Does anyone have experience doing their own "QoE lite"?

June 15, 2020

by a searcher from Stanford University - Graduate School of Business in Salt Lake City, UT, USA

I just went under LOI on a smaller deal (250K SDE) and the business is simple and financials appear to be clean. I'm relatively savvy with financials (thought not a CPA) and think I could do my own QoE. That said, I'd love to chat with someone who has done this before to make sure I'm not biting off more than I can chew (or being penny wise and pound foolish). I'd also like to understand your high level process for completing the QoE.

Let me know if you have experience doing your own QoE and would be willing to chat! You can reach out to me at redacted or message me here.

Thanks in advance!
David

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Reply by a searcher
from Hofstra University in Melville, NY, USA

Is it a cash business? If it is it can be much trickier and time consuming if it is. I had a company that I was performing DD on and they dated the receipts incorrectly in order to accelerate the revenue into a shorter period of time. Does the business have a key component they use. For example, car washes typically have a soap component that would provide a fairly accurate double check on volume. Electricity or some other utility can be another. Shipping provider bills (UPS, Fedex) for other types of business.

I would hire a consultant who specializes in that type of business to help you review those metric, unless you are very familiar yourself if you can find one, especially if you are going to roll up similar business.

You can also look at the IRS guidelines on how to audit certain types of businesses for a sanity check on top line numbers.

Reply by a searcher
from Stanford University in San Francisco, CA, USA

I've do this myself - I find the journey more important than the destination. The process of diving into the books provides value to me in understanding the business and devising an operating plan (note: my investment thesis is centered on an operational turnaround).

There's so much subjectivity in the "Q" part that I would not take at face value an external report - KPMG produced a QoE report for one deal that I'm looking at. I don't agree with their conclusions, but appreciate the legwork they put in to consolidating key financial data in one report (this may be the only part that I would pay for... definitely not for big 4 price though)

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