There are some great FREE sources of information out there in the Internet.
However, sometimes you have to question the advice that you are given … for example, The Tycoon Report recently published a post on the …
After soliciting responses from their reader base, here are the 4 questions that they came up with and a little snippet of some of their (generally) excellent advice:
1. Do I understand the business?
To really “understand the business” you must know exactly how the business makes its money and exactly where the business spends its money. That’s the only way you’ll ever be able to properly analyze the company’s Profit and Loss statement.
2. Am I comfortable with management?
Many of you wrote about trust in management as one of the key questions you should look at. You were spot on with that assertion. But how can you tell if the person pitching you the idea is trustworthy? That’s an art in and of itself, and we’ll dive deeper into that in coming weeks also.
3. What is the business worth?
Many of the companies you’ll be asked to invest in are start-ups (very high risk). Some of the companies you may seek investment opportunities in may be existing businesses (like Joe’s Pizza Parlor). Either way, you want to make sure that once you get to this part of the negotiation you’ll have a good handle on what the business is worth.
[PS--You could never determine the worth of a business if you didn't first "understand the business".]
4. What do I have to pay?
Many people will argue that they invested in XYZ Company because, in their words, it was a “good company”. But to invest at the highest level of the game, you have to be able to differentiate between a good company and a good price. Now, this is a subject that I happen to know a little about …
The first two questions (do you understand the business and do you LOVE the management team?) are gimme’s …
… but, the last two (what do I have to pay? what is it worth?) are a FUNCTION of two FAR MORE IMPORTANT questions:
A. What is my EXIT strategy?
Before you go into a business, you must know how you are going to get out of it. Maybe, you won’t know exactly who you will sell to, but you will know what type of business will want to buy your business, and when (maybe not in terms of years, but at least in terms of stage of business development).
And a related question,
B. How ‘repeatable’ or ‘expandable’ is the business?
… in other words, how much can I make it GROW?
Nobody will buy your business unless they believe that they can:
(a) run it without you, and
(b) continue to grow it.
You can only achieve these if you:
(i) systematize your business, and
(ii) create your first business as though you were going to create 500 more just like it (whether you actually do or not doesn’t matter).
Don’t believe me? Check out this little snippet …
… who do you think had the last laugh in that little deal?