Comprehensive Due Diligence of a Private School for Investment

The Task

The investor requested a comprehensive business due diligence before making a deal decision. Key questions: how resilient is the financial model, what is the real profitability, what hidden risks exist, and how to optimally structure the equity entry. A particular complexity was that part of the operations ran through informal channels, making an objective assessment of the actual financial condition difficult.

What Was Wrong: Diagnostics

• Dependence on Government Subsidies

  Approximately 28% of revenue came from government per-capita funding and food subsidies. Without these funds, the business slipped into operating loss. Any change in government policy would put the entire model at risk.

• Shadow Expenses

  More than half of operating expenses were processed through personal accounts in cash. This created an opaque picture of the real cost base and made reliable financial accounting impossible.

• Significant Tax Risks

  Unrecorded cash transactions created substantial tax exposure. Under an audit, the business could face serious additional tax assessments and penalties.

• Absence of Management Accounting

  The company maintained no systematic management accounting. We had to reconstruct the full financial picture from bank statements and interviews with the founder.

What We Did

• Week 1: Data collection and accounting reconstruction: requested several years of bank statements, conducted a series of interviews with the school founder. Since management accounting was absent, we reconstructed the full financial picture from statements and interview data
• Week 2: Financial modelling and diagnostics: built a financial model (cash flow analysis, unit economics, break-even analysis and forecast), performed a DCF valuation of the business. In parallel: SWOT analysis, competitive analysis, and tax risk assessment
• Week 3: Deal structuring and report: developed two deal structure options, prepared recommendations on the term sheet, corporate governance and risk mitigation, and compiled the final investor report

Result

• Complete Business Picture

  Detailed financial model, unit economics, multi-year forecast and DCF valuation of the business

• Hidden Risks Uncovered

  Shadow operations, tax exposures and critical subsidy dependency: factors invisible in a surface-level analysis

• Safe Deal Structure

  An alternative structure was proposed with a larger equity stake, a smaller investment amount, and full isolation from legacy risks

• Growth Roadmap

  Concrete scaling recommendations: increasing student numbers, expanding classrooms, a plan for reaching the target return on investment