The One Minute Business Checkup!

My blogging friend, Andee Sellman has unveiled a corker … but, I have a STRICT no advertising, no product placement or promotion policy …

[AJC: it's the only way that I could think of to convince people that I'm genuine, after all, do I want to say to people "I made $7 million in 7 years, plus an extra $4 a week from my blog" ]

.. so, I’ll just gently lead in with a story instead:

Many years ago, in a very short-lived experiment, my parents bought my sister a flower shop [AJC: mistake # 1].

However, because they knew that she wouldn’t take any of their advice (just the shop sans advice) they asked me to take the other 50%, which I agreed to [AJC: mistake # 2].

Unfortunately, I had no business experience in those days, so it was like ‘the blind leading the blind’ … however, I did go looking for help.

One of the first things that I tried to do was get some help on the NUMBERS that the shop should run according to; things like:

- What % of our sales should the flowers and other materials that we bought account for?

- What staff and other administrative costs should we allow?

- What salary should my sister draw?

Unfortunately, my accountant wasn’t much help [AJC: he basically told me to come back when I had a tax problem ... when the problem was, we weren't making any money, so there was no tax!], and I did find a benchmarking report on florist shops, but it didn’t really tell me what the numbers meant or, much more importantly, what to do with them.

That’s why I was really interested when Andee sent me a link to his new tool – I’ve checked and it is totally free - called the One Minute Business Checkup … I think it would have been of great benefit – even though it is fairly simple, and works on just three (that I could see) critical benchmarks:

A. CUSTOMER VALUE MEASURE

This measure looks at how much of the customer value you are retaining in your business by looking at the value the customer pays you and deducting the cost you incur to make those sales.

From experience we know that if the customer value measure falls below 20% a business will struggle and may fail completely so that is why the benchmark is set at 20%. i.e. retaining 20% of the customer value as a return to the business owner.

Example of Measure

Sales		$500,000
Product	$250,000
Business Owner	$50,000
People	$50,000
Marketing Costs	$20,000
Distribution Costs	$30,000
Total Costs		$400,000
Customer Value Retained		$100,000
Percentage to Sales		20%

B. TRANSACTION FLOW MEASURE

The transaction flow measure is about determining the volume of sales that is running through your business. A business may have very high customer value (margin) but only a trickle of sales to take advantage of that value.

Our quick way of measuring transaction flow is to look at administrative cost compared to the sales in a business.

We have found that to be sustainable a business needs to spend no more than 12% of sales on its administrative costs. Often small businesses need to INCREASE SALES rather than decrease administrative costs to achieve this percentage.

Example of Measure

Sales	$500,000
Administrative Wages	$30,000
Administrative Expenses	$20,000
Total Costs	$50,000
Percentage to Sales	10%

C. MONEY FLOW MEASURE

The money flow measure is designed to find where the money is hiding in your business. Does money flow easily or are there places in your business where it gets ‘stuck’ and takes time to flow through to you.

A very significant place that money hides in your business is called working capital. There are three significant items:

1. Inventory – this can be raw materials, work in progress or finished goods
2. Accounts Receivable – this is money owed to you from customers
3. Accounts Payable – this is money you owe your suppliers

Money can get stuck in inventory and accounts receivable. It can also be lost from the business by undisciplined payments to suppliers.

The activity in your business can be measured by sales and this needs to be compared to the working capital invested in your business. We have found that to be sustainable and to give your business the best chance to grow, working capital should be no more than 12% of sales. Beyond this, too much of your money gets tied up in the business and is not available to fund growth.

Unlike the other two measures the money flow measure can be negative.

Negative working capital is a very dangerous situation needing urgent attention.

Example of Measure – Positive Working Capital

Inventory	$30,000
Accounts Receivable	$55,000
Accounts Payable	-$35,000
Working Capital	$50,000
Sales	$500,000
Percentage to Sales	10%

Example of Measure – Negative Working Capital

.

Inventory	$30,000
Accounts Receivable	$55,000
Accounts Payable	-$95,000
Working Capital	-$10,000
Sales	$500,000
Percentage to Sales	-2%

If you have a small business, I recommend that you give this a try [ http://oneminutebusinesscheckup.com/ ] and let me know what you think?

Stuck for a new business idea?

I’m not sure why anybody would be stuck for a business idea?! We get at least one million-dollar idea a day [AJC: you may not think so, but it's anytime that you are dissatisfied ... inside every problem is a million dollar solution just waiting to break out], but we either fail to recognize it or – more likely – act on it.

I have two solutions:

1. Carry a small pen and a notepad (yes, an iPhone or PDA is a great substitute) and …. use it!

Write down every idea that you get, then make sure that you act on each: do something to verify that your first idea has / hasn’t merit and … act further: do some research, talk to somebody in the industry, etc., etc. If you feel, at any stage, that it isn’t for you, put a line through it and REPEAT for Idea # 2 and so on.

2. Or, if you are The Vacant Parking Lot Of Business Ideas, don’t fret … just buy this book (Hint: buy the .pdf from his web-site at half the price that Amazon charges).

Disclaimer: I haven’t read the book, but that’s not the point … as far as I am concerned, it only needs to give you a list of ideas to explore – any additional valuable content is a bonus.

Still not sure that you want to spend the ten bucks on helping you reach your Number? Shame on you … but, here’s an excerpt, anyway:

Travel or invest?

Ryan from Planting Dollars asks:

Having been raised by self made real estate millionaires it’s not shocking that I agree with the vast majority of what you have to say.  The reason I’m emailing you is because I was wondering if I could get your advice.

As a 23 year old recent college graduate I understand the power of real estate investing and building businesses, but at the same point would like a nomadic lifestyle and be able to travel while living frugal at a young age.  In my experience real estate and most business ventures aren’t possible with this lifestyle.  So I’m simply wondering:

If you were in my situation, how would you perceive this challenge and what types of businesses would you pursue?

Simple: anything internet!

Specifically, anything internet that trades in downloadable products and services (information products are ideal), or of the ‘virtual infrastructure’ type (e.g. FaceBook) … of course, once you become successful, you will need staff and support of the financial kind, and these require phyical access more often than not [AJC: Venture Capitalists are soooo 90's ].

That’s the short answer; now for the long answer

The first thing I would suggest that Ryan do is to ask the “self made real estate millionaires” who raised him for their advice … after all, they’ve been there / done that … know Ryan better than possibly anybody else … and, being a parent myself I have no doubt that they ABSOLUTELY have his best interests at heart!

As to the second part of Ryan’s question, which asked whether I would “place travel and new experiences in [my] twenties as more important or less important than investing and capturing the time value of money?” 

The easy answer is that (by some coincidence) I just addressed this in some small way in yesterday’s Video-on-Sunday post …

…. but, the harder answer is “it depends”:
 
- I would rank those Life Experiences very highly

BUT

- If the desire to be an entrepreneur burns bright, and you have a rip-snorter of an idea just bursting to get out … well THAT can be the “new experience” that Ryan mentions, and it may very well more than make up for itself by funding your future travels.
 
I would be willing to delay a boringly ‘normal’ savings plan a little for those one-of-a-kind of Life Experiences.
 
Let’s say that you do decide to compromise, by being that nomad, yet starting a business; what’s the ideal business for this sort of traveling, hands-off lifestyle?

As I said above, anything Web, however I suggest that you buy a copy of the 4-Hour Work Week first!
 
But, I would also say not to be so quick to discount real-estate …

… I maintained 5 condo’s and a small’ish office block in Australia whilst I was living in the USA.

Buy anything by Dolf De Roos and Dave Lindahl, both of whom claim to own real-estate in far flung places (Dolf across the world, and Dave across the USA) and learn all you can about ’hands off’ real-estate ownership; it can be done.
 
Of course, Ryan still has direct access to Millionaire RE mentors … so, he should first ask his parents what they do with their RE investments when they wish to travel?

Some business valuation advice …

While we’re on the subject, here is some good advice on valuing (and, improving the value of) you business from a business broker …

… if you like the info, here are the next three videos in the series:

http://www.youtube.com/watch?v=pbIbNZ-mHpA&feature=related

http://www.youtube.com/watch?v=4iwSIlo8VDA&feature=related

http://www.youtube.com/watch?v=XfKFvMUmc8c&feature=related

That’s it!

BTW: The last video is the only one that really answers the question about how to value a business

How to value your business …

Last week I told you about a reader who thought that he wanted to sell his business, but pretty quickly realized (after a bit of prodding from me) that he was really selling a product as he had not made any sales as yet.

So, this week, I wanted to cover the basic ’street smart valuation’ methods for selling (or, part-selling) various types of businesses:

1. Professional Practices

These types of businesses (e.g. accountants, finance/insurance/stock brokers, doctors, attorneys, etc.) generally are the easiest to value as their sale price is usually governed by industry-standard formulas, often based on some multiple of fees rather than profits.

So, an insurance broker may sell for, say 2 x annual fees/commissions.

The easiest way to find out how to value your professional practice is to buddy up to a few of your peers and see what experience they have and to ask your industry association. It is also useful to see if your accountant (or another) has experience with any of their clients who may have bought/sold practices in your specialty.

2. Small businesses

Most other sole practitioner and/or small businesses sell for a multiple of their profit (per their most recent income tax returns); typically the business is bought/sold for a multiple of 3 – 5 times after-tax profits, but the range can vary widely.

Brad Sugars claims that his opening (and usually closing!) bid is zero … but, he may take the over the business’ leases (premises and/or equipment); since most small businesses lose money – barely paying their owners a ’salary’ – this can be a surprisingly good deal!

Of course, if a large company (preferably one listed on a stock exchange) wants to acquire you – and, you can demonstrate a history of good profits – you may be able to negotiate a larger multiple … perhaps heading in the direction of the multiple that the public company itself is getting on the stock exchange (you can find a company’s P/E ratio on any good finance web-site).

Somewhere around 7 to 10 times after tax profits would be considered outstanding.

3. Venture Capital Ready

Let’s say that you have a small business and feel ready to take it to the next level, but you need some additional cash, effectively by selling them part of your business (i.e. trading some of their cash for a lot of your equity) … after watching Shark Tank you feel that you are ready to negotiate with some venture capitalists. What will they pay for a share of your business?

Well, you really need to know what sort of return they expect on their money:

If a company does have the qualities venture capitalists seek including a solid business plan, a good management team, investment and passion from the founders, a good potential to exit the investment before the end of their funding cycle, and target minimum returns in excess of 40% per year, it will find it easier to raise venture capital.

Think about it; a venture capitalist may invest in 10 businesses and lose their money on 7 of them, break even on 2, and rely on your business to make up for the other 9 duds

If they could make (say) just 4% on their money just by letting it sit in the bank, then surely they’re going to need at least 10 times that return if they give it to you on a 10-to-1 failure:success ratio, aren’t they?

Now, 40% returns means that if they give you $1 million, they will expect to be able to get out in 5 years and walk away with well over $5.25 million!

So, here (in simple terms) is how they will make their offer to you (if you are still in self-delusional mode and think that you will be making the offer to them, watch some more Shark Tank!?):

1. Assess how much investment they will need to make in order to meet the growth needs of your business (this WON’T include giving you a pay-rise or any cash in your pocket … at least, not until THEY cash out first),

2. Decide how long they are prepared to wait to realize their investment (i.e. take their cash out by selling or IPO’ing the company)

3. Calculate the % and $ return they would need (in our example, this is the $5.25+ million that I mentioned above)

4. Assess what sale price the business is likely to get

5. Divide 3. into 4. and this is what minimum % of your company they will expect to get for their investment (in our example, this is $1 mill.)

So, if they think you have a $10 mill. business on your hands, they will want at least 53% of the company for their $1 mill. investment …

… and, I assure you, you will only get the $1 mill. if you are already doing really well

Good spam or bad spam? You decide …

Like you, I receive a lot of spam … fortunately Google’s g-mail picks most of it up and automatically dumps it into the ‘trash’ folder for me.

Most of the spam that I receive is of the “congratulations you have won the Dutch lottery” or the “Mr Nagambi, a senior official in the Uganda government needs your help” varieties. It seems that most spammers are happy with my current vitality and physical dimensions

The problem is, this kind of spam receives no attention, because it takes more than it gives: “give me your credit card number and I will give you some purple tablets” [AJC: either that, or steal your money ... spam 'n scam!].

Good marketing, whilst often bordering on spam (be very careful not to cross the line, though!) gives in order to get: this could be free products (i.e. give me your e-mail address and I will send you my free report … followed by 7 carefully worded and timed sales letters), or simply some free information, like this unsolicited e-mail that I recently received:

Hi Adrian,

Only 43% of consumers will cut back on holiday spending this year, compared to 55% in 2008, according to a Consumer Federation of America survey. While increased consumer optimism spells good news for retailers, for Americans planning to “stretch” the budget, the New Year could bring falling credit scores, and with it, serious consequences.

Here are some fail-safe tips from FICO Credit Guru Shon Dellinger to help enthusiastic shoppers stay financially sound:

1. Be Smart with Credit. Using a credit card is ok – experts agree having 3-5 credit cards helps your credit, if used responsibly. But carrying a balance on your credit card leaves you (1) stuck paying interest that could cost you, in some cases, double or triple the cost of those gifts in the long run and (2) with a much lower credit score, which could jack up interest rates on your credit cards and jeopardize your chance of getting lines of credit elsewhere (buying a house, a car, etc.). Services like FICO Score Watch combat this by providing emails or texts alerting you to any changes in your FICO score (either positive or negative), and notifying you when you’ve qualified for a better interest rate. A credit score increase of 30 points will save the average consumer $105 per year.

For more information on FICO Score Watch, go to: www.myfico.com/Products/ScoreWatch/Description.aspx.

2. Resist “Short Savings.” The salesperson at your favorite department store offers you an instant 20% savings just for opening up a credit card in their name. While that $20 seems tempting at the time, it can quickly put you in debt if you’re not careful. The temptation of the deal is also one reason why the average consumer has a total of 13 credit cards. Opening new lines of credit can also hurt your credit score, so make sure the card meets your overall needs and not just your desire for quick savings.

3. Don’t Wait Till April! Many holiday shoppers use their Tax refund to pay off credit card balances left over from the holidays, which can be incredibly expensive, not to mention detrimental to your credit standing. A credit card balance of $500 dollars from January until April will cost you $237 dollars based on today’s average credit card interest rate.

Please let me know if you are interested in speaking with FICO credit guru Shon Dellinger about these credit saving holiday tips and what else consumers can do this year to assure that their 2011 New Year’s resolution isn’t fixing the damage they did to their credit in 2010. Also, the myFICO Forums can offer your readers helpful tips.

Cheers,

Ashley Kleinstein

Access PR for FICO

Now, I didn’t mind receiving this e-mail because it seems to offer useful information and isn’t directly asking for a sale, although I only gave it a cursory scan because my FICO score is just fine [AJC: and, thank you very much for asking ].

Also, I know why this was sent to me: since it was sent under a PR agency’s moniker and I am a blogger, I surmise that they are really hoping that I (or the other personal finance ‘media’ people out there) will publish their content as an article [AJC: as I have 'cleverly' done here .... for all you new and aspiring bloggers out there, see how I just lifted some random content and made a post out of it? ]

What do you think? Is this an automatic delete? If you are not vehemently opposed to it, how would you improve the e-mail?

[Hint: I would present it as a free sample of an online newsletter and 'click here if you would like to continue receiving it monthly .... usual price $79 for a year's subscription, but free to you and no credit card required!' to make it seem valuable]

I want to sell my business …

A week or two ago, a reader – who shall remain nameless as they are currently in negotiations – asked for some advice on selling their business:

I have a software company with a new proprietary software technology.  The company is considered for buyout due to the new technology (currently there are no revenues and no debt). The projected total revenues over the next three years is $1.55m (First year: $0.15m, 2nd year $0.4m & Third year: $1m) and total over six years is $4.55m (with 4th, 5th, 6th years at $1m each). What is the right valuation for this company if the company were to be acquired now.

This is a common request that I receive and I always have a soft spot for entrepreneurs, having been down this path a number of times, and I will give you some guidelines in a future post …

… but, in this case Mr X (as I will refer to him) has NO business to sell right now, so the usual formulas simply won’t work!

Why no business?

Well, as Mr X admits, the company has “no revenues” right now: no revenues, no business … no business, no business valuation.

But, Mr X does have a new proprietary software technology; apparently, one that at least one major company wants to acquire.

So, the first step is to recognize that we are selling a product (the “proprietary” rights to a new software technology), but we first need to find out what it would cost to duplicate the technology.

Mr X says: “4-6 months with 2 people on the job”

That puts a ‘lowball price’ on the software of $20k to $100k depending upon whether it is developed onshore or offshore.

Now, that’s assuming that it can be duplicated, but Mr X assures me that it cannot:

All major companies in this area have been trying to figure out an equivalent technology for the last 5-6 years or so, but with no success.

Given that Mr X’s software can’t be copied (6+ years development effort, with NO guarantee of success), then his company is worth whatever he can negotiate

Since he wanted a better estimate of potential selling price than that, I told him that it’s time to look at potential revenue, which Mr X projects over the next three years as: $1.55m (First year: $0.15m, 2nd year $0.4m & 3rd year: $1m).

If the company generates < $1 mill per year over the next three years, then I think that Mr X would be struggling to get $500k – $1 mill. for it …

… if he is offered less – and, he probably will be as the market is quite small for any major corporate (at the numbers provided above) then, if it were my software, I would be tempted to go ahead and get those revenues for myself then sell in 18 months to 3 years time.

Here’s my reasoning:

1. Development effort on Mr X’s side is tiny, but he feels strongly that his technology can’t be easily copied,

2. Mr X has a market that he feels can generate revenues of, say $1.5m+ over three years (discounted to today’s value), which are relatively small numbers for any substantive corporation.

In fact, if Mr X is offered more that that $500k to $1 mill. that I suggested, it will probably be as a result of a combination of how badly one of these companies wants (needs?) his technology and how big THEY think the market will be for them.

That’s why the next step, if Mr X hasn’t already done so, is to assess what revenues the purchaser believes they can make over the same period (better marketing/sales than Mr X?); better yet, what profitability.

If he doesn’t already have a good feel for these numbers, then he will need to try and get close to somebody on the inside of the company and carefully ask them …

… after all, the price that you set should always be as close to whatever the company that you are hoping to sell to can make, minus a fair margin for their trouble. Anything less, and you are being a little too generous

The Myth of Control …

There are so many myths holding us back from making significant chunks of money – the sort of money that can carry you from $30k in debt to $7 million in the bank in just 7 years – that I feel that it is my solemn duty to break as many of them as possible …

But, why do these myths exist?

I think for two reasons:

1. They may work for the lower required annual compound growth rates i.e. smaller Numbers / later Dates that most personal finance bloggers and authors have personally experienced,

2. People propagate ideas put forward by one author until they become The Truth.

In other words, some of these ‘common wisdom’ personal finance – and, business – truisms are simply aimed at an audience who doesn’t need to get rich(er) quick(er) … and, following those ‘rules’ will ensure that they get exactly what they aim for: 40 years of hard work, followed by a ‘frugal retirement’

So it is for the myth of business control:

People start their business with the idea that they either have 100% ownership – or, perhaps a 50/50 founding partner – from Day 1 and fervently believe that they will retain this mythical ‘control’ over their business (hence their life) as long at they hold on to at least 51% of their business …

… and, if they should need some outside investment – in their minds, at least – it’s critical that they give away less than 50% of the equity in their company.

Steve voices this point of view very clearly:

You give up 51 % control and who is to say you will make any money at all?? the new controlling owners could eventually throw you to the street.I’ve seen that happen a few times.

Personally, if there is no other options than to go for outside investors to move forward, your better off not giving up any more than 20 to 30% control ever.

First let me break a little myth in this blog … the ‘myth’ that I think that it’s a good idea to hand over a chunk of your company to an investor … nothing could be further from the truth:

I believe (and, have stated) – that you need to have a VERY good reason to give ANY equity away (for reasons that I explained in Decision Point # 1 in this post).

But, once you have crossed that line – and, have exhausted Friends/Family/Fools who may invest token amounts for token equity (i.e. that 20% – 30% that Steve talks about) – you will find that control goes with the money NO MATTER WHAT THE NOMINAL % MAY BE that you agree to hand over (and, THE INVESTOR will decide that %, not you!) …

… if you don’t like the deal, then you will have to make do without the money.

Simple!

The tool that your investor will rely on is the Shareholders Agreement, where they will make sure that critical decisions (eg hiring/firing; purchases over – say – $10k; new capital raisings; etc.), at a bare minimum, will require unanimous approval of the board … naturally, the outside shareholders will expect to have a seat on that board.

So, at a minimum, a smart minority shareholder will effectively hold the power of veto over your business … and, the Shareholder’s Agreement allows plenty of scope to even provide them with effective control over the business, regardless of their shareholding (be it 20% or 80%).

BUT, and I stress this, as I said to Steve:

There are no hard and fast rules: feel free to find the ‘fool’ who will invest a significant amount without the ability to put you on the street if you don’t perform

NEVER doubt the power of clever marketing …

Watch this video to the end to see how a smart marketing strategy can make any shlubb rich(er) quick(er) …

… look and learn

Is the shark’s bite worse than its bark?

I was really impressed with the quality of our readers’ analysis of last week’s video post (from ABC’s excellent show, the Shark Tank, which is about a group of entrepreneurs who listen to various pitches before deciding whether to invest their own money), so I thought that I should do this follow-up piece, while the video is still reasonably fresh in our minds.

In case you didn’t see the video, or need a refresher, here is the link: http://7million7years.com/2009/11/12/take-the-money-and-run/

The reader poll shows that people are reasonably split between not giving any equity away at all, or giving away a minority … fewer still wanted to give away a controlling interest.

So, who is right? More importantly, what did the girls decide?

I once told you that most business decisions are made emotionally and justified rationally later, and I believe that this is a classic case of that, but more on that later … for now, let’s simplify this seemingly complex decision (competing offers of $350k then $500k then back to $350k again, against equity of 40% to 65% then back to 51%) into two sets of binary decisions:

Decision Point # 1: To give away equity or not to give away equity, that is the question?!

Rick Francis makes the ‘no equity’ argument quite well:

I wouldn’t have given the equity away- it sounded as if they didn’t really NEED the 350K to keep their business going. They have some big customers and are getting repeat orders. They want the $ for marketing, $350K will NOT make them a household word, and I doubt it would dramatically increase their sales. Their product is in major hotel chains THAT can be their main marketing. They could use the internet to make very targeted ads for a small fraction of $350K which they should be able to do as an operating expense.

And, in a strange twist, Scott actually helps to illustrate the reverse argument:

I wouldn’t give an ounce of equity away on this. You could read the sharks from the first 30 seconds that they were salivating over this. Even if it took me 5-6 more years to reinvest every penny I could into marketing and if I had to do everything I could to tell the world about that idea, including trying to land a spot on Oprah

You see, I think the equity / no equity decision boils down to time … without the Sharks’ help, can you get your business to the point where it will deliver your Number by your Date? If not, then with the Sharks’ help, can you reach your Number/Date?

That extra 5 to 6 years that Scott is talking about could be a killer … not to mention, the longer you wait the more chance there is of stronger competition raining on your parade.

That would be the driving force for the equity / no equity decision for me; while I would prefer to keep 100% of the equity (and control), do I need to compromise in order to win the main game, which is being able to finally live my Life’s Purpose within a reasonable period of time?

At least, that’s how I would look at it …

Decision Point # 2: How much of my soul do I sell?!

Once you’ve decided to sell (part of) your soul to the devil … or, in this case part of your company to the Sharks, it becomes a matter of how much to sell, and here, the trend is clear: our readers want to give away a minority stake. WJ was clear and succinct on this:

I would give away equity only to the point of still being in control.

Whereas, Trainee Investor sees both sides:

Either I would only give away minority equity on terms that left me with control and relatively limited fetters on my ability to run the company OR the investor would have to provide something more than just a monetary investment (such as the ability to significantly expand distribution in a manner which would otherwise have been beyond me).

Here’s how I look at it: the girls – in this case – reached decision point # 1 by deciding that they did wish to give away some equity in return for some benefit (cash and expertise/guidance from the Sharks), otherwise they would not be on the show.

So, now they need to decide what to give away and how much … and, this boils down to simple mathematics.

But, “wait” you say “surely you can’t give away control?”

And, I say: “you already have”

You see, as soon as you sign the shareholder’s agreement, you will find that your control over the company is no longer entirely yours, no matter what equity you still hold: 1% or 99%.

The shareholder’s agreement will be full of “by unanimous decision of the board”, and you can be sure that the Shark sits on that board!

I know, because I have been a 51% joint venture partner and a 40% joint venture partner and it made not an iota of difference … I still had a similar lack of effective control in both cases …

… I have even been a 100% owner and my clients and bankers still held the real control over my company. But, does it really matter all that much? Aren’t we all interested in making the company a success?!

‘Control’ is not all its cracked up to be

So, if you are giving away control – and you will, trust me – just by entering into an agreement with an outside investor, then its time to start looking at what you get. In this case:

- $350k for 40% equity + Barbara’s guidance, OR

- $350k for 40% equity + finance/distribution/administration support for 11% equity + the guidance of 3 mega-millionaires.

To me the decision isn’t even close: once you’ve decided that 40% of your company is worth $350k then tell me where you can buy a complete operational and administrative infrastructure for your business (not to mention close a guaranteed line of funding) for less than 11% / 40% x $350k = $100k?

Folks, it’s the bargain of the century, but you have to be a Shark to see it

BTW: remember that ‘emotional v rational’ thing that I mentioned towards the beginning of this post? Instead of the simple math that I would have used to make the correct choice, Luis summed up exactly how they made their emotional choice:

Unbelievable! They made their decision on “I really like Barbara, like I really like her”. Barbara read them right “You got spunk” and at the end “…you are going to be happy”.

Unbelievable, indeed!