I terminated 2nd acquisition 1 month from closing

In August 2024, I bought my first cleaning company. An 12 year old small biz offering commercial and residential carpet, tile, and upholstery cleaning. 200k SBA loan (147k to seller and then working cap)

In November, I started the process for another acquisition of a Stone care company - also SBA 985k (850k to seller with 50k injection from me + working cap). Biz was supposedly doing 570k in revenue with a 330k cashflow.

I had to outreach to multiple banks until Live Oak shared a loan proposal letter.

The process began. The bank did its thing to stress test and look at the finances to make sure it could support the loan.

Some observations:

Banks tend to look from the lens of ‘can this business cashflow support the loan payments?’

They check your management experience and ability to be able to run something like this as owner or manager

Other income available in case you are unable to pay yourself from the acquired business for a while (good to note this)

They are not as focused on other aspects as much like quality of earnings analysis etc

NEVER rely on the bank’s analysis alone

I had to square things away with some investors to raise 25k and took waayy long to start the formal due diligence process. One of my investors suggested SMB diligence and I'm so glad we used them for the Quality of Earnings analysis:

Overview of recent financial performance

Analysis of growth drivers and projections

Cost and expense analysis

Working capital health

Balance sheet health and capital structure

Relevant ratio analysis

I ultimately backed out of the deal as there were too many questions seller could not answer and unwilling to provide more financial details that would help us determine that the business could support 1. Loan payments 2. Pay for investors 3. Pay for myself

Too risky.

My big regret is not starting the QoE process sooner. Would have saved a ton of time and effort. Good lesson.