One mistake can cost you everything

One mistake can cost you everything. Patrick O'Connell, a seasoned Quality of Earnings (QoE) specialist, has seen it all—the good, the bad, and the downright disastrous. And he’s here to share a crucial lesson: What you see on the surface is rarely the whole story.

Imagine this: You’re eyeing a promising tech wholesaler or a cutting-edge medical tech blog. The numbers look good—at least at first glance. But dig deeper, and you might find a very different picture. Patrick emphasizes the importance of quality of earnings analysis as your first line of defense. It’s not just about the numbers; it’s about understanding the story behind them.

Here are five red flags Patrick says you must watch out for:

1. Pending Lawsuits: A ticking time bomb that can explode your deal before it even closes.
2. High Employee Turnover: A sign of deeper issues that could cripple the business after you take over.
3. Inconsistent Financials: If the numbers don’t add up, you’re likely dealing with hidden problems.
4. Declining Market Share: Today’s downturn could be tomorrow’s disaster.
5. Dependence on Key Customers: Lose one, and the whole business could collapse.

But it’s not all doom and gloom. Patrick also highlights the upside—if you know what to look for. Understanding the "secret sauce" that makes a business tick is essential for future success. It’s about more than just spreadsheets and balance sheets; it’s about what those numbers really mean - the narrative.

Valuations and deal structures aren’t just about industry norms—they’re about understanding the unique value proposition of the business and how it fits into the larger market dynamics. This insight is what separates the winners from the losers in the M&A game.

So before you pull the trigger on that next big deal, take a page from Patrick O'Connell’s playbook: Do your homework, understand the risks, and—most importantly—know the real story behind the numbers. Because in the end, it’s not just about buying a business; it’s about buying a future.