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Investment Criteria

INDUSTRY:
B2B Services (Open to other ones opportunistically)
Sizable and growing
Fragmented
Non-cyclical
Minimal regulatory risk
FINANCIAL:
$2-10M in Annual Revenue
$500k-$2M Annual EBITDA
20%+ Margins
COMPANY:
Founder Owned
No Investors
5-50 employees
Recurring revenues & consistent profitability
History of growth
Low ongoing CapEx

Diligence Checklist

Technology

Will customer information need protection?
Is online payment processing accepted?
Are there existing infrastructure systems (CRM, accounting software) that I need to be familiar with when taking over the business?
Is the current website secure from cyber attacks and hacking attempts?
Is the checkout process on the website user-friendly and efficient?
Are there any backups or redundancies in place in case of a system failure or data breach?
Does this business use any cloud services or online storage solutions for its operations?
Has an IT professional been keeping up with tech maintenance (patch updates, etc.) regularly?

Legal

Are there any pending legal actions against the company?
Are there any pending lawsuits against customers or suppliers?
Does this business require specialized licenses or certifications (such as food handling certificates)?
Have all licenses necessary for operation been obtained and maintained properly up until now?
Is my new role as owner going to require me to obtain special licensing or certifications prior to running operations effectively (such as food handling certificates)?
Does this business have contracts with other businesses (customers and/or suppliers) that may need to be renegotiated when ownership changes hands?
Are there any government regulations that must be adhered to when operating this type of business in my area (zoning laws, environmental regulations, etc.)?
Does this business have patents, trademarks, or copyrights registered under its name which will transfer over with ownership change hands (if applicable)?

Growth

Can sales commission be earned through referrals?
What digital marketing efforts are already established?
Can SEO efforts increase organic search results?
Does website design meet industry standards?
Should social media presence increase?

Team

How much do employees earn on average & how often are they paid (weekly, bi-weekly)?
What kind of insurance does this business currently carry (liability, property & casualty, worker’s compensation)?
Are all employees covered by worker’s compensation insurance in case of injury or illness on the job?
With my coaching and guidance would any of the current employees make a good Operations Manager?
Who are the 3 most important people on the team & why?
If you had to let go of 1 employee, who would it be & why?
How compliant are employees with laws and regulations?

Business Operations

What are the core processes required to run the business?
Who is in charge of each process?
Are those processes documented?
Do clients pay regular invoices?
How long does customer service typically take?
How often does web content need updating?
Is email marketing being used?

Customer Retention & Feedback

Has reputation management taken place?
What feedback has come from customers?
Do customer reviews appear regularly?
Are customer loyalty programs offered?
Where do most of your current clients come from?
What is the average customer LTV?
What percentage of clients are return customers?
What percentage of your business do your top 5 clients account for?

Financials

What was the gross revenue over the past 3 years?
How much has the margin been?
What is the average profit for each product or service?
What is the current cash flow situation?
Have all local, state, and federal taxes been paid in full?
Is there any debt that needs paid off immediately after closing?
Any debts that will have to be assumed as part of the sale?
Do any loans need refinancing upon ownership transfer?
Is there an emergency fund set up specifically for unexpected expenses related to owning this business?
Can I get copies of financial records such as income statements, balance sheets, etc.?
Can I get copies of tax returns for both personal and corporate income taxes for three previous years prior to purchase?
Has a valuation report been done recently so I know what price range is fair when negotiating a sale price (if applicable)?
Have all accounts receivable been collected up until now?
Is there an audit trail showing accurate financials?

Assets, Inventory, & Equipment

Do you have a list of all of the assets and inventory?
Are all the assets and inventory included in the asking price?
Are there any assets that need to be replaced soon after closing?
Does all inventory have proper documentation such as expiration dates?
Do you have maintenance records for all equipment?
If you could add one new piece of equipment or asset to grow the business what would your next purchase be?

Transition Plan

Will I receive training from existing owners prior to taking over operations so I can learn first-hand how things work in practice and not just in theory?
Is there an employee manual that outlines policies and procedures?
Who is responsible for filing taxes for the current year?
Who will handle accounting duties once I take over operations?
Are all employees on a contract or are they 'at will'?
What is the average length of employee tenure at this business?
How many employees? FT? PT? Contractors?
Are they aware of a potential sale? Would they be willing to stay on?
Who handles new hire onboarding processes?
Has any legal advice been sought in regard to intellectual property, customer information protection, etc.?

Resources

Brief Memo Template - Five Elms Capital.docx

Sourcing

Email Template

Hi {first_name}!
I recently came across {company} and was super impressed - I'd love to learn more about what you're up to.
I'm with GreyPine Holdings, a firm that invests in and acquires outstanding companies. We typically invest in businesses with $1mm to $10mm in revenue. We're not just a source of capital, though - we help expand your reach, optimize your business's core value, and scale your operations.
Do you have availability for a call next week?
Best,
{sender_first_name}

Data Sources

Grata
GreyPine Holdings - List.csv
GreyPine Holdings - List 2.csv
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