261 - Elliott Holland — Understanding the Due Diligence Process

Hello everyone. So buying and selling a business, whether you're buying and selling a business, you need to do your homework. We call that due diligence. Right. Whether you're a buyer or a seller now or in the future, it's good to understand the process. If you've been through it and it went well or it went badly, today's show is all for you listening.

Hello.

Hello everyone. My name is Bill Gal, host of the show Scaling Coach. All around your guy in your corner helping you grow and scale the business. So we practice and preach and share the wisdom of guests talking all about everything about scaling up. So we do, I don't know, this quarter we'll go to 300 shows that we've done on the subject with guests, CEOs, entrepreneurs, people who've grown and scaled, gurus, experts, all the people in the world of scaling up, many people who helped write the book, the ideas that went in it, all that and more@scalingcoach.com you'll find all that there. Scalingcoach.com so hang on, we're about to talk with Elliot Holland all about the world of due diligence, share some interesting stories about how to make it right. Hello Elliot. Welcome to the show.

Good to be here. Thanks for having me.

Thank you so much. So where are you today?

I'm in Atlanta, Georgia.

In Atlanta. All right, all right, all right. So folks should know Elliot has deep experience in doing mid market deals, the kind of stuff that is.

In our world.

Right. And his background is Harvard Business School. He's been on all around transactions and he's got a lot to share about it. His, his business, his firm works in this area and I'll let him say a little bit more about it. But he also has some engineering background and some science background and so he can talk to us all about that.

And I won't put you to sleep, promise.

No, you wouldn't be on this show if you were going to put us all to sleep. How are things in Atlanta today? Warm.

It's the beginning of summertime here as I would define it, especially for a guy that grew up in Michigan. It's 75 most days. So I'm excited.

Yes, I like the warmth. I don't mind going when it's cold too, but being locked in for months when it's just icy and bitter, I'm.

Live with the cold. I don't want to live there.

Yeah. Amen. All right, so we're going to talk all about it. Before we get into that, tell us a little Bit about how did you get involved in this, how did you move from science and engineering to business and that talk to us about that?

Sure, to an extent. I got it honestly. So both My parents were CPAs and business consultants. And so I saw the entrepreneurial ups and downs. And so for a part of my life I was risk adverse and chose engineering. I knew I could have sort of plenty ways to monetize that. I realized in engineering school that I was way better at talking to people than 90% of the engineers and so I had to sort of use that. I went on and did some consulting work and was fortunate enough to get into Harvard Business School. I got turned on to private equity while I was there. And for those who don't know, breaking into an industry like a private equity, like an investment banking is a, is a hustle. So I made about 250 phone calls while I was there. Got 248 no's and two yeses. One for an internship and one for a job. I took a job in private equity. I realized the name of the game was having equity and ownership in your own thing. I spun out and started two independent private equity firms buying companies for myself. The first one I had a business partner who was a mentor. The second one was on my own. And that gets me to about 2017. And at that point a couple of things were happening. A bunch of baby boomers retiring and having to sell their businesses. I realized I didn't know anybody that was good at buying businesses under 5 million bucks. Like really nobody. And it was wicked hard to find good cost effective help on deals at a certain size. So I put all those together and said it's time to start this business. And I started Guardian due diligence with the focus of having a business that could support sort of everyday people who are buying companies, many using sort of government backed programs like the SBA 7A program and not being 10 year veterans of private equity and going to fancy business schools, but having the money and stones to do it. But I didn't want them out getting fleeced. And it's, we'll go into it later, but there's, there's a lot of ways to get fleeced in this ecosystem.

There are a million ways to lose your money.

Yes, yes.

And maybe many more than that.

Right, right, right, yeah.

And, and making money is hard with investment. Right. So we've got interest bearing accounts, federally insured, you know, you're not even going to make as much as, as inflation is affecting the money at this point. Right. When I was young, my grandfather talked to me about compounding interest in a proper savings account. And those days are gone. Right after that we kind of go to things like real estate and businesses, and businesses have some great rewards, but also some of the greatest risk, right?

Oh, that's it. And then you're dealing with partners on your deal that are only getting to your point, 5%, 8% and you're hoping to get 2, 3, 4x. And everybody needs to get what they need to make it work. And you know, like you said, you're the buyer, so you're a person who wants to go out, wants to find a business. You think you can 10x that business and you're telling everybody you can do this and you can do that and you can do that and everybody's saying I don't know if you can or I don't know if it's going to work. And so people tend to take risk on an incremental ways. And I think by the time you get to the point where you're ready to make a business acquisition, you, you kind of made it to the big leagues.

Yeah. So talk about the category of transactions that you work in. How big, how small? Tell us a little bit of that before we tell some of the stories.

We cover everything from about $1 million in purchase price to 50, sometimes as high as 75. Although the majority of our stuff say 80% is between a million dollars and $5 million of purchase price. And typically people are using SBA loans to do it. So it's the deal everyday people can sort of get done.

Interesting. And then how long do these things take to get done in that size?

From seller accepts your offer on price to close is typically three to six months. However, you can spend a year or two looking for the right business to acquire. So it can be a two plus year process for the acquisition sort of entrepreneur and a equally long time honestly for the seller. Because before the seller accepts an offer, they have to go to some sort of broker or banker to market their business. And it can be a year or two before somebody finds them and submits a reasonable offer.

Here's the thing, I think the principles apply in any case, most of our listeners I think are well above a million dollars in sales. I know our clients are substantially above that before they start to work with us. But around the scaling up ecosystem might even go down below a million in sales. So it could be a big range of values, that kind of thing. But many of our folks are thinking about selling and they're looking for tens or hundreds of millions of dollars in return for their business at some point. Or they're aspiring to build a company like that. Along the way they'll also buy companies, and not very often, but we'll get some who sell off a piece of a business. But more often they will buy some companies in related fields, especially our tech companies. I've been involved with several just this corner.

You're absolutely right, people. It's funny, no matter what size deals you're doing, you may still end up finding yourself in this space. And in this space, the guys who are doing $100 million deals, their advisors are going to kill a lot of the return on a $5 million deal. And the people that are doing sort of half million dollar deals in their cities, their advisors probably won't be good enough to do deals that are four or five million dollars. And so there's growth by acquisition inside of a company. There's many different modes on why you might want to buy a $5 million business, but that's really where we sit.

So I've seen deals do well. I've also seen quite a few tank, tank in the middle of the sale and then fail afterwards for badly won. And in getting ready for the show, you shared a variety of stories that I think we should talk about. Some of them center on people related issues, some of them more technical in nature. Why don't we start with some of the more entertaining people oriented ones?

Yeah. One of my favorite stories is so before I started this, of course I was buying companies for, for myself. And I remember taking a run at a company that installed security access and commercial buildings. So you swipe your card, somebody had to install that piece. You're walking in, they have a camera on you. This company installed those things for commercial buildings and put offer on the business. The offer was reasonable, but the guy wanted to see me before he signed the letter of intent. So I go down and they say, hey, one of the big things I need to do while I'm there is take a look at your financial systems. Understand who's running your financial so that when I'm looking at them remotely, I at least know how they're created. Yeah, no problem, no problem. So he's using the cloud based version of QuickBooks, which Kibbiel may not understand what I'm saying. It's not on a server in their basement, it's not located locally. It's access to the Internet gives you access to your system. So I fly to Dallas, I drive my hour to get to the place. And as soon as I get to the Starbucks where we're meeting off campus, because sometimes the sellers haven't told their employees that they're selling. I couldn't even get in the door. And the guy's like, Elliot, you wouldn't believe this, man. My QuickBooks went down. Today of all days, my QuickBooks is down. I got my people at the office, they're looking into it. I got into it on the phone, we're gonna get to the bottom of it. But I, I feel so sorry. And Bill, I almost turned around and went right back to the airport, right? But in my mind, at that point, I was already in for a round trip flight. You're invested, so the hotel's another hundred bucks, right? Let me see how bad this guy's gonna lie. So he literally spent the whole day and a half lying that Intuit was down on the cloud based version of QuickBooks for a day and a half. The uptime on those things is like 99.999%. He had all his salespeople lying about financials. He had his controller lying. And I tell you that to say that a lot of people would have left and just gone and said, forget it. But part of this process is realizing that for sellers, if you're paying 4, 6, 8 times cash flow for their business, they have a huge motivation to lie. I had another story where I, I was looking at an oilfield service company in, in Texas. Went back and forth on a letter of intent negotiating it. Finally, we send one to the broker. The broker's like, I think this will do it. I talked to the seller, this will do it. So we came on down to see the seller and kind of finalize the letter of intent. We run around the city, he shows us everything. We go to his huge ranch and see all this stuff. And then we go to sit down in his kitchen to negotiate the deal. And the broker pulls out a old loi. And this broker had been like, Johnny on the spot for the past six months. So I'm sitting here, I'm like, that's not the right one. Oh, no, no, no, it is. And I look at it, it's completely wrong. Which kind of caused a lot of confusion with the seller. And then I realized why he did it. So then the seller comes and says, oh, no way. I'm not selling unless you give me 30% higher than what the offer was that we sent to the broker. So now, you know, three hour flight away from home. I've spent, you know, Months negotiating letters that I thought would be appropriate. And now I'm looking at the broker and I'm like, you didn't want to tell us the guy wasn't going to accept our price and you got us out here just to fish. So people stuff kills deals. I've also had companies where the business for the 12 months, 24 months before I looked at them was great. And then for some reason the seller during the due diligence period maybe didn't realize that the company needed to continue on an upper swing for the deal to go through because any sort of slight negative swing will not be able to be defined and sort of rectified at the bank. And so although it was something simple like we lost a salesperson or the water main broke somewhere, and whatever happened, it killed the deal for the fact that there was no way to explain that to the bank. So both people stuff and business stuff can kill these things.

Tell us about the Iowa manufacturing business.

Oh yeah. Which is great. So there's a story in a book called Buyout by Rick Rickerson that talks about a Iowa based manufacturing business that when he was early in his career as a buyout guy, he was leading a deal on this business. And you may not know Iowa, you may not know manufacturing, but think blue collar squared. So think about cowboy boots, think about tatted shirts from Walmart, think about hard working folks. And so he goes into the facility and he's sitting down with the owner and he notices the owner has on a pinky ring. Now for anyone who knows pinky rings, those are pretty much reserved for big cities. New York, Louisiana, maybe Dallas or Atlanta if you're being fancy. But they're typically for people who are on the complete opposite end of the spectrum from the owner of a manufacturing business in Iowa. And he kind of said, you know, that's a little odd, but whatever. The numbers look fine and not a big deal, has nothing to do with the business. But as he went through his diligence process, he kept seeing other things that just were not indicative of a blue collar owner of a business in Iowa. And as he kept kind of overlooking things, what he ended up finding out after he bought the business was that the pinky ring should have really warned him of what was going on. So first off, he was dating the controller. So the person who was managing the numbers was the person he was dating, which is all kinds of opportunity for fraud. They had gamed the system and so they had moved inventory. On the day that he went to go check inventory from one location to another so that he would overstate the inventory that was actually on the books when they bought the business. It wasn't on the books and that the seller ended up having a competing business that was taking significant business from the one he bought soon thereafter. And so I use the story of the pinky ring all the time because it's one of those things where by itself it doesn't tell you anything. But part of this is almost like Sesame Street. Like which part of these things? Which one of these things is not like the other? When you see something that's just totally out of whack, you have to sort of dial in on how could that thing work in an accurate story about this deal that I'm doing? Because you're using such a limited set of data during a three month due diligence process to place a $5 million bet.

Yeah. I hear something being out of place and looking to understand it in context. A little tallow, a little something there that, that feels off for this character. Right. This is not a sales driven company or some trading business or whatever where you might see a lot of pinky rings. You're talking about a central, you know, center U.S. manufacturing business. And you could see somebody like that. But. But something being off. I've seen that too, where there's somebody's just way out of character. I remember once when we were in the radio business, a preacher came in to talk about hard times and needing a break on the fees and that kind of thing. But he was, you know, he was driving a very elaborate car and he was wearing a lot of fur and a lot of gold jewelry and things like that. And he wanted to be taken seriously.

Okay.

But here, like you could just liquidate everything you're wearing and pay this month's bill.

Right?

Right. And I'm like, you look like you're in a different line of business and I think that you're. It's interesting to see when something feels a little off. Right. Something doesn't quite add up.

Right. And part of the diligence process is sitting there. You can't sort of show up with like your clipboard Bill, you're a smart guy. You've run businesses. If I showed up with my clipboard and said, hey, I'm going to start with operations and then go to finance and then strategy. And I'm going to ask these questions. I'm going to know your business. You're smart enough to game that.

Yeah.

The way you really have to do this well is you have to sit in front of a person for a day or two in a conversational manner and ask them a bunch of different questions about the business, why they started the business, what's the biggest challenge with the business, what's their smallest challenge with the business, what's a good day, what's a bad day. And you're triangulating sales operations, and then you're triangulating the data and asking the same question several different ways. And I think for a lot of people, they just don't have the capacity to do that and know that's what you're supposed to do. And so you can miss the mark.

We think, and probably talk more about how to get your company ready for sale. So we look about getting the docs in order and making sure your contracts are well ordered and recorded and captured and written and things like that. We talk about showing a consistent business. We want the ownership of the company being very clear, of any intellectual property being very clear. We want the business to look right, the books to be clean and clear. We want to take out the weird things that you've done personally with the business. Right. The way that you funded your boat or other nonsense that you've got in there. Exactly. A whole raft of those kinds of things. I imagine sometimes that gets actually just declared in an upfront fashion and put on a schedule with some kind of pro forma. Yes.

So most times when you see deals, you see sort of what's on the income statement, and then they have a bunch of EBITDA or seller's discretionary adjustments. That place in Miami, that's not really ongoing business expense. My sister's working in the business, but she's not really don't want to pay Uncle Sam. So you sort of get this income statement talking about the business. You get this set of adjustments. And then as a buyer, you have to go through and figure out which of the adjustments are reasonable, which ones aren't. Because you might say if the person entertains clients 10 times a year in Miami, that Miami Penthouse, whatever it may be, may actually be a true business expense. And so trying to figure out what's there, the person says that their sister is not.

Oh, to take it on or off.

Yeah, but you might not know.

Yeah, yeah. And getting blindsided by that's not a good thing. We did one company where they. They bought a couple of business, then we went to help them scale and they went through some due diligence process, but they missed some things in that process, and I joined them to help them scale after the Transactions and they missed a lot of things like the, the, just how big the, the boat was and how nice the guy's cars were. For a business that wasn't doing all that well, that needed some rescuing. Right. Like that. Been a bigger red flag then I'll tell you.

When I first started, I would go on trips and I would think, how can I get out to middle of nowhere Oklahoma and get back to Atlanta in one day? And my business partner will push me and say, you missed the whole point of going out there. If you try to rush out there and rush back. If you're trying to sort of understand what's going on, you need to go to dinner with the person, need to go to breakfast with the person. You may want to meet their significant other. You may want to find them in different settings. You may want to have a drink or two with them and see how that goes. You really need to be looking, you know, around corners and under rocks.

Yeah, there's a tremendous motivation to misrepresent things and then trying to get away with it. Which is why I think so many deals involve some back end. They want to see that this thing plays out as you've been saying, it's going to play out. So that's why the big money is often put down the road again so that it doesn't blow up on the other party.

Yeah, because as an owner of a business and you're looking at the person across the table that wants to run your private business either without you or with you, way less motivated. So 10 million dollar business, they give you $8 million of cash. You just took $8 million of the seller's risk off the table. You really want to know that that person's betting on this new guy who didn't know the business nearly as well, being able to run it without the owner. So if that person is not willing to bet on that money on the come as a buyer, you shouldn't be either. And I can't tell you how many times I've looked at clients structures on their letters of intent. And the easiest, cleanest way is to give the seller 100% cash at close. But when you look at those deals, you're just thinking you're taking 100% of this person's risk off the table after knowing them for three months. Oh, but I have an employment contract that's the best bill, $8 million. And I'm gonna. But I gave him like a quarter million dollars a year to come work for me in the business he started. So you think a guy that just got $8 million is gonna show up for 250k.

And put in really serious work? Yeah, most people, when they sell their business, they often have an employment contract and they suffer for the next two to five years hating working for you if you're the buyer of the business. So you're always representing buyers, right? Or almost always.

Yeah, always representing.

And so talk to us about what you're doing, what the due diligence process looks like, what it always includes, what it kind of the range of it. Take us through a little bit of that work.

So let me talk you through a deal I recently helped a client do. So they were looking at a roofing business. Roofing businesses are really popular right now. And so we started and at the beginning you get sort of a data room. So it's a data room with operations with contracts with financials in it. Our business focuses on financial due diligence. Most of the time we do other things, but that's the main thing that we do. So myself and my accountant went through the data room, pulled out all the financials, and we thought about it in three ways, which we always do. There's the financials, like what's in QuickBooks, there's the taxes, so what do you report to the government? And then there's the bank statements. And the bank statements I love, because you can game the taxes, you can gain the financials, but you can't walk into a bank, give them 100 bucks. We'll tell them to tell Bill Gallagher that it's 200 bucks. So I like recurring.

You could try. That would be entertaining.

Yeah. And you better have almost as much money as the bank has for you to expect any, any, any semblance of that happening. So we went through the financials and here's what we typically do. We always do a cash proof, which is a reconciliation of the bank statements to the financials, to the taxes. What we often do is a quality of earnings, which adds a look at the income statement, the balance sheet, the cash flow, the working capital, so the money in the business to run it, and the per customer breakdown of revenue. And we do a full report that says, hey, here's some things to look out on the income statement. Some of the debt stuff they have going on is a little wonky. They don't convert to cash as much as you would expect. Here's some improvement opportunities, and here's how much working capital the seller should leave in the business when it's all said and done. So on the low end, we always do the reconciliation in a more robust sense. We do the quality of earnings. In this case, we did a quality of earnings for a client. It took us just under four weeks to complete it. That material was then given to the equity investors and the debt investors so that they could see the business in the way that they're used to seeing the business and see all the work that we had done, sort of casting the information in the right way. And then based on the report and their analysis, they were able to get the. The deal done a couple of weeks after we finished the report.

So that's not bad. That. That actually sounds encouraging.

It's. It all depends on who you are in the process. So as the buyer, you are about to place a $5 million bet. So this is mission critical to you. You know, this is, this is, this is. This is buying a house times 100. This is picking a woman to be your wife or man to be your husband. Like, this is. This is the real ball game. It stinks a bit for the seller because the seller is a person who spent 10, 20 years building a business where they didn't have to answer anyone. And now they've got a, you know, 11 section data room with, you know, 100 to 400 pages of information they have to give in order to sell the business. But then again, they have to go through that pain to get their 5, 10, $20 million check. And so I think when data is good and when parties are reasonable, it can be a somewhat reasonable experience. But however, Bill, you and I both know it can be a divorce court battle at times, too.

Right? Yeah. Because people, they're trying to finesse something, they're trying to get over on something, they're hoping something doesn't come out right instead of being straight and taking it at face value. Dealing on. Yeah.

They also don't treat people appropriately. I think I had to learn this lesson. I had a deal that blew up in 2016, not because the financials were bad, not because anyone was trying to get over, but because one of the guys who I had in the equity stack to do the deal started, I wouldn't go all the way to berating, but 80% of the way to berating the seller. And although the seller in that moment didn't say, forget you, I'm out, in the two weeks after that, the deal just fizzled. Because you can't. You can't take a free person that's built a valuable business and then berate that person because you want to give Them a couple million bucks that they would get in three to four years running their business anyway. And so it's. It's finesse to get this stuff done.

Yeah, I was involved many years ago, many business ago in a transaction that fizzled for some people, issues just like that. And it started as like, oh, let's get together and work on something. And then it was a little bit unclear who was going to come on top between the money partners and the management of these two business groups. But one of the guys, not the group that I was involved with, left the phone open and with, I forget who, his attorney or some other people in the room and then left on our team, one of the voicemail, they left this whole rant about what a bunch of assholes or junk morons we were. They just revealed, you know, smiling in our face, shaking our hands, all that kind of thing, and how great this was going to be, what they thought of us. And it was not kind and like, okay, well there, there you go, there's the deal. Bye bye. And it all fizzled on one, you know, not hung up phone.

And those are painful. Yeah, those guys will hang up the phone three times from here on out. But they lost a lot of time and energy on that deal. And you, you got a sense to know what it would be like working.

Right. We, I mean, had we proceeded with that deal, it just would have gotten uglier and uglier and it might have unwound with. With partners that weren't straight and engaged with each other. We might have torpedoed a lot of the value of both companies had it gone through. Right. With people being straight. Yeah.

You got a glimpse into what it was going to be like working with them, which is part of your diligence process, which was.

We were both doing due diligence. Right. There was quite a bit of money on both sides of the table trying to figure out there was an opportunity synergistically between these companies to do something and it was for the best that we did not end up doing it. So you're basically taking things apart. Is there anything else you do or that people that you work with that people should be aware of when they think about buying the business?

So a big thing that we do that's different than a lot of the CPA firms that we compete with is we actually have deal advisory services wrapped around our due diligence pieces. So what that means is for a person that maybe has been in roofing for 20 years, I use that example all the time and wants to go buy a roofing company, but hasn't negotiated, you know, 150 deals over their lifetime. Right. Hasn't negotiated with 20, 30, 40 different banks. We'll sort of take the financial due diligence product so the numbers are good or maybe they're 20% off. And then say, hey, client, here's three things you can do to get that value back. Either changing price, structure or terms on the deal. And then, hey, you don't want to blow up your relationship with the seller. So here's how you can negotiate it. Either let me be the bad guy to break the news to him when you come up and clean it up, or here's how to do it in a layered way. So we're helping people negotiate, we're helping people put complex things they need to tell sellers into simple formats that sellers can consume. Not that all sellers aren't as sophisticated as buyers, but oftentimes the buyers are like MBA finance guy types and the sellers are sort of entrepreneurs who don't spend a lot of time in finance. And so we help people through the process, facilitating them through. We also will help people find businesses to buy. It's not a major service of ours, but, but for some people, we will go help them find businesses that make sense in their criteria so that they can sort of continue pushing through their process to go buy a seven figure business case.

Interesting. So those are some of the wraparound things. And then what should sellers know and think about in order to end up working with a buyer and someone like yourself and have it go, well, what is it they need to do before they even get there?

So instead of what they need to know, which is a bit boring, let me tell them sort of some mantras to live by. So anybody on my side that's worth their salt knows that good data comes fast. So while the seller has every right to slow play data, you should know that every day, every week, every, you know, deadline missed. I'm telling my client that I think he's flubbing because you can recreate data in time. So good data comes quick. I think at the beginning it's way better to divulge something at the front end than later on. If you have something funky, put it out there, get it up first, they'll get over it. If you hide it and it gets out, you're, you're in. You'll have one of those phone call moments you talked about.

The other thing, the surprise late in the deal is the worst.

Yeah, because the seller might not realize and we don't necessarily project all the stuff that buyers are doing in the background to put the deal together. Lining up debt, equity, doing market studies, all the diligent stuff. And so what might be just whatever is not whatever to the buyer. The other thing that can be messy for sellers is you have to recognize that most buyers are cash flow business buyers. They're putting a value on the business that's a multiple of the cash flow. And although the seller might say the business is down 10% this year, it doesn't matter. The buyer is going to say it's fundamentally a different business and want to pay a very fundamentally different price. So it's very important for sellers to know that your opinion of your business value may be what it is. The buyer is probably looking at it as a multiple of cash flow. So don't forget that. The other thing I would tell buyers, and I mentioned it early, indirectly, if it takes two years to get your business from I'm ready to sell to out to market to a bunch of folks that guardian due diligence my business may represent that means kind of four to five years before you sell, you need to be thinking about it. And so I think people that wait till the heart condition happens or wait till their marriage is within weeks of breaking apart, although you can still sell your business in six months, we call that a fire sale and my clients going to pay a fire sale price. So you really got to get ahead of the nuts and bolts and get your business ready soon. Even if you don't want to do it like necessarily like in 3.5 years on the dot. If you're thinking the next five years of something you want to do, start doing the work now.

Do the work now. Clean it up. Well, look, if you, if you run a business like it's always saleable, it's going to be a cleaner, better business, period. Right? You're going to have more recurring revenue, you're going to have, no, not bad revenue concentration. You're going to have, you're going to have a good amount of coverage for the liabilities. You're going to have cash, you're going to have a good cash model, you're going to have great profit, you're going to have nice turnover, you're not going to have excess inventory, you're not going to have weird contracts, you're not going to have some unfinished cap table business. There's a lot of things that you can do to keep that clean and getting that done early. And then when you begin the process, getting up front about any things that might be a concern. Getting them up and out early can make a difference in the psychology of the buyer. Right. Something showing up the 11th hour is like, forget about it. Right. A big surprise. Yeah.

And to your point, where as buyers, we're assessing everything as well, so concentration, lack of recurring revenue, all those things reflect negatively on the decision making of the seller and therefore the business. So it's like two times in your benefit to keep that stuff in order, like you said.

By the same token, you can go out and buy businesses and you will find motivated sellers, sellers who are getting old, sellers who have been through enough cycles and they're not ready for the next period of change, emotionally, mentally. And you can find motivated people and people who could add something nice to your business, a new revenue stream and a complimentary product or service line. Something that. A new market territory. Right. That you could go out and serve a lot of different ways of doing it.

Yeah. It's not lost if your business isn't perfectly put together. It's more of the difference in a business that kind of gets ahead of it. Three to five years, same business, same seller, and someone who doesn't could be 40% different price. Yeah. And so just having the forethought and maybe spending 5% of your time getting your business in order could have a 40% difference on the price you get.

Even if you end up buying the business, paying less for it because you were careful, thoughtful, and you approach the process well. I think the other thing that you've underscored is not every tax guy, not every cpa, not every lawyer can handle a business transaction. They're not familiar with the things to go and check on. There are people such as yourself that specialize in this kind of work. And even if you love your lawyer forever, I love the guy that I've worked with for a long time. You're going to hire appropriate people to complement their work. So you might have two lawyers looking at the deal, you might have your regular cpa, and you might have somebody looking at this transaction specifically. Right. Yeah.

You wouldn't have a heart surgeon work on your foot. They're both doctors. Right. When you start thinking about the risk that people are taking on both the buy and sell side, it's kind of obvious. But I had a call earlier today where a guy wanted to be so cost effective on diligence. I kind of had to ask him like, so you want to make $1 million bet on a shoestring diligence budget. Do you go to Walmart for your bulletproof vest. I mean, you got to sort of think about it and if you really consider and double down the transaction, attorneys, lawyers, CPAs like myself, if we've done 100 transactions, we're going to see less risk and things that happen in a lot of transactions. Whereas a person who's a tax CPA who now is doing a transaction, everything they see is risk. So that's going to triple the cost for the seller, triple the cost for the buyer and actually cause more friction in the negotiation. Because I'm going to come to a guy like Bill and say, bill, what is this? They said, there's no AR in this business. What's going on? And you'll say, well, I'm on cash accounting, you know, obviously, but on the buy side, I might have been going back and forth with my accountant for a week on that because they're a tax accountant and they don't think that way.

Way.

So, yeah, when you're making seven figure bets, you know, if you're making a bet on your heart, go get a heart doctor.

Yeah. Do the right thing. Do the right thing. All right, so the business is Guardian due diligence. Guardiandudiligence.com Elliot Holland, thank you so much for talking with us today. I want to give a big shout out to Lucy Summers in the background who gets our show ready, who, who distributes things, who gets it all going and to Vern Harnish, who created the whole scaling up framework in the first place. Our audio gets edited by Albert Burge at Podfly Productions. Our show notes get written up by Kadena and proofread by Tim McGowan. Thanks everyone for listening, watching, viewing, downloading, whatever it is. And if our show helped you, please share it, pass it along like it, subscribe it. You'll get them every week. You can, you can subscribe wherever you get them or you can go to scalingcoach.com and if you'd like to drop us a note, give us some feedback, send us an email to infocalingcoach.com just contact us there infocalingcoach.com or just go to scalingcoach.com, find everything to do with us there. You're going to find elliot again@guardiandudiligence.com we'll put that in the show notes as well. Thanks again, everyone. Keep scaling up.