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WES S04E04: Due Diligence Tips

Justin Cooke November 21, 2018

Subscribe to our VIP LISTDue diligence is a tricky beast.

It’s easy to pick up the basics but can take years to master.

We covered some of our thoughts on due diligence on this previous episode. If you haven’t listened to it, I’d highly suggest giving it a listen and coming back for this one.

In this episode, we wanted to cover some due diligence tips that were more relevant for larger businesses and portfolios that you may be looking to acquire.

While we look at it from a buyer’s perspective, it’s worth a listen if you’re selling as well to get some sense of what buyers might be looking for.

We’ve had some great iTunes reviews lately! Make sure to stop by iTunes and give us a review when you get a chance – we’d really appreciate it!


Alright, let’s dig in…

Listen To The Full Interview:

What You’ll Learn From This Episode:

We’re going to cover the advantages and disadvantages to each of these?

  • Stay Organized
  • Pre-Select Your Criteria
  • Initial Pass/Fail Test
  • Industry/Niche Sustainability
  • Review The Team
  • Review The Process
  • Buyer/Seller Call(s)

Featured On The Show:

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Justin Cooke:                     You may want to think about how likely is this business still be around and how likely is the industry. I think it’s really important.

Speaker 1:                           Buying and selling businesses just got a lot easier. Welcome to the Web Equity Show, where thousands of successful entrepreneurs go to learn about buying, growing, and selling online businesses. Your hosts, Justin Cooke and Ace Chapman share their real-life advice, examples, and expert interviews to help you build and grow your own online portfolio. Now to your hosts, Justin and Ace.

Justin Cooke:                     Welcome back to the Web Equity Show. I’m your host, Justin Cooke. I’m here with my co-host, Ace Chapman. Today we are talking due diligence tips. We’ve got a lot of things to cover. I’m really excited to be back on the show, buddy.

Ace Chapman:                   Yeah, it’s good to be here. We’ve talked a little bit in thesis before about due diligence. Today, we’ve got seven considerations around doing due diligence on these larger deals.

Justin Cooke:                     Yeah, this is effectively a follow-up on Season Two Episode Six, where we really went into some depth on due diligence for buyers. You skip over some of the points you’ve already made just because for time, and we’re gonna link to that in the show notes. If you want to check that out, I’d really highly recommend you listen to that one and then come back and listen to the show.

Ace Chapman:                   Yeah, go back. Listen to that one. This is really a follow up. Really, I mean all throughout all the seasons, we’re giving you tips on how to do due diligence.

Justin Cooke:                     All right, buddy. Let’s get into our listener love segment. First up, we’ve got three new five star reviews, buddy. The first one is five stars from Soccer Freaks. He says, “Education from experts. Ace and Justin are the real deal. They’ve been in this industry since the beginning. If there’s anyone you should listen to regarding income-producing digital assets is these two experts.” Gene Castles said, “Insight or perspectives from the two pros. Great Episode, Ace and Justin. Thanks for sharing your thoughts and insights and doing deals at different price ranges. I appreciate how you dove deep into the characteristics of the buyers and sellers. Do, don’ts, and expectations, specific benefits or rescue on counter at each price point. You won’t hear information like this on other podcasts. Looking forward to the next episode.”

We also got Tray Dog, “Five Stars. Just keep up the hard work. Amazing podcasts. So insightful and applicable to the industry of web equity. Can’t get enough. If either of you are searching for an intern, let me know in the listener love part of the next show and I’ll forward you my resume. Love you guys.” I don’t know, Ace Man. You got a spot open up for Tray Dog. We’re actually not hiring until April or so. What about you, man? Are you hiring right now?

Ace Chapman:                   Yeah. For the right person, there’s always a spot, right? Shoot over your resume,

Justin Cooke:                     Cool, man.  listener question. Jacob, one of our listeners at Web Equity Show saw this question on Quora and mentioned us. I thought I’d throw this your way, buddy. I have 250 to $500,000 to invest in buying a business, need a career change, and I love to work. What type of business should I buy that will meet my needs? What do you think, man?

Ace Chapman:                   Yeah, I love that somebody is thinking about, “Okay, I wanted to have a career change. Is there the right type of business?” I think it’s gonna be based on your past history and what your career was before. If you’ve got some experience in marketing, having a business that takes advantage of that is a big deal. If you’ve got some experience in finance or operations or on the tech side of things, you’re a great programmer, I would try to find the business model that aligns with that. The awesome things for most people that have a career and have a job, having a down payment budget of up to half a million, it should put you in a situation where you’re able to get a deal that is going to replace anybody’s average salary.

Justin Cooke:                     I mean 250 to 500K is gonna get you … It’s pretty straightforward to get you 10 to $20,000 a month in profit per month, right? You’re good there to be able to replace your salary most. He mentioned is both a career change and it was the fact that they love to work. I think that I’m gonna get into profiles we’ve used with our Empire Flippers, but like a DIY Dave like a Do-it-Yourself Dave profile would probably meet this person’s needs. What that means is they look for businesses where they have a unique skillset and they can like dig in and tinker, right? Looking for businesses they can play with, they can work with, they can make changes to, they can tweak.

Particularly better, if they can come at it with a unique skillset that’s valuable and it can add value to the business that is not currently being added. Just to be more specific if they’ve got paid Facebook chops and they find a business that’s mostly organic that could really use some Facebook traffic, that might be something they’d be interested in. All right man, let’s get into it. Due diligence tips. Our first tip. We’ve got seven that we’re gonna be covering today. The first step is just keeping your stuff together, right? That’s staying organized. As you get into your due diligence, there’s gonna be a lot of different deals. You are gonna be looking at with a lot of information to remember and that can be challenging.

The first thing you wanna do is stay organized. Well, let’s just talk about what that might look like at first. Most people do it with a spreadsheet for a high-level view. In Google Docs or whatever, you’re gonna create a spreadsheet with all the columns that you need to see. I think just lay out each deal one by one there. As you go through them and they get knocked off. You may wanna have current active targets at the top. Then all the knocked off ones at the bottom. You can do that as well. But what the spreadsheet will do is really will act as your dashboard for deeper diving on the deals. In this spreadsheet, you’re gonna have links to different folders and documents in your Google Drive.

You can link to a folder for a particular deal which may have everything you need; profit and losses for different years, screenshots, traffic history, things like that. Then you can go in and explore a little further. One thing I’d recommend is you should keep a record of all deals, even once you’ve passed on from six months ago, or a year ago, two years ago. You’d be surprised at how often deals come up again for sale.

It’s interesting to compare a deal that you looked at previously and it’s now available. In a couple of years later, it’s good to go back and look at the data. It’s also helpful just because you can compare once you passed on, in the past, to ones you’re looking at now. It can help remind you that, “Hey, this probably wasn’t a great deal for you. You should skip this one. You just skip it because of the reasons you skip this other one for.” It also allows you to, over time, build out an internal knowledge base with frequently asked questions and interesting findings on all the deals that you’re looking at. What this can do is it can really help you become more solid in your due diligence over time, because you’ve seen a bunch of different scenarios. You’ve documented those scenarios inside of your knowledge base.

Ace Chapman:                   Yeah, I love putting together the FAQs, but the most important thing is having a record. Like you mentioned, it’s great because you can refer back to it. Make sure you’re learning the lessons that you’ve learned off deals and doing due diligence on deals before. But more importantly, applying them when you’re looking at new deals. The biggest thing that I’ve found is that deals come back on the market. If you’re going through the process on a business, maybe somebody else scoops it up. They get it into due diligence and end up walking away. Now, you’re not starting over like, “Okay, what were the things about this business that I liked and didn’t like?” You’ve got all of those records there to pull out.

Justin Cooke:                     I gotta be honest with you. As we were talking about this pre-show, I was thinking about some of these points. This one, in particular, stuck with me because I’m bad at this, buddy. This is just not something I’m going through it. I’m mentioning the different points. I’m cringing a little bit cause I’m like, “Wow, I’m telling everyone else to get you this. I’m thinking about how bad I am.” But what I do to work through that is I have smart, operational people that help me that are very data driven, that will think of the new columns and put it in a way that makes sense for me. Not everyone has that. If you’re more like me, and this is not a skill set that you have, it makes sense to get better at it. If you have the cash or you have a team, having someone that’s a little more analytical, put this together for you. It might make a lot of sense.

Ace Chapman:                   It’s very interesting. I mean, you’re not alone. I can tell you from the number of our clients that we have all these spreadsheets. We give up to him. All you gotta do is go in and put this information here. Then they’d come back. They’re like, “Okay, I’m trying to figure this out.” I’m like, “Okay, did you put it into these spreadsheets?” “Oh, no. I didn’t.” You’re certainly not alone, even if somebody does put everything together for you. The second point on our due diligence process is make sure that you pre-select your criteria. I think there are a lot of people that are getting into the space. It’s like, “Okay, my criteria is I’m gonna go make money. There’s money over there.” One of the things that is important is there are things that you want to have generalizations about. Then there are things that you wanna be very specific about.

One of the things you wanna have a general realization about is price range, especially if you’re gonna have any terms in a deal, having a certain amount of money. If you’re gonna spend $250,000, it doesn’t mean you only need to look at $250,000 deals. Maybe you could go a little bit larger up to 300-350 and have some terms. It might be but then also don’t forget that you could buy a couple of $100,000 deals that may be the right match. It’s great to keep your price range approximate, but it is important to have a price range. Don’t go looking that $3-million, $4-million deals because those deals probably, you’re not gonna be able to take those down. Second thing is monetization type. Now here’s where I like to be very specific because there’s a big benefit if you get into a single space, a single business model, and then become an expert at looking at those deals, gathering information, putting together due diligence process. Then even sounded like an expert when you’re talking to those sellers.

The monetization type is a little bit of like a business model. If you’re in a SaaS business, you’ve got customers that are paying you on a recurrent basis. That’s where your income is coming from. If you’re in a content business model, maybe you’re getting paid by Google or Amazon affiliate. With each of these business models, if you’re one-day-do-FBA deal and talking to the seller. Then the next day, you’re doing a content deal. The next day a SaaS deal, you’re not building any expertise. That can bring a lot of value once you get into due diligence. I think a lot of people ended up walking away from deals because they just don’t really get to the end. They’re like, “Man, I don’t know what I’m doing. I don’t know how to do due diligence. Why am I about to send over six figures and not close this?”

One of the things that can help that is just focusing on a specific business model or monetization type. The other thing is being careful with being too specific, too niche. This is where I would not be very specific. I think some people think, “Okay, I love golf. I am gonna go buy a business that’s in the niche of golfing.” It takes too long to find deals in that specific niche. I would maybe even, sports is a better niche that you wanna go after, but I would try to have a couple of things, and maybe even more importantly. Just have the things you want to stay away from. I have certain deals that I’m just not interested in doing either this niche, this business model so I’d just stay away from those. Then the other thing is finding those deals where we mentioned to the question and this episode of where should I focus, what deal should I do.

Find a deal where you have some unique advantage or experience or strength that you’re gonna be able to bring to that deal that maybe other people won’t be able to bring to the table, which means, “Hey, I’m gonna be able to grow this. I can pay more. I can put more down.” That gives you an advantage not only when you’re running the business, but when you’re structuring and doing the deal.

Justin Cooke:                     For those specifics or whatever on where you can provide unique advantage. As part of your categorization and on your spreadsheet, it might be cost per acquisition per customer or lead or whatever on Facebook traffic. You’re looking for paid Facebook plays that have a high cost for acquisition where you know you can improve or things like that. Things that where the advertising cost is high, where you know that you could work that down. Basically, make the business worth more money because the advertising costs are high. You may wanna track that in the spreadsheet. When you’re  doing your due diligence and going through it, you can just see an apples-to-apples comparison. That’s one of the benefits of staying organized and having that spreadsheet is whatever pre-selection criteria you have, you’re gonna put that as columns in the spreadsheet. It gives you just an apples-to-apples comparison rather than going through all the different brokers and trying to look at. Their way of displaying the data might not be in a way that is apples to apples or makes a lot of sense to you.

All right. Let’s talk about number three. This is the initial pass-fail test. Now that you’ve had either a VA, go through and enter all that information into the spreadsheet, or you’ve had an operations’ person, or you’ve done it yourself, you now have quite a bit of data in the spreadsheet. You need to do some initial pass-fail testing. Here are a few of the things you can look at. Again, if you want to and you hear a lot more of our due diligence stuff, go back to Season Two Episode Six. One of the things you can look at is the competition for the business. Number one, if there’s too few competitions, why is that? Why are they’re not more people in the space? Does it mean that it’s capped out? Is there some limit? Is it not growing? Is it declining and people abandoned the niche? Why are there just a few competitors?

If there’s a lot of competitors, you may wanna ask yourself, like, “How can you stand out? Does the business stand out today?” If it doesn’t, if you purchase it, in what ways would you be able to stand out from your competition? If you’re a marketer and you say, “Hey, there’s no way people will stand out against this competition. Are there too ingrained?” Maybe that’s just a quick fail. You also wanna look for deals that are too good to be true. You can look at this at a bunch of different metrics like a lifetime value per customer or the margins are just much higher than other businesses in the category. If that’s the case, those are generally businesses you want to avoid or you at least want an answer to. On the pass-fail test, if it’s outrageous and you don’t won’t even bother asking, it’s an immediate fail. If you think that it’s reasonable just outside of your margins, you may wanna flag it. Just ask about it when you talk to the seller.

Here’s one that I use, and this may or may not apply to our listeners. I’m gonna say it though, it may be something that interests them. If you’re buying a larger business, you wanna know whether it’s passed the stage test. When I mentioned stage what I mean is, if buy the business, two or three years down the road. I’ve grown the business. It’s very successful. I’m going to a conference, the leading conference for the industry, would I be comfortable getting up on stage and talking about the business, talking about the niche that I’m in? Is it something that just completely bores me or is it something I’d be proud of? Is it a business I could be proud of? For me, having a business I could be proud of is important. I don’t wanna spend years of my life putting quite a bit of effort and work into something that’s just a me-too business or just, I don’t know, just not exciting. Do you know what I mean?

Ace Chapman:                   Absolutely. I think it’s important to just figure out, where is this business in my financial life? Obviously, you’ve got those deals that are just a passive thing. It’s a blog. You’re putting content on it. You’re not putting that much effort into it. It’s just in more of a passive income deal. You realize, “Hey, I don’t wanna be on stage, talking about this random business that’s about doorframes and doors. I’m not excited about that, but it still is something that is valuable for me.” Then you’ve got the thing you’re gonna pour your time into. The last thing you wanna do is be burnt out because it’s just not something that you’re that into. You’re that excited talking about. It just is an income. Six months down the line, you’re regretting buying it.

Let’s move on to the industry and niche sustainability. We talked about what not choosing or not being too specific about the niche that you’re gonna focus on. But when you do find that deal that isn’t a niche, you wanna do research about that niche. Make sure that it’s something that isn’t just a trendy business that’s gonna go as a whole niche out of business in three to six months. We see things that get super, super hot. For some reason, I always come back to Pokemon Go where businesses are trying to be located, where the next thing is gonna be collected so they can have all this business coming in. Do you have those things that just come and go? Who knows? Maybe Pokemon Go is still a thing, but I’m assuming that trend this over now, right, Justin?

Justin Cooke:                     Yeah, pretty sure. Pretty sure that one’s done. There’s a whole bunch of that just fatty businesses that pop up and then go away, right? I think definitely Pokemon Go’s one of them. Another one, and I’m way off track here, but I don’t know if you do the Clash of Clans at all. No one plays this game anymore. I’m still playing my Clash of Clans on my phone, and everyone’s moved on. I’m stuck playing it.

Ace Chapman:                   That’s the sign that you’re getting old. When you have those days, you’re like, “Wait a minute, guys. This is still a lot of fun. Let’s continue playing.”

Justin Cooke:                     Funny you mentioned that, dude. My mom is still playing Pokemon Go. I got her on it years ago. When I finally got her on it, you mentioned old people and my mom is still playing Pokemon going, “What? Doesn’t anyone stay play this?” I’m like, “No mom. No.”

Ace Chapman:                   That’s a sign, Justin. We gotta find you a new game, man. We gotta have the movie all from classic fans. Oh, great. One off the ways that you can search these trends, you don’t get caught up in the next Pokemon Go, is going to Google Trends and seeing what it says about the niche or industry. What’s going on? You can do searches in a lot of different ways. It’s not just, “Okay, what is the main brand?” What are some of the other niche aspects of that whole industry and seeing what’s going on there. Our search is going up. It’s starting to decrease. Something else that I think people don’t pay attention to is legislation or litigation, not just against the business. We’re always aware to talk to the seller like, “Hey, what’s going on with the business?”

In the US, specifically, there are countries where it’s better tax-wise, or you need to buy the entity. Here, in the US, we’re just buying assets or the litigation to that particular company doesn’t necessarily carry over. We’re still aware of that. I think where people aren’t as aware is when there’s litigation against the niche or the industry as a whole. Is there a product that hurts somebody and now they’re attacking the whole industry? You have things like the vape pens that are always in limbo. New litigation is coming out about those products, how they’re made, where they’re from, where you can smoke them? Being aware about any litigation or, more importantly, legislation that’s coming down the pipe from Congress regarding that niche. Then the last thing that I really like here, Justin, and you brought this up, is using a backdoor method, which is what’s the job outlook for that industry?

There are a lot of places that you can go where they don’t just project over like, “Okay, this year, a lot of people are hiring.” They’re like, “Based on trends in this industry, here where it’s gonna be in five years, 10 years because a lot of the people that are using those sites are going to college.” In their industry, they’re trying to project, “If I go to four years of college and then I go to two years of law. I wanna specialize in this kind of law. Am I going to be able to get a job six years for now? That’ll give you a sense of the longevity and what the people inside of that niche or industry are projecting over the long haul.

Justin Cooke:                     I think sustainability is really important, particularly for the larger businesses where you’re gonna want this to be around for longer than just a year or two. I mean you’re talking three, five, six, seven years down the road, you may wanna think about how likely is this business is still be around and how likely is the industry still be around. I think that’s really important. All right, man. Let’s talk about the fifth point, which is reviewing the team. Now, this isn’t applicable to every business. But often when you get into like low seven figures and above, now you’re starting to talk about businesses that come with teams. It may just be a couple of people or maybe dozens of people. You’re gonna want to get a sense of what’s going on with them. The first question you should ask this, do they know about the seller? If yes or no, why or why not?

Why are they being told or why are they not being told? Those are good questions for you to figure out with the seller. Try to get a sense of why they’d be willing to or not willing to tell the employees. The other thing you’d wanna know is are those employees gonna be coming with the business. If they are coming, great. If they’re not coming, why are they not coming and what’s the plan? Obviously, it makes a lot of sense if you’re buying this business to not have to completely replace your key staff after buying it. That should be a no-go for you as a buyer. If the seller is falling we’ve talked about and they do wanna keep a couple of key staff an they should have replaced them over the last 12 months. If they’re expecting to be able to walk with that staff, particularly their management team or whatever, that’s just not realistic.

The seller should have some plan. If they’re working with a broker, they should have some plan to work with you there. I would expect to try to keep them around a bit. You may want to give them some incentives to stay. You also wanna review the org chart. What does the team look like from the top down? Are the roles for each individual person clearly defined? Do you have a bunch of people doing a bunch of different things? You’ll see businesses, particularly in the seven-figure range that are doing that, where it just like Jack of all trades. That may or may not be interesting to you. I don’t love that, but does provide opportunity for you to lock that down. I don’t think that leads to all business having everyone’s doing everything, but it may provide opportunity after you purchase to define that.

We also wanna know that the roles are not only defined but documented. Do they have job descriptions? Have they worked out who does what and why they need to do it? What time are they spending on the business? Or some people overloaded, do they need more people in certain areas? Or some people under utilize or they’re only spending 70% of their hours on the business. That’s a good thing to know. You should also look for any critical personnel. If they get hit by a bus, what would happen? That doesn’t mean that you would wanna talk to the seller about. It’s also something that you want to come just review and be able to find on your own. Then you’re wanna ask yourself the question like, “What would you do if they left? What would you do if they got hit by a bus? What would your plan B be in replacing that person?”

Ace Chapman:                   A couple of things that keep in mind here is, on a lot of these deals, a lot of this is an in place, but that shouldn’t be a reason for you not to get it done during due diligence. They may not have a org chart that’s already put together with the roles that are clearly defined for each of the people on the team, but it doesn’t mean that you can’t work with them and ask them questions to start to build that out so that you understand what the team looks like. It also goes for our number six. One of the important things is reviewing the process. Unfortunately, a lot of times, people haven’t defined that process, but we still wanna find out. Is there at least some high-level review of the entire process that you can do with the seller?

It’s awesome when it comes to the table. It’s like, “Hey, here’s our mind map or the business. It starts here. It goes there.” But what I’ve found is about 90% of these don’t have that high-level, step-by-step review of how the business works. You know you’re dealing with an amazing seller when they do have that to sellers that are listening right now. The other thing is, do they have SOPs in place for all those lower-level tasks? What are the things we like to do? If any seller that’s buying or any buyer that’s buying the business that we decided to sell is, we wanna come to the table and have those SOPs in place for them for each of the tasks in the business. Especially if there’s not a team that’s being carried over, so that that person is buying the business is able to run it. It’s not just because like, “Oh, here’s this altruistic thing for you.”

One, it makes the business more valuable. Number two, it makes it easier to train them so that they’re not coming back to you for a bunch of questions. For you, as a buyer and you’re going through the due diligence process, if they don’t have those SOPs, I would recommend start and trying. You’re not gonna get the whole thing maybe built out but starting to put those SOPs in place as you’re asking those questions. Then definitely, making that a priority in the business as you start to run it thereafter. Then, once you have those things in place or you get an idea of the business, the question you want to ask yourself is, would this be relatively easy for a new hire to follow? The question is, what type of hire are you going to have to find? Is this somebody that is going to have a master degree in finance in order to keep up with the finances in this business because it’s really complicated?

It’s my marketing person. It’s okay if they’re a total beginner, so the salary or hourly pay is gonna be like would be about this much. This is great to do even if you’re going to do all the work in the business because you’re figuring out, “Okay, if at some point you want to sell to somebody else, or if at some point you do want to put people in place, this is gonna be the true profit of the business.”

Justin Cooke:                     It’s funny. As we go through this, I’m just seeing like clear picture between ideal and reality, right? We’re like, “Oh, ideally, they’re going to have SOPs in place.” Then we’re like, “Well, the reality is they often won’t.” What you need to understand as a buyer is it’s not a hard requirement. This isn’t a pass-fail test on whether they have SOPs for lower-level tasks. What it does, it gives you information. For example, if they don’t have SOPs in place for the lower-level tasks, it’s not very well updated or documented. What does that mean? Well, it means that you’re gonna have to take that information out of their team’s heads and put it on paper, because you’re going to have to transfer that information from what they’re currently doing to an actual document or process.

There’s just some work that’s required. If it’s out of the seller’s head, there’s gonna be some post-sale support you’re gonna need from the seller. It’s a no. It just means that you’re probably gonna wanna be there, hold some cash back or know that you’re gonna need the seller to be around. That, in later stages, if you know that, let’s say, that they only have a couple of weeks and they got to get this deal done right away. They’ve got something else taking up their time, but they’re telling you, “Oh by the way, yeah, I’m gonna take all this stuff in my head. I’m gonna work with you on getting this set up.” They’re not gonna have the time for that. That would, for me, be a no. It good to get this information in place so that when you’re actually negotiating or making a decision, you can, call it back.

All right man. Let’s talk about the buyer or seller-call. This is the initial call you’re gonna have. This is sometimes one call for smaller businesses, six-figure. There may be a several calls for seven and eight-figure deals you’re gonna go through. Obviously, a call is okay. A video call would be better and in-person would be actually the best. I mean this is just so you can read their body language and really get to know the seller a bit. A lot of these businesses, you’re gonna have to work with them post purchase to some degree. Some of them a lot more than others. Getting a sense for them and how they work, and who they are and how they operate is gonna be really helpful.

When you’re doing this call or you’re doing this video call or meeting them in person, you need to get some questions answered. A lot of times, they are tough questions. You have to ask some pointed questions about the business. Things that you’re digging into. Some people are not very nice in their approach. I know some of your listeners and you’re going, “Well, Justin. This isn’t a nice business. I just need the information.” Well, I know that, but some people are not gonna respond well to that. It makes sense to sandwich your pointed questions with some compliments, with some niceties about the business. Tell them why you’re interested in the business, right? Let them know that, “Hey, here’s what attracted me to this business. Here’s why I’m interested.”

They can try to use those leverage later, but really you’re just doing that so that when you ask the tougher questions, they have a sense that you’re actually interested in really looking at the business from a buying perspective. It’s also really important to make sure that it’s the decision maker that you’re speaking with. You’re gonna wanna build out a profile of the decision makers of the business. Now, the first call might just be with someone in operations or might just be some of the runs the business. But on that first call, you’re gonna wanna find out exactly who makes the decision to sell the business or not. Is it just this person? Is this person and their wife, this person and a business partner? Is it really an investor that owns the majority of the business? You’re gonna wanna know that at closing because you’re gonna build a relationship with this first person you’re speaking to.

But if they’re not the ones that make the decisions, you need to find that information out so you can start profiling them. You’re gonna wanna find out the reason the decision maker or any of the partners or owners are selling. Often, they’re gonna give you not a bogus answer, but just the, “Oh, why I wanna work on other projects? We have other projects going right now.” You need to peel back the onion a little bit. Find out. Ask more, digging questions in that. Find out what project they’re working on. Is it a project that’s gonna compete with this business? Is it a project that could potentially work with you on this business. Peel back the onion to find out a little bit more about why they’re saying they’re gonna work on other projects.

Then dig into that reason. If you find out they’re leaving because they feel like the industry is too risky, and that three to five year prospects for the industry aren’t great from their perspective, then dig into it. Are they wrong? Are there risks you’re willing to take? Once you get answers on the reasons they’re selling, you’re gonna be able to dig into them a little further.

Ace Chapman:                   One of the things that I love when I’m doing these seller calls is building a relationship before you get into the negotiation. I like to spend the first call just finding the story, getting to know the person. I love your idea of doing video because in-person is the best thing you can get. If you can do video, I think what we lose and all of this is a connection to the person that we’re dealing with especially if you’re just doing an email back and forth. You are just a check that they’re gonna receive and some letters on a page. Having that relationship makes it a lot easier to do the sandwich technique and to get the deal that you wanna get in the end.

Justin Cooke:                     All right man. Well, that’s it for this episode. If you dig it, please head over to and leave us a comment to let you know what you think. Please do check us out on iTunes, and leave a review when you get a chance. Next week, we’ll be digging into how to hire, train, and develop teams and managers to run your businesses. See you next week.

Speaker 1:                           Thanks for listening to the Web Equity Show. Now is your chance to be a part of the action. Go to and send us your business acquisition or exit question and have it answered on the show.


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