Choose a target you can understand and own

What it means

Target selection is the choice of businesses worth investigating for your particular ownership model. It combines commercial quality, operating needs and financeability. Sey sometimes favors manufacturing with machinery and receivables because those assets can support borrowing. Elsewhere he prefers defensible niche services even when those businesses are harder to finance. The tension is useful: an attractive business and an easily financed acquisition are different tests. Watch source

Why it matters

A target can look affordable until you account for the work its owner performs. Sey cautions that small absolute profits may be consumed by a senior hire, and that several departing owner-operators can remove much of a company’s operating capability. Those observations direct attention toward the people behind the accounts, not just the earnings line. Watch source Watch source

Customer concentration creates a second mismatch between apparent stability and actual exposure. A large customer can dominate revenue even after years of a successful relationship. The source recounts a highly concentrated business losing its main contract; that reported experience is a prompt for investigation, not a statistical estimate of customer-loss probability. Watch source

How it works

Use an initial screen to connect four questions. What does the company sell? Why do customers continue buying? Who delivers that service? What must remain in the business after a sale? Read revenue and earnings trends alongside the balance sheet, as Sey recommends, so collateral and obligations do not become last-minute discoveries. Watch source

Next, test fit with your own role. His preferred revenue floor reflects a desire for businesses capable of supporting professional management; it is not a universal minimum acquisition size. A hands-on buyer may make a different choice, provided the operating workload and replacement costs are explicit. Watch source

Practical interpretation

Prepare a short target note with a commercial case and a funding case on separate pages. On the commercial page, identify customers, essential people and the reason earnings should persist. On the funding page, identify assets that might support debt, existing claims on those assets and the equity required. This editorial exercise follows the source’s distinction between durable services and collateral-rich manufacturing. Watch source

Do not quietly compensate for a weak operating case with an optimistic loan assumption. Similarly, avoid rejecting an excellent company solely because one preferred funding recipe does not fit. It may require a different investor, a different payment structure or simply a price you cannot justify. The source explicitly notes that buyers with committed capital can pursue different targets. Watch source

A worked example

Hypothetical comparison. Company A sells accepted manufactured products and owns machinery. Company B provides specialist services and collects invoices quickly. Suppose both report similar earnings. Company A may present more assets for a lender to assess. Company B may tie up less cash in unpaid invoices, yet offer less collateral for acquisition borrowing. Neither fact establishes which is the better investment. This comparison applies the source’s financing-versus-quality distinction. Watch source

The Irish target discussed elsewhere in the collection gives this tension a concrete setting: attractive service earnings were accompanied by limited fixed assets and little receivables backing. That transaction was being explored, with funding obstacles unresolved. Watch source

Common mistakes

Avoid turning a preferred sector into an excuse to overlook weak earnings or unavailable management. Avoid treating every receivable as valuable security. Most of all, do not apply the speaker’s preferred company size or purchase multiple as a market rule. His screening choices follow his model, resources and appetite for operating involvement. Watch source Watch source Watch source

Customer concentration tests revenue durability. Management tests continuity, while collateral and buyer equity connect business quality to funding feasibility.

Further viewing

Compare the source’s preference for fundable manufacturing with his discussion of defensible services. Keep the Irish funding call separate from completed acquisitions: its educational value lies in the questions raised, not a demonstrated financing outcome.