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1.1: Industry baseline

Before buying a lemonade stand, look at the whole street. Is the neighborhood growing? Are there ten stands or one? Does the city have rules about selling drinks? Is a heat wave helping every stand? That is the industry baseline: how fast the sector grows, how concentrated it is (a few big players or many small ones), what rules apply, and which tailwinds, meaning trends that help everyone, are blowing. Reports such as IBISWorld gather these facts in one place.

Try it: Sector scout. Three unnamed sector screens use illustrative assumptions, each with four plain-word facts (growth, concentration, rules, tailwind). Classify each fact as "helps a buyer" or "hurts a buyer". The card shows a simple read-out at the end.

1.2: Predictability signals

Imagine two shops. One sells umbrellas only when it rains. The other sells monthly subscriptions that people keep for years. You can guess next year for the second shop. Predictability signals are clues like that: revenue that repeats, few customers leaving (low gross churn means few customers lost, before counting new ones), a moat that keeps rivals out, many small customers instead of one giant one, steady cash flow, and a team that can run things without the owner.

Try it: Spot the signals. Two unnamed business screens use illustrative assumptions. Tick which of the six signals each one shows. A meter fills as you tick. One card hides a weak signal behind a friendly sentence; the meter only moves when you tick the right box.

1.3: The business, in a model

A financial model is a calculator that tells a story in numbers. You start with simple building blocks: how many customers, what each one pays, what it costs to serve them, and what it costs to run the office. Multiply and subtract, and you get profit. EBITDA is profit from operations before interest, taxes and the paper cost of aging equipment, a rough cash profit. Every number must be a driver you can name, not a guess hidden inside a total.

Try it: Driver tree. Place four drivers (customers, revenue per customer, cost to serve, office costs) in a tree that ends at EBITDA. Check your choices to see which drivers connect.

1.4: Sensitivity

Suppose you plan a road trip assuming no traffic. A sensitivity test asks: what if there is traffic, or the car is slower? You change one assumption at a time, such as customer churn or the sale price, and watch the result move. Some assumptions barely matter. A few matter a lot. Find those few before you commit money. If the deal only works when everything goes right, that is a warning, not a plan.

Try it: Wiggle the slider. Three sliders (churn, rent, sale price) move a bar that shows the result of a toy deal. Find which slider swings the bar most. The page tracks which one you tried first.

1.5: Value creation

After you own a business, how do you make it better? Cut waste, serve customers faster, charge fairly, keep more customers. AI automations are software helpers that do repeat office work: writing quotes, scheduling and dispatching crews, sending invoices, chasing late payments, keeping the books, following up with customers. If a helper saves hours or wins repeat business, costs fall or revenue rises. Pricing and retention matter too. Always count the one-time cost of setting the helpers up.

Try it: Automation matcher. Match five office tasks (quoting, scheduling and dispatch, invoicing and collections, bookkeeping, customer follow-up) to what each one moves: a cost line, cash timing, or customer experience. Then pick the one you would start with and say why in one line.

1.6: Financing and returns

Buying a house usually means a mortgage plus your own savings. Senior debt is the main loan, paid back first. A seller note is a smaller loan from the seller, often paused at first. Equity is the buyer's own money. Lenders check debt service coverage: cash available divided by loan payments. The exit multiple is the sale price as a multiple of EBITDA. MOIC is money back divided by money in; IRR is its yearly growth rate.

Try it: Build the stack. A price bar must be filled with senior debt, a seller note and equity. Drag the splits. A coverage gauge shows whether cash available covers the payments, with the result written below. (Illustrative numbers only.)

1.7: The decision memo

A decision memo is a one-page letter to your future self and your partners. Start with the answer: buy, pass, or buy at a lower price. Then give the thesis briefly, the numbers that matter, and the risks, each named plainly with what you would do about it. If a stranger can read it quickly and disagree with a specific line, the memo did its job. Hiding the bad news is the real failure.

Try it: Memo shuffle. Six sentences from an illustrative memo arrive in the wrong order. Put the recommendation first, then the thesis, numbers and risks. One sentence hides a risk inside a paragraph about history. Move it up and rewrite it in one line.

"You now know the seven steps. Next, you will make them move."