Entrepreneurs: Ask the Right Questions in Management Calls

Management calls are a crucial step in SMB acquisitions, providing deeper insights into a company's operations, leadership, and financial health. These discussions often reveal key details that might not be included in the Confidential Information Memorandum (CIM) or other documentation. Here are the essential points to cover during a management call to ensure a thorough evaluation of a potential acquisition. Why Performance Declines After an Acquisition (and How You Can Prevent It)

1. Business Overview & Performance

• Company Background & History: Provide a general history of the business, including key milestones and any recent inflection points.
• Primary Revenue Streams: Identify the main sources of revenue and discuss their stability.
• Current Business Performance: Review financial trends, growth metrics, and any current challenges.

2. Management Team & Organizational Structure

Owner Involvement: Understand the owner's role in daily operations—how critical are they to the business?
Accounting & Financial Oversight: Who manages the books? Gain clarity on the responsibilities of the accounting team and CPA.
Key Personnel & Leadership: Identify recent changes in management, key team members, and any major departures.

3. Revenue & Accounts Receivable (AR)

• Top Customers: Who are the largest customers, and what percentage of revenue do they represent?
• Customer Trends: Have there been any significant new or lost customers in the past three years?
• Sales Rebates & Discounts: How are discounts, rebates, or promotions structured?
• AR Practices & Collections: How are outstanding balances managed, and what are the company’s typical payment terms?

4. Employee Matters

• Benefits & Compensation: Does the company offer benefits such as health, dental, or 401(k) plans?
• Employee Classification: Are team members W-2 employees or 1099 contractors?
• Bonus & Severance Policies: Any significant bonus or severance payments in the last 24–36 months?

5. Property, Plant & Equipment (PP&E)

Recent Investments: Major equipment additions or retirements in the last three fiscal years.
Future Capital Expenditures: Expected investment needs in the next 12–24 months to sustain operations.

6. Vendor Relationships & Payment Terms

• Key Vendor Dependencies: Who are the main suppliers, and how stable are these relationships?
• Contracts & Agreements: Are there any long-term or exclusive contracts with vendors?
• Rebates & Payment Terms: Do vendors offer rebates, and what are the payment terms (DPO trends)?

7. Additional Considerations (Part 1)

• Legal & Compliance Issues: Are there any pending or threatened lawsuits?
• Related Party Transactions: Any financial dealings with related parties?
• Anticipated Changes: Are there any expected changes in contracts, key relationships, or leadership within the next 3–12 months?

8. Additional Considerations (Part 2)

• One-Time Revenue or Expenses: Are there any non-recurring revenue streams or expenses?
• Personal Expenses: Has the business covered any personal or owner-related expenses that should be adjusted in the financials?

9. Final Note: The Importance of Management Calls

Conducting at least one in-person or virtual management call is essential in every SMB acquisition. These discussions often uncover material insights that might be missing from company-provided documents. By addressing these key areas, buyers can gain a comprehensive understanding of the business, assess potential risks, and make informed decisions about the acquisition.

Management calls are essential in SMB acquisitions because they provide insights that financial reports alone cannot. While documents like the CIM outline key data, direct conversations with management reveal operational realities, leadership strength, and potential risks that may not be documented.

These calls allow buyers to validate financials, assess leadership, and uncover hidden risks. For example, a company may show strong revenue, but discussions might reveal customer concentration issues or operational bottlenecks. Additionally, management calls help buyers understand key dependencies, employee dynamics, and long-term stability.

Without these conversations, critical red flags can go unnoticed, impacting valuation and post-acquisition success.

What key insights have you gained from past management calls? 

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