Howdy Girdleyworld!

According to my reader survey (please fill it out if you haven’t!) a ton of you are interested in buying businesses.

So today I’ll go over the most important first step in acquisitions — that is, figuring out what you actually want with a business-buying checklist.

Let’s do it!

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Why make a checklist?

Business buying is a numbers game.

Because ultimately, you find the right business for you by looking at a ton of businesses.

But if you start agonizing over each one, you’ll never get anywhere. Could I make this work? Would I enjoy this? Can we stretch our budget?

I know from experience: it’s super easy to get emotional about a deal when you finally find something you like. Your brain is really good at convincing yourself something is a good deal.

But the worst outcome here is buying a bad business.

So keep in mind: it’s better to do no deal than a bad deal.

And a good checklist will help you catch bad deals before you’re in too deep.

The Checklist

So I like to break my checklist down into two parts.

One is what I call mandate, which is numbers and whatever can be very easily quantified.

The other part is the more qualitative stuff, which I call thesis.

Part 1: Mandate

Start by setting some nuts-and-bolts parameters.

• Is there an industry you have an unfair advantage in?
• Is there a location you want to be?
• How about gross margin? Personally, I think low gross margin businesses seem really hard. So I put “high margin only” on my checklist. You might feel differently.
• Company age. Conventional bank lending typically won’t fund brand new businesses until they’ve proved a history of cash flow.
• Capital requirements. How much do you have? How much can you raise? You shouldn’t be looking at businesses you can’t afford to run for a while.
• Are there licensure rules? If you’ve got your industry figured out, make sure you are very familiar with the rules.
• Ticket size / average customer value. Would you rather have a few big customers, but carry a greater risk if you lose one, or have a bunch of lower-paying clients?
• Lastly, there’s the cocktail party rule. I don’t want to do any business I’d be embarrassed to talk about at a cocktail party. So even if it fit all my criteria, I’m not going to buy a strip club or a weed dispensary. I want to be proud of the businesses I own. And I want to make the world a better place.

Use this item as a gut check: does the business work with what you want to be doing with your life?

A lot of this quantifiable stuff you can find on LinkedIn. You can also dig around for databases online.

Next, let’s look at some less quantitative stuff.

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Are you a holdco owner? Do you aspire to be?

If so, you and I should meet in Utah this spring, where I’m hosting HOLDCO CONFERENCE 2025!​

Learn…

• How to manage multiple businesses at once
• How to incubate new companies
• How other holdco owners and operators run their companies

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See the speaker lineup and learn more at holdcoconference.com.

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Thesis

This is the less quantitative stuff (mostly). Think about:

• State of the company. Do you want to buy a distressed business, a stable one, or a thriving one? Running a turnaround is really hard… but you can probably get it at a great price.
• Revenue per employee. This gives you a sense of how well the business is run. As you run your process, you’ll get a sense for what’s normal in your industry.
• Bidding environment for the company. Are you ready to be competitive? Will you be able to outfinance and outcompete private equity?
• Tailwinds versus headwinds. When trends are making your life easier, that’s a tailwind (e.g. baby boomers are retiring, so selling vacation packages is easy). There may be less competition in a headwind, but there’s no bonus points for doing things on hard mode.
• Seller context. Why is the seller getting out? I’m always asking, “Why am I the lucky buyer?” If I don’t have a good answer, my spidey sense starts tingling. I don’t want surprises.
• Growth opportunity. Do you want to a nice stable business, or do you want to expand? One guy on Twitter grew a $100,000 fencing company to $10M. But it’s hard freakin’ work!
• Exitability. Your business should be compatible with the life you want to live today. But consider: are you planning to keep this business for the long haul, or do you want something easy to resell? PE loves plumbing or lawn care businesses.

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And there you have my list!

Two quick notes:

1. For each requirement, ask: is this a must-have or a nice to have?
2. There’s no such thing as a perfect deal. Every deal with have something wrong with it. It’s just about finding the problems you’re prepared to solve.

Good luck!

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This newsletter is adapted from a mini-course I made last year for beginner business buyers. It’s called How to Find a Great Business to Buy.

If you’re interested, I’ve put it on 30% off sale until next Friday (Nov 22) - use code GIRDLEYREADER at checkout.

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3 things from this week

• Appetizer: I posted on Monday about the ways I’ve screwed up employee bonus programs, and people had some great addtions in the comments… including the most common one of all!

• Main: How do you make big decisions? One tool from Dave Kline that he calls the “3 Co-Signers” — his 12-year-old self, his 85-year-old self, and his family. If he gets a “yes” from these, he can feel good about making the call. (Read the whole article here.)

• Dessert: I got a masterclass in cold outreach last week. Unignorable.

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Are you interested in more business-buying content? Let me know!

Have a great week,

Michael

P.S. Stay tuned for Black Friday / Cyber Monday at the end of the month — I've got some great discounts on stuff coming your way!