Three-Document 80% Deal Screen
Use financial records and one industry driver to triage an acquisition quickly
- Difficulty
- Moderate
- Time to result
- ~days to results
- Steps
- 4
- Confidence
- 98%
Three evidence sets can get a buyer roughly 80% of the way toward deciding whether a straightforward business merits deeper work. First, inspect a profit and loss statement showing what the company makes and spends, preferably broken down weekly and monthly so seasonality is visible. Second, compare the P&L with tax returns, which are less likely to exaggerate earnings because doing so increases tax owed. Third, identify the industry-specific variable that drives a disproportionate share of success: a car wash lease, real-estate cost, utilities, equipment condition, customer concentration, or another critical input. Reconcile inconsistencies and reject weak candidates early. The remaining 20% still matters; this is a triage screen, not a substitute for legal, financial, operational, or asset diligence.
Origin
Codie Sanchez answers what a buyer should request after finding a motivated seller and calls these the three things needed to get 80% of the way to a deal.
Core principles
- 01Monthly detail reveals seasonality
- 02Tax records provide an external consistency check
- 03A few industry variables drive most outcomes
- 04Initial screening is not final diligence
How to run it
- 1
Read the operating economics
Review revenue and expenses in the P&L at annual, monthly, and where useful weekly resolution.
Pro tip Mark seasonal peaks and troughs before estimating normal earnings.
Watch out Annual totals can hide dangerous cash-flow variability.
- 2
Reconcile the tax record
Compare reported earnings with filed tax returns and investigate every material difference.
Pro tip Build a simple reconciliation table rather than relying on verbal explanations.
Watch out Tax alignment supports credibility but does not prove every number is accurate.
- 3
Find the decisive 20%
Identify and inspect the few sector-specific inputs responsible for most of the business's economics.
Pro tip Ask what single cost or constraint could change the deal most.
Watch out The key driver differs by industry; do not reuse a generic list blindly.
- 4
Choose whether to deepen diligence
Advance only if the records reconcile, the core driver is acceptable, and valuation remains supported.
Pro tip Write unresolved questions before spending on specialists.
Watch out Passing this screen is not clearance to close.
In the wild
A buyer reviews monthly profit and loss statements, reconciles them against tax returns, then focuses on the property lease and utility bills because real estate, electricity, and water dominate the operation. The apparent profit survives all three checks.
→ The buyer advances the opportunity to equipment, legal, and environmental diligence.
Common mistakes
Accepting annual totals
Annual statements can conceal seasonality and periods of weak cash flow.
Stopping at 80 percent
The initial screen narrows the field but cannot replace complete diligence.
Is it for you?
Best for
Buyers triaging several straightforward operating businesses before committing to full diligence.
Not ideal for
Complex, regulated, intellectual-property-heavy, or distressed companies requiring specialist analysis.
From the transcript
“I think there's three things you need to get 80% of the way to a deal.”
“first, you need a profit and loss statement.”
“Then the second thing you want is their tax return because they put together the P&L, but the IRS puts together the tax return.”
From the episode
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