In This Issue: 

• What to Look for in a 13-Week Cash Flow Model: and all the random costs dragging down cash flow in a business (TLDR… it adds up)

• What We’re Watching: AI’s Ambitious CapEx Plans, Claude’s Near-Term Disruption to Software and Real Estate Entering a Bubble

• Deal of the Week: We found a cash flowing Fire Stopping Contractor Business in the Midwest ($487k of Cash Flow). Click HERE for the listing (Deal Review Below)

Why Build 13-Week Cash Flow Models…

Just built a 13-week cash flow forecast for a recent acquisition.

What I found in the OpEx shocked me.

$500 per month on Nespresso Pods.

For context: this is a 12-person team.

That's $42 per person per month. Market rate for an office this size? Around $150-200/month total.

We were paying 2.5x what we should.

Small line item. Big signal.

If coffee spend is bloated, what else is?

This is exactly why I build a 13-week cash flow forecast immediately post-close.

Three core benefits:

(1) Avoid liquidity crunches

The SBA doesn't care what's happening week-to-week. They want their payment on time. A 13-week model shows you exactly when cash gets tight—before it happens.

(2) Force yourself into the GL

You see every cost in detail. Line by line. Necessary vs. unnecessary becomes crystal clear fast.

(3) Create leverage to renegotiate

Perfect excuse to challenge recurring expenses:

• Internet packages nobody uses

• Insurance policies auto-renewed for years

• Software subscriptions for departed employees

• Vendor contracts on autopilot

What the model revealed:

The Nespresso situation? Switched to a bulk supplier. Cut costs by 60%.

One forecast. Dozens of discoveries.

Other findings:

• Duplicate CRM subscriptions ($300/month)

• Business cell phones for employees who quit in 2024 ($180/month)

• Expedited shipping as default when standard would work ($400/month)

Death by a thousand line items.

The institutional approach:

→ Build the model in week one, not month three
→ Compare every line item to industry benchmarks
→ Question everything that's been "the way we've always done it"

Most sellers aren't intentionally wasteful. They're just not looking.

You should be.

Bottom line:

A 13-week cash flow model isn't just treasury management. It's operational due diligence you do after the lawyers leave.

The business doesn't need premium coffee pods. It needs margin expansion and predictable cash conversion.

Start there.

WHAT’S HAPPENING IN THE MARKETS?

• Big Tech's AI Capex Hits Critical Threshold

  Hyperscalers are spending so aggressively on AI that free cash flow is approaching negative territory—a "red flag" for valuations, per Evercore. Meta allocates $55B, Alphabet $180B, Amazon $200B for 2026. Aggregate debt now exceeds cash as companies lever up to fund infrastructure buildout.

  Why it matters: This isn't 2022's multiple compression—it's balance sheet stress. Amazon likely goes FCF-negative in 2026. When growth companies burn cash instead of generating it, cost of capital matters again. If AI monetization lags another 12–18 months, expect credit concerns and equity dilution. The market tolerates this only if returns materialize soon. Own the picks-and-shovels (Nvidia, power infrastructure), not the capex addicts.

• Anthropic's Claude 4.6 Accelerates Software Obsolescence Fears

  Anthropic released Claude Sonnet 4.6 just 12 days after Opus 4.6—massive improvements in coding, design, and computer use. The release pace is accelerating, fueling a brutal software stock selloff as investors price in disruption to recurring SaaS models.

  Why it matters: Software margins collapse when AI automates the product itself. Why pay per-seat for tools Claude can replicate? This isn't hype—enterprise buyers are already piloting AI substitutes for ServiceNow, Salesforce, and productivity suites. Software companies without defensible data moats or distribution advantages face re-rating. The 30x SaaS multiple dies here. Short legacy enterprise software; long infrastructure enabling the models.

• Housing Market Faces New Crisis as Sales Crater 8.4%

  January existing home sales dropped 8.4% month-over-month—worse than expected—while median prices hit a record $396,800 for January, up 0.9% year-over-year. Inventory declined from December but remains 3.4% above last year.

  Why it matters: This is the lock-in effect metastasizing. Homeowners with 3% mortgages won't sell into 7% rates, strangling supply and keeping prices elevated despite collapsing transaction volume. Realtors, mortgage originators, and home improvement retailers face revenue cliffs. New construction remains the only liquid market. Avoid homebuilders without land banks in high-growth metros; short mortgage servicers dependent on refi volume that isn't coming back.

DEAL OF THE WEEK

Midwest Fire Stopping Contractor
Price: $999K | SDE: $487K | Multiple: 2.1×

Investment Summary

Specialized fire suppression contractor serving healthcare, educational, and commercial clients across the Midwest. Established 1992 with $2.2M in revenue and 22% margins. Installs fire-resistant materials, performs inspections, and provides firestopping services. Completes ~70 projects annually ranging from $2,500 to $1.5M. 14-person team in place.

This is life-safety compliance infrastructure sold into non-discretionary budgets. Buildings don't catch fire less often because the economy slows down.

Financials & Structure

• Revenue: $2.2M

• SDE: $487K (22% margin)

• Facilities: 3,900 sf at $3,600/month (month-to-month, 60% capacity)

• Projects: ~70 annually, avg size $31K

• Customer mix: Primarily healthcare facilities and commercial buildings

Investment Thesis

Fire suppression isn't optional—it's code. Hospitals, schools, arenas, and commercial buildings must comply with NFPA 101 and IBC standards before occupancy permits get issued. Inspectors don't care about budget cycles. This creates recession-resistant demand tied to construction activity, not economic sentiment.

The business occupies a profitable niche between commodity drywall and high-end MEP work. It's specialized enough to command pricing power but broad enough to avoid single-customer dependency. Healthcare facilities—40%+ of revenue—provide the stickiest demand. Hospitals build and renovate through recessions because patient capacity doesn't wait for rate cuts.

At 2.1× SDE with 32 years of operating history, you're buying technical expertise, contractor relationships, and recurring project flow. Central Midwest location provides highway access to multiple states without metro cost structure. The month-to-month lease and 60% facility utilization create operational flexibility.

Critical Diligence

Customer concentration: What % of revenue from top 5 clients? Healthcare is sticky, but losing a major hospital system partner hurts.

Project backlog: How much contracted work exists beyond 90 days? Fire suppression timing is dictated by construction schedules—visibility matters.

Staff retention and certifications: Who holds critical certifications? What's the comp structure? Specialized labor walks, margins evaporate.

Contractor relationships: How much work comes from repeat GCs vs. bid platforms? Direct relationships = margin. Bid platforms = commodity pricing.

Insurance and bonding capacity: Current rates and claims history? Can existing bonding support $1.5M projects post-ownership change?

Revenue seasonality: Construction concentrates in spring-fall. Does cash flow smooth across quarters or does winter require working capital management?

Bottom Line

Recession-resistant specialty contractor in a fragmented market with limited competition. Fire suppression work scales with construction activity—Midwest construction spending is up year-over-year. Add formal sales process, pursue maintenance contracts with existing clients, expand into adjacent markets like data centers and industrial facilities. At 2.1× on non-discretionary revenue, this is mispriced infrastructure exposure. $487K is the floor.

Listing is still available here.

This newsletter is for informational purposes only and does not constitute investment advice. The content is based on publicly available information, and the author makes no representations about its accuracy or completeness. Readers should conduct their own research before making any investment decisions.