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September 11, 2019

by a searcher in New York, NY, USA

How do you know if a business you are looking at is a good candidate for acquisition?

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Reply by a searcher
in Limerick, Ireland
Six words. Never forget them. Cash Flow Must Cover Debt Service. If it doesnt NEXT!
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Reply by a searcher
from University of South Carolina in Savannah, GA, USA
It depends, but start with the cash flow. Like Gary said above: Cash Flow Must Cover Debt Service. But in general, here’s how I tend to think about it, especially early on: 1. Can it pay the bills and leave gas in the tank? Paying the debt is table stakes. I also want to see enough leftover for working capital, reinvestment, and a bit of a buffer. No sense taking on a business where you’re holding your breath every payroll cycle. 2. Is there real room to grow, or is it already tapped out? I look for cracks where better ops, tech, or just basic marketing could drive upside. Maybe the website looks like its from###-###-#### Maybe they’ve never had a CRM. You don’t need a silver bullet, just a couple obvious levers you know how to pull. 3. What’s my role in this story? Am I in the trenches every day running the crew? Or is there a number two I can elevate so I can focus on growth, strategy, and keeping the wheels from falling off? If I can’t picture myself in the seat, or worse, I dread it, that’s probably not the deal. Of course, things are situational. You get curveballs, crazy margins but owner-dependent, or clean books but customer concentration. But I try to keep that core lens in focus: Is it financially viable, operationally fixable, and personally sustainable? If the answer is yes across the board, I lean in.
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