How to Manage a Go / No-Go Deal Process Post LOI
Congratulations! You have an LOI signed on a business you like. Now the real work begins. If this is the best deal in your pipeline, you will spend more time and money on it each week. Spending time and money on this deal prevents you from spending time and money on other deals. The stakes are high in terms of time allocation.
Remember, in a 12 or 24 month search process, time is your most constrained asset. How do you set up your evaluation process to be sure to 1) kick bad deals out quickly and 2) execute good deals in an efficient manner while considering #1?
You need to design and understand your go/ no-go deal process to keep your workflow moving. (The Yale School of Management agrees.)
The Benefits of a Structured Weekly Process
With a structured weekly process, you’ll save weeks of time. Even inside of a highly variable process like closing a deal, you will feel comfortable that you have an efficient game plan that wastes no time. The other option is moving by emotion in this process, but we promise that you’ll end up wasting months of time if you use that strategy.
Essential Steps In Your Weekly Process
Here are the steps in your process:
List remaining deal-breaking issues
Prioritize
Decide on decision criteria and work needed
Work on the biggest issue next
Execute
Evaluate items you still cannot mitigate
Weekly: Decide if the deal is still solid and keep going. If not, then you stop.
First: Write out a list of deal-breakers. These are the items that would make you kill the deal and move on if you find them to be true. For example, finding the EBITDA or SDE to be off by 30% would make most walk away.
Second: Rank each item on your list.
Third: Determine what decision criteria are needed for each item. For example, you would use the QoE report to determine if the EBITA is off by more than 30%. You would do a Key Man Risk Assessment if you are trying to decide if you can run the business without the seller. (Learn more about the Key Man Risk Assessment in our article. This is part of our QoE Plus service.) To determine if customer concentration can be mitigated, you’ll have to have a real conversation with the seller about his or her willingness to allow you to speak to the customer. If the seller is unwilling to allow you to speak to the customer, then the seller must solve this for you by holding a larger seller note or in some other way. Have a plan for each item on your list.
Fourth: Work on the next biggest issue, and ignore the rest until you figure it out.
Fifth: Execute your evaluation process.
Sixth: Deal with and evaluate issues you cannot cleanly mitigate. Say three issues remain and one can get mitigated and two cannot be mitigated. Imagine a very involved seller that you can’t truly replace. You know the employment contract of six figures won’t keep a seller who just took home a seven-figure check. Or a customer concentration that is a bit too high. Figure out where you stand on these issues.
Seventh: Schedule a meeting each week with yourself and assess whether the deal is still solid, based on your list. If not, you stop. If it is still solid, you keep going.
Why Focus On One Problem At A Time?
Why is step 4— focus on the next biggest problem—so strict? Why shouldn’t you split your time across five or six problems?
Here's why. Let’s say you can easily address issue #6. It takes a week, a trip, and a conversation. You spend your time there. It ends up taking a little longer, say two weeks. Then your QoE provider calls and tells you that EBITDA is off by 30%. You’ll be a little upset that day. Later that week, you’ll feel furious. Why? Had you known your #1 issue was outside of your tolerance, you would have killed the deal and never spent the time or money looking at issue #6. You wasted your most precious assets in this search—time and money.
Use the Process
As a searcher, you are fighting a battle against constrained time. While issue #1 is being resolved, you can spend your time on other deals in your pipeline, finding new deals, building relationships, etc. You don’t have that time to waste.
On average, it takes over 5 deal processes before yours will close. Even three wasted weeks on each potential deal means fifteen wasted weeks. That’s almost four months wasted in a year. That’s a third of a year. If you’re only prepared to search for one year, you’ve wasted a third of your time already by not following this process.
Use the process. Save your precious time.
Ready to start your process?
Download our Template Weekly Decision Worksheet. Use it during your search to stay focused and efficient. [add link to downloadable]