Welcome to Upper Market

There’s no feeling better than finding a deal you like, listed for sale. Here I am, scrolling through listing sites every week, just to get my fix.

Expect more news on how deal flow is changing over the coming weeks. I’ll be teaching a few of you how I’ve been scouring the marketplaces over the last months.

What's ahead in this Newsletter:

YouTube Videos from the Week:

A business can report a healthy profit and still leave you short of money every month.

Crazy, right?

The gap between the two is where a lot of buyers get hurt. And I don’t blame them. It makes complete sense that a business with high profits should show high levels of cash.

That’s not always the case - and there are three things that create the gap.

Working capital. Stock on a shelf and invoices you've raised but haven't been paid for are profit on paper and nothing in the bank. A business that carries a warehouse of inventory, or waits 60 days for big clients to pay, ties your money up in the machine just to keep it running. Growth makes it worse: more sales means more stock and more unpaid invoices before the cash ever lands. Easily put; cash gets stuck in the machine and spent on the inputs that turn it into more cash + the profit you’re looking for.

Capex. Some businesses spend their profit just to stay in business. A fleet of diggers and trucks wears out. Vehicles and equipment get replaced. The profit and loss will show a surplus, but every so often, that money gets spent buying more things the business needs to keep operating. Interestingly, these businesses are sometimes valued “higher” because of the strong asset base that apparently reduces risk. I say it brings future obligations.

Timing. "Forecast" profit and "last year's" profit are not the same animal. A business can delay some of the key spending that was supposed to take place over the last two years to show a healthier profit figure. This can be anything like refitting spaces, hiring more employees so the team aren’t overworked or refreshing digital assets (websites, marketing campaigns, collateral etc).

You can't spend profit. You can only spend cash.

This is why two businesses with identical profit can be very different to operate. The one that gets paid upfront, holds little stock and barely spends on equipment throws off cash you can take home or reinvest. The one that funds a big inventory, waits on slow-paying clients and replaces expensive gear every few years reports the same profit and hands you far less.

So when a listing waves a profit number at you, run it one step further. How much of that profit shows up as cash at the end of the year, after the stock's been bought, the invoices chased and the trucks replaced? That number - cash conversion - is the one you're buying. The profit is just a headline.

Short Summary:

$570,000 profit. Asking $1.2m. Around 2.1x for an “award winning'“ trade business.

It's a Canterbury tiling business with a serious reputation - residential, architectural and small-to-medium commercial work, involved in multiple House of the Year projects with a range of builders. Year-on-year growth, solid cashflow, a strong forward pipeline, and new enquiries every week from builders, developers, private clients, and referrals from tile shops, architects and quantity surveyors.

It runs on skilled staff and subcontractors with modern, well-maintained gear. The seller pitches an obvious next step: push harder into the larger commercial market the business currently only dabbles in.

A profitable, growing, well-regarded trade with a clear growth lane. The questions are the ones every trade business raises: who does the work, and who brings it in.

What I'd Want to Understand:

First is the labour. Skilled tilers and reliable subcontractors are the whole delivery engine, and good ones are hard to find and keep. How many staff, how long have they been there, how much is subcontracted, and how exposed are you if a key tiler or two leaves? In the trades, capacity is people - and people are the constraint. How are they finding, training and retaining them?

Second is the owner's role. Someone prices the jobs, holds the architect and builder relationships, and keeps the work flowing. If that's the owner, the reputation and the pipeline may be more personal than the brand suggests. I'd want to know exactly what the owner does day-to-day and what breaks when they leave.

Third is where the work comes from. Weekly enquiries and referrals from architects, builders and QSs are a great sign - but referral relationships are personal. Do those referrers send work to the business, or to the owner? A pipeline built on a handful of relationships is a strength you need to make sure transfers.

Fourth is the cycle. The listing says demand holds "regardless of economic conditions" - I'd test that hard. Tiling rides on residential and commercial construction, and Canterbury has had its own building cycles. I'd want three to five years of revenue through the ups and downs, not just a strong recent pipeline.

Growth Angle: The seller's already named it: the business does mostly residential and architectural work and only touches small-to-medium commercial. Larger commercial is the lane - bigger jobs, bigger contracts, better utilisation of the crew. The brand, the awards and the referral network are the credibility to win that work; the constraint will be skilled labour and working capital to fund bigger projects. Solve those and there's a real second gear here.

The Drawbacks: It's a people business in a trade with a labour shortage, so retention is the standing risk. Construction is cyclical whatever the listing says. And at 2.1x you're paying a fair price for a good business - this is a solid buy, not a steal, so the return comes from running it well and growing it, not from buying it cheap.

Final Thought: Of the three this week, this is the most "what you see is what you get" - a genuinely good, growing trade business with a real brand and an obvious growth lane. The whole question is how much of the reputation and the pipeline is the business, and how much is the person selling it. If the awards and the referrals belong to the brand and the team, 2.1x buys you something that compounds. If they belong to the owner, you're buying a very nice job.

If you want more details on any of these businesses or would like an introduction to the sellers, just reply to this email.

$500,000 cash surplus. Forty years trading. Little competition. Asking $1m.

That's roughly 2x for a niche service business that pulls work from all over the country - and on the numbers alone, it's the pick of a quiet week.

The listing is deliberately coy about exactly what the service is, but the shape is clear: a specialist automotive service, four decades deep, with a reputation strong enough that customers travel to it. No special skill required from a buyer, the vendor will do a proper handover, and the seller flags "low hanging fruit" - no marketing plan, no modern tech, plenty of levers a new owner could pull.

That's the good news. Now the two words the whole deal turns on: reputation and team.

What I'd Want to Understand:

First is what "cash surplus to a working owner" really means. $500k to a working owner is not $500k to a hands-off buyer. What does the owner actually do in the business day to day, and what would it cost to replace them? The gap between those two numbers is the real earnings, and it decides whether 2x to a working owner is cheap or fair.

Second is the reputation - who owns it. Forty years of reputation is a genuine moat, but I'd want to know whether it attaches to the business name or to the owner personally. If customers travel across the country because of who runs it, that reputation can fade the moment the name on the door changes. If it attaches to the brand and the team, it transfers.

Third is the team, because the listing says the business "relies heavily" on them. That's an honest flag and a real risk. Who are the key people, how long have they been there, what keeps them, and what happens to that national reputation if one or two walk out after settlement? In a reputation business, the team is the reputation. The nature of the business (while being niche and market leading) could also be its downfall. How are the staff found, trained and retained? If that's hard, your staff (and the leaving owner) ARE the business.

Fourth is the repeatability. "Not requiring any specific skill set from a buyer" is reassuring - but is that because the systems are strong, or because the team carries the knowledge in their heads? I'd want to see how work actually gets done, and whether it holds up without the current owner steering it.

Growth Angle: The seller isn't hiding it - no marketing, no modern technology, a niche with little competition. A business winning nationally on reputation alone, with zero marketing effort, has an obvious demand lever no one has pulled. Add a real marketing plan and some operational tech and the question becomes capacity, not demand. The freehold option also lets you control the premises and the rent long term.

The Drawbacks: Reputation and team dependency are the whole risk here, and the listing says so plainly. Strip out the owner and one or two key staff and you need to know the business still stands. And "niche with little competition" cuts both ways - it's a moat, but it can also mean a small, capped market. Understand the ceiling before you fall in love with the margin.

Final Thought: A 40-year reputation, half a million in surplus, a fair multiple and levers no one has pulled. The whole deal comes down to whether that reputation lives in the business or in the person selling it - and the team that holds it together. The handover is where you find out.

If you want more details on any of these businesses or would like an introduction to the sellers, just reply to this email.