What it means
Before a company spends real money and management time on a deal, it wants a quick sense of whether the idea makes sense. Kicking the tyres might involve reading public filings, looking at the website, having an introductory call and asking a few simple questions.
It is cheap, fast and designed to filter out poor opportunities early. The stage is different from due diligence, which is a full, formal investigation of a target's accounts, contracts, legal position and operations.
Due diligence can take weeks and cost a great deal in professional fees. Kicking the tyres decides whether that cost is justified.
In practice, a buyer or investor may check basic things such as size, growth, profit margins, customers, and obvious red flags. It is common to sign a non-disclosure agreement at this stage if sensitive information will be shared.
The aim is to get an impression, not to prove anything. The phrase is also used by buyers of software, equipment or services, who ask for a demonstration or a trial before committing to a contract.
A procurement manager might test a platform for a few weeks with a small team. Sales staff will recognise this as the evaluation stage of a sales funnel.
The risk of the process is that people can spend a long time on it without making progress, or draw firm conclusions from thin information. A sensible approach sets a time limit and a list of key questions in advance.
If the answers are good, the next step is a structured investigation. For sellers, a visitor who is just kicking the tyres is a prospect to qualify, not ignore.
A clear summary document, a few key figures and prompt replies help to turn casual interest into serious engagement. It is also useful to know when a visitor is not likely to buy so time can be directed elsewhere.
In practice
Real-world examples.
Example
A private equity analyst hears that a regional logistics firm might be for sale. She reads its filings, estimates its margin from public data and holds a short call with the owner. The numbers look attractive, so her firm agrees to start formal due diligence.
Example
A retail chain is thinking of buying a new inventory system. The operations manager asks three vendors for demonstrations and a two-week free trial for a single store. Only the vendor that handles the store's real data without errors goes forward to contract talks, and the manager records the trial results for the final approval paper.
Example
An individual investor is curious about a small listed company. She reads its latest annual report, checks its debt levels and looks at what analysts say. She decides to keep the share on a watch list rather than buy immediately, and she sets a reminder to review it when the next results are published.
Case study
Seen in the real world.
Brightwater Foods is an illustrative, fictional company considering the purchase of a smaller snack producer called Crispin Bakes. Rather than commit to a costly investigation, the finance director set a two-week tyre-kicking phase with a budget of $15,000.
The team reviewed public information, spoke to the owner and asked for a one-page summary of sales, margins and customers. They found that one supermarket accounted for 70% of Crispin's sales, which was a significant concentration of risk.
Because the issue could affect the price, the director chose to continue but with a lower opening offer. The illustrative lesson was that a small early check had identified the key question before the company had spent $200,000 on full due diligence. The director also wrote down the three questions the first phase had to answer, so the team knew exactly when the screening was finished and what evidence would justify moving on. When Crispin's owner later accepted the lower opening offer, the buyer's lawyers used the same list as the starting point for the formal investigation, which saved a week of work.
Watch out
Common mistakes.
- Treating an informal first look as full due diligence, and skipping the detailed checks on contracts, accounts and legal matters.
- Spending months on the early stage with no deadline or list of questions, which wastes time and can annoy the other party.
- Sharing sensitive information without a confidentiality agreement, which exposes the seller or the buyer to avoidable risk.
Questions
People also ask.
Where does the phrase come from?
It comes from people buying a used car who kick the tyres to check they are firm and in good condition, as a quick test before committing further.
How is it different from due diligence?
It is a brief, informal screening to see if a deal is worth pursuing, whereas due diligence is a detailed, formal verification of the facts.
Is kicking the tyres a bad thing for a seller?
Not at all, because genuine interest often starts this way, and a well-prepared seller can turn a casual visitor into a serious bidder.
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