Pre-LOI Model

June 09, 2022

by a searcher from The University of North Carolina at Chapel Hill - Kenan-Flagler Business School in Indianapolis, IN, USA

Hello,

I built myself a financial model intended to help me with evaluating a prospective business pre-LOI. I'm at the point with this model that I'm blinded by how much time I spent tweaking it--so I'm offering it up to anyone here to use if they would provide me with some feedback on it.

Concept: take P&L and Balance sheet items, evaluate core ratios, evaluate the asking price/SDE multiple with the profitability, and stress test against a projected SBA loan debt service or revenue drop.

If anyone is interested, send me a message and I'll send the model over. Looking to make this model more sound before I start implementing it.

Thanks in advance!

Reply by a professional
from University of Southern California in North Palm Beach, FL, USA

Questions (arguably) may not be as important as the timing, scope and buyer/seller/broker situations during due diligence. Listen to the recordings of my webinars for insights. Part 1: How Pre-LOI Due Diligence Can Crater Deals: https://youtu.be/EMhsZo1-40Q Pre-LOI Due Diligence Q&A - Part 2: https://youtu.be/PK0_3jHyG_M Afterwards, we can Zoom if you want to talk about it.

Reply by a searcher
from University of Notre Dame in Dublin, OH, USA

Hi Sean – Happy to take a look if helpful. I'm at redacted --

As a general word of advice: I would tread softly with excel models. At 3x cash flow and 80% LTV, any deal will look amazing!

Consider this quote from The Outsiders in the John Malone chapter:

"...Malone looked for no-brainers, focusing only on projects that had compelling returns. Interestingly, he didn't use spreadsheets, preferring instead projects where returns could be justified by simple math."

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