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Hard-Learned Lessons in Business Acquisition

by Kinza Azmat

The Lies We Tell Ourselves
"I'll Fix That After I Buy It"
The Reality: Those "easy fixes" like outdated systems, manual processes, and office upgrades? They'll drain your time and money while revenue-generating opportunities slip away
"The Numbers Look Good Enough"
The Truth: A clean P&L and solid tax returns aren't enough. The real story is often buried in how invoices actually get generated, whether the reported cash conversion cycle matches reality, if key metrics are actually being tracked or just estimated, and what systems are really being used vs what you're told exists
"This Team Will Be Great to Work With"
The Reality: If the seller won't let you meet key employees during diligence, prepare for hidden power dynamics, unofficial compensation arrangements, resistance to change from long-term employees, and surprise expectations about autonomy and decision-making
Real Examples of Misconceptions
"I'll Fix That After I Buy It"
Real Example: I planned to modernize an antiquated AR system post-close. Instead, I discovered the system was actually hiding major operational issues that should have killed the deal
The Lesson: If a seller won't give you system access during diligence, there's usually a reason. Don't assume you can just "tech your way out" of operational problems
"The Numbers Look Good Enough"
Real Example: I was told there was one billing system. Post-close I discovered multiple disconnected systems, recycled invoice numbers, and paper-based processes that made accurate financial tracking impossible
"This Team Will Be Great to Work With"
Real Example: I discovered post-close that two executive council members had previously tried to buy the business themselves and failed. This created immediate tension with the new owner
What Actually Matters in Diligence
The Real Tech Assessment
Don't just ask "What systems do you use?" Demand to see:
  • Every login to every system
  • How data flows between systems
  • Who has access to what
  • Where the bugs/issues list lives
  • What customizations exist
  • Who maintains each system
  • Complete documentation
The True Working Capital Picture
  • Get actual aging reports, not summaries
  • Understand the real collections process
  • See how invoices are generated and tracked
  • Map the entire cash conversion cycle
  • Verify payment terms with key customers
  • Watch the actual AR/AP process in action
The Hidden Power Structure
  • Map informal influence networks
  • Understand unwritten compensation rules
  • Identify unofficial decision makers
  • Know who really runs each location
  • Find the critical tribal knowledge holders
  • Learn the real story of previous ownership changes
Post-Close Survival Guide
First 90 Days Reality Check
  • You won't change culture overnight
  • Legacy systems will fight you
  • Key employees may test boundaries
  • Hidden processes will emerge
  • Customers may challenge new ownership
  • Cash flow might not match projections
What Actually Works
  • Build trust before making changes
  • Document everything you find
  • Create systems for transparency
  • Get hands-on with key processes
  • Find allies for gradual improvements
  • Keep extra cash reserves
Red Flags That Actually Matter
Seller Behavior Patterns
  • Deflecting system access requests
  • Blaming previous partner for issues
  • Claiming data "doesn't exist"
  • Preventing employee meetings
  • Providing summary data only
  • Having excuses for manual processes
Deal Structure Warning Signs
  • Unusually high retention bonuses
  • Complicated broker relationships
  • Pressure to use seller's documents
  • Rush to close before diligence
  • Resistance to contingent payments
  • Unclear transition plans
Questions You Actually Need to Ask
About Systems
  • "Can I see every system login today?"
  • "Who built each custom system?"
  • "Where are all the bug reports?"
  • "Show me how data moves between systems"
  • "Let me watch someone process invoices"
  • "Can I see all development contracts?"
About Operations
  • "Walk me through a full transaction cycle"
  • "Show me how you track performance"
  • "Let me see every report you use"
  • "What manual processes exist?"
  • "Which metrics do you actually track?"
  • "How do you validate data accuracy?"
About People
  • "Who tried to buy before?"
  • "What unofficial arrangements exist?"
  • "How are decisions really made?"
  • "Where is tribal knowledge held?"
  • "What unwritten rules exist?"
  • "Who are the informal leaders?"
The Truth About Service Providers
Due Diligence Providers
  • Cheaper isn't better
  • Sample reports matter
  • Industry experience is critical
  • Communication style is key
  • References should be recent
  • Scope should be crystal clear
Brokers
  • They work for the seller
  • Verify everything independently
  • Get competing term sheets
  • Document all conversations
  • Maintain direct seller contact
  • Keep multiple deals alive
What I Wish I'd Known About Valuation
Industry standard multiples don't matter if:
Systems are broken
Data isn't reliable
Processes are manual
Knowledge isn't documented
Culture resists change
Cash flow isn't predictable
What I Wish I'd Known About Transition
Seller motivations matter more than capability
Knowledge transfer takes longer than you think
Culture changes slower than you hope
Systems are more connected than they appear
Problems are deeper than they look
Cash needs are higher than you plan
What I Wish I'd Known About Operations
Manual processes hide bigger issues
Tribal knowledge is hard to transfer
System changes affect everything
Culture beats strategy
Cash flow is king
Patience matters most
Practical Protection Strategies: Before Closing
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1. Get every system login
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2. Watch actual processes
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3. Meet key employees
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4. Verify data flows
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5. Document everything
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6. Keep cash reserves
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7. Plan for surprises
Practical Protection Strategies: After Closing
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1. Map all processes
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2. Find allies quickly
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3. Move deliberately
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4. Document findings
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5. Build trust first
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6. Maintain reserves
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7. Stay patient
The Bottom Line
Success in acquisition isn't about following a checklist - it's about:
Digging deeper than seems necessary
Questioning convenient answers
Verifying everything personally
Building real relationships
Understanding true motivations
Maintaining healthy skepticism
Having enough cash runway
Final Thoughts
Remember: No deal is better than a bad deal, and sometimes the best lessons come from walking away.