem. Who knows how the big customers actually work. Who holds all the context in their head. Weak financial controls It pains me to say, but financial quality is not purely a QoE problem. For example, if AR collections swing between 30 days and 90 days depending on the month, that could reveal evidence of a broken process. Maybe someone isn’t invoicing consistently, not following up, or keeping customers happy. Additionally, if you notice AP steadily creeping up, it may be a seller quietly deferring expenses that will land on your watch. So making sure the books tie out isn’t enough for you to rely upon. You need to get into the nitty-gritty of what gets invoiced, who truly owns collections, how is cash reviewed, and so on. Lack of documented processes and tech backbone Meredith jokes that you can learn a lot from the receptionist’s desk. If there are sticky notes everywhere, it could be a sign that the systems are not doing their job. You also don’t want a company that runs on “oral tradition” where each SOP is passed down from person to person. That system works when the seller has been there for 20 years. It does not work when you step in with debt service to cover. In an ideal world, a buyer should be able to fully understand the business by looking at systems, dashboards, and documented processes. No real growth strategy Most searchers arrive with big plans. They want to double or triple the business. Believe it or not, this isn’t really a novel idea to grow profits and shrink losses. It’s basically gospel in C-suite meetings. Unfortunately, the idea isn’t always communicated to the rest of the people in the business. Meredith likes to look for whether the company has any shared “north star.” Do the employees and owners share a single company goal? If the answer is no, you need to understand there will be a cultural shock when you show up with seemingly new plans. People and culture issues Turnover is the most obvious red flag here. High churn in key roles is usually a symptom of problems like low pay, weak leadership, or a culture of constant fire drills and blame. Again, the P&L will not tell you this. You have to ask: How many people did you hire last year? How many are still here? Why did the last few people leave? Overall, none of these red flags should necessarily stop you from buying a business. Instead, they should prompt you to dive deeper into what you’re looking at so that you know what you’re getting into and have a plan to manage it. The First 90 Days After Close I’m a very action-based person. I like to get stuff done, so I was pretty surprised by Meredith’s next piece of advice. She says that in the first 90-day stretch after you buy a company, you should do almost nothing. Her advice is basically: sit down, be quiet, and learn. She has seen too many new owners show up, guns blazing. They arrive on day one ready to prove they are the smartest person in the building. And the result of all the new changes is predictable. Employees shut down or leave the company, and customer retention likely takes a hit. Instead, her version of the first 30 to 90 days looks something like this: Spend your time observing. Watch how work really gets done by shadowing people or sitting in on customer calls. Build real relationships with your employees by understanding their values. They don’t actually care about your long-term strategy so much as whether their paycheck is safe. As you do these first two things, you can be sketching a new operating plan. You can build your list of changes to make once everyone understands who you are and why you’re doing this. But you don’t lead with that. Reach out to Meredith for a discovery call on your latest acquisition. Where QoE and Operations Connect On the QoE side, we are looking for places where the numbers do not line up with what the sellers are saying. Typically, we can spot this by looking at patterns over time. Proof of cash, payroll reports versus P&L accounts, AR and AP trends, odd drops in repair and maintenance that conveniently improve EBITDA right before a sale. A good QoE report can give you a map of where to dig to answer some of these operational questions. For ETA buyers, that is the real edge. Not just getting the “right” adjusted EBITDA, but seeing where the business might crack when you are the one on the hook. While we pride ourselves in a quick turnaround with our projects, we want to be the partner who slows you down, shows you the real picture, and sometimes helps you walk away, rather than the firm that tells you what you want to hear. In the long run, the deals that work are the ones where the numbers, the operations, and the people are all telling the same story. If these values resonate with what you’re looking for in a QoE provider, feel free to book a call with me to discuss how we can work together in the future.