Acquisition Evaluator

Business Acquisition Evaluator

Walk a founder through buying a small business using frameworks from Sarah Moore, Brent Beshore, Andrew Wilkinson, and Codie Sanchez as discussed on My First Million.

When to Use

The user wants to buy a business instead of starting one from scratch. They might say:

• "I want to buy a small business"
• "Help me evaluate this acquisition target"
• "How do I find businesses to buy?"
• "I have $X to deploy — what should I acquire?"

Phase 1: Should You Buy Instead of Build?

From Shaan Puri and the "boring businesses" thesis across multiple episodes:

The MFM case for buying over building:

• Existing revenue, customers, and cash flow from day one
• Skip the 0-to-1 product-market fit grind
• Industry doesn't matter as much as you think — what matters is consistent profitability

"Industry is overrated. What matters is that you find a business that is established and has been consistently profitable for a number of years. Everything else? Garbage." — Sarah Moore

Ask the user:

1. How much capital do you have to deploy? (This determines deal size.)
2. Do you want to operate it yourself or hire a CEO?
3. Are you comfortable with debt? (Most small acquisitions use leverage.)
4. What's your time horizon — build and hold, or buy-fix-sell?

Phase 2: Sourcing — Finding Businesses to Buy

From Sarah Moore's zero-money-down acquisition process (dF6zvTXimxY.md):

Step 1: Build a target database

• Scrape a private company database (BizBuySell, BizQuest, or direct outreach)
• Filter by: geography (1.5-hour radius if you want to visit), revenue range ($1M-$20M sweet spot), years in operation (5+ years of profitability)
• Remove: anything over $100M revenue, professional services firms, franchises

Step 2: Mass outreach

• Guess email patterns (first.last@domain, first-initial.last@domain)
• Verify with Bulk Email Checker
• Template: "I'm looking for a business to buy, and yours seems to perfectly fit the bill — it's within this revenue range, it's been around for a really long time, it's been profitable for a number of years."
• Volume matters: Sarah contacted thousands. Expect low single-digit response rates.
• Counter-intuitive: angry replies are useful — "they filled out our survey without realizing it"

Step 3: Qualification gate

• On the first call, get to price range quickly
• If the seller thinks their business is worth 10x earnings, end the conversation
• You're looking for: consistently profitable for multiple years + willing to discuss a seller's note

Source transcript: transcripts/dF6zvTXimxY.md

Phase 3: Valuation — What to Pay

From Sam, Shaan, and guests across multiple episodes:

Small businesses (under $5M revenue): Trade at 2-4x annual profit (SDE — Seller's Discretionary Earnings)

The quick math:

• Ask for 3 years of tax returns and P&L statements
• Calculate average annual profit (add back owner's salary, one-time expenses)
• Multiply by 2.5-3.5x for a fair offer
• Offer slightly high (closer to 4x) knowing there's room to negotiate down

Red flags in the financials:

• Revenue declining year over year
• Single customer concentration (>25% of revenue from one client)
• Owner is the entire sales operation (you're buying a job, not a business)
• Deferred maintenance or capex (the real cost is hidden)

Sam's North Star math: Can you express the acquisition as Purchase Price / Annual Cash Flow = Payback Period? If payback is under 3 years, it's attractive. Under 2 years, it's a great deal.

Phase 4: Deal Structure

From Sarah Moore and multiple acquisition episodes:

The zero-money-down structure:

• 25% seller's note (the seller finances part of the deal — they get paid over time)
• 75% bank financing (SBA loans are designed for this)
• Key: find a bank that views the seller's note as equity (not all will)
• Expect 20+ bank rejections before finding one that works

Why sellers accept this: They get a higher total price, ongoing income, and tax advantages from spreading the payment over time.

Alternative structures discussed on MFM:

• Earnouts (avoid if possible — "47% earned less than expected")
• Revenue share (better for the buyer, worse for the seller)
• Equity rollover (seller keeps a stake — aligns incentives)

Phase 5: People Diligence

From Brent Beshore (3q1QvEkbbyk.md):

"The business we're in is predicting people's behavior. If all these businesses are predicated on the people who run them, the primary risks are going to be the people."

The Beshore Method:

1. Personality type: Immediately categorize using Myers-Briggs axes (I/E, S/N, T/F, J/P) to understand how they think and communicate
2. Motivation pattern: Layer in Enneagram for emotional drive
3. The Jerk Test: Eat with them. Travel with them. Observe them with wait staff, at the airport during a delay. "It is impossible to fake it when you're at the airport grinding through security."
4. Reference checks: Talk to employees, suppliers, customers — not just the references the seller provides

Blake's "Teach Me Something" test (from 3VLDuDZ6Qvo.md):

Ask the seller or key employees to teach you something about the business. Push back 2-3 times with "I don't understand, can you walk me through that?" — you'll immediately see who knows their stuff and who's bluffing.

Phase 6: Post-Acquisition — Running What You Bought

From Andrew Wilkinson's Tiny Corp approach (RzwS8iUHeQo.md):

If you want to operate:

• Ask: "If I could change one thing, what would give the business the most leverage?" Usually it's something boring — pricing, operations, not product.
• Don't try to change everything at once. The business worked before you — respect what's there.

If you want to delegate:

• Readiness check: Is the business at $300K+ profit? Does it have product-market fit?
• Find the #2 at a similar business that's 2x your size
• Comp structure: lead with total comp ($300K = $150K base + $150K bonus), tie bonus to EBITDA, uncapped upside
• For equity: require them to write a check (not options) — Wilkinson will even loan them the money
• After hiring: send financials monthly. Annual in-person meeting. Leave them alone.

Source transcript: transcripts/RzwS8iUHeQo.md

Phase 7: Search the Archive

Before finalizing any acquisition, search the transcripts for relevant episodes:

grep -ri "boring business" transcripts/    # 45 matches across 30 files
grep -ri "roll-up" transcripts/            # acquisition roll-up strategies
grep -ri "laundromat\|lawn care\|plumbing\|HVAC" transcripts/  # specific boring industries

The archive contains detailed case studies of specific acquisitions in dozens of industries. Search for your target industry — there's a good chance Sam, Shaan, or a guest has discussed it.

Output

After walking through all phases, summarize:

1. Buy vs. Build verdict for this user's situation
2. Target profile: industry, geography, revenue range, deal size
3. Outreach plan: how many targets, what template
4. Valuation range: based on the financials
5. Deal structure recommendation
6. Key diligence questions specific to this deal
7. Post-acquisition plan: operate or delegate?