Tag Archives: Business

The 4 absolutely vital questions to ask before buying ANY business …

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There are some great FREE sources of information out there in the Internet.

 One of my favorite (when it comes to stocks and options) is The Tycoon Report – and the related (and wonderful) Q&A sister site, Ticker Hound.

 However, sometimes you have to question the advice that you are given … for example, The Tycoon Report recently published a post on the …

4 Questions to Ask Before You Buy a Private Company

 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 …

… and, I am not sure that these are the ‘4 question’ responses that you would have received had you asked, say, Guy Kawasaki or any other Angel or VC worth his salt.

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 …

Ray Kroc paid the McDonald brothers $1 Mill. to buy them out, about FOUR TIMES what he estimated their share of the business was actually worth …

… who do you think had the last laugh in that little deal?

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I'm about to find out if you can make money online …. Part III

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Note: In the original version of this post, I included links to the actual sites; WordPress has posted what looks like an ‘automatic warning’ … on the assumption that this content was the cause, I am removing the actual names/links … a pretty good ‘early warning sign’ that the site that I subscribed to is a bit dubious, huh? 

I have a confession, I am already working on two separate on-line ventures that are currently in stealth mode but, these are fairly high-risk / high-reward ventures … they take a lot of preparation, programming, and money.

Which is why I am busy trolling the Internet for a more ‘off the shelf’ business that I can try, so that I can prove to YOU that it is possible to make money on-line. Why?

Because I want you to start a part time business to increase your income. Why?

So that you can invest at least 50% of that extra income to accelerate your savings plan. Why?

So that you may eventually become rich!

So, I’ve found a ‘promising’ candidate … if this doesn’t work, then I’ll just have to come up with my own idea, I guess …

It’s a glossy-looking, well put together web-in-a-box diet program. I guess that it’s designed to pull people into an affiliate program for a so-called “World-Famous TV Lady Doctor“.

Is this as scam? Probably

Do I expect to make any money out of this? No.

Then why? Because I’m hoping (in the unlikely event that it’s not a scam) to at least make a ‘little money’ to show that it is POSSIBLE to make money on-line … to prove that it’s at least possible.

If this doesn’t work (which, I’m fully expecting!) then we’ll go to Plan B …

OK, so here goes; the site says to take the following steps BEFORE signing up (well, putting up some roadblocks before asking me to hand over money is a good sign!):

A) You will need a domain!

We recommend http://GoDaddy.com Once you’ve secured a domain (or if you already have one) you will point it to your webspace!  

B) You will need webspace (i.e., hosting).

 We recommend http://HostGator.com They have 24hr Support — so if you need assistance at anytime, they’re there to help you PRONTO!  

C) You will need a ClickBank account — don’t worry, it’s Free!

 Just go here to grab it N0W! … http://tinyurl.com/   

D) You will need an Autoresponder — Here’s the BEST one on the Net with 98% successful “deliverability!” …

http://AWeber.com

And once you have all those things (which altogether probably will cost you less than $50 bucks!) you just need to click here to order now for JUST $397 (1-time payment ONLY!): 

…. that’s it …. wish me luck! I’ll keep you posted …

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Making Money 101, 201 and 301 principles applied to your business!

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Writing this blog sometimes puts me on mailing lists that I don’t recall subscribing to …

But, I am usually pleasantly surprised by what I see (if not, the <delete> key is a quick’n’easy solution) … so, I am usually quite happy to see some ‘surprises’ in my in-box (please don’t send me Viagra ads or other spam!).

An example of a ‘pleasant surprise’ was an article from Leigh Ann Rodgers of Creative Business Workshops called “Where does your business stand financially?” In it she said:

 In February when I pulled together all my financial information for taxes, I had an “ah ha” moment. I spent too much on my business last year! My profits would have been much higher if I had been more conscientious about my spending.

 Aha!

Here is how you should look at your business …

… exactly as you would yourself!

That means that your business also goes through three stages:

Making Money 101 – where your business is struggling to get ahead; not making as much as it should.

You need to apply exactly the same money-saving and budgeting techniques as you would for yourself. Here is what Leigh Ann recommends:

It hit me like a ton of bricks, that I need to apply these same [Making Money 101] principles to my business. I need to budget each month and only make purchases that I can pay cash for. I must admit that I have sometimes been a little loose when making purchases for my business, rationalizing that I could “write it off.” Now, I am thinking about every penny I spend.

 I agree … 99%.

But, you should NOT be stingy about any expense that DIRECTLY helps you grow your business (that means that you can track the $1 that you spend today to at least $2 to $3 earned within your current financial period, say, no more than a few months to a year).

Because it is this thinking that will take you into:

Making Money 201 – where your business is doing better than breaking even … now it’s full steam ahead!

You are saving money and watching costs, sure. But, you have realized that there is something that you can – and should – be doing that produces a far better result than mere cost-cutting …

… that is, accelerating your income!

 Why?

Cost-cutting is limited in scope … you can’t cut more than 100% of an expense.

Income-earning is unlimited in scope … the sky – nay, the stars – are the limit!

But, when the income is the greatest, you need to watch your costs even closer because bad habits – leading to hidden gotcha’s – creep in.

It is the Making Money 101 habits that will help you survive the increasing drain on your cash-flow that uncapped growth can bring.

If you do, may be one of the lucky ones who ends up in:

Making Money 301 – that idyllic stage where the business is floating in orbit, spinning off cash, controlling costs and just being … well… damn profitable!

Watch out for stagnation, though, because this is where product life-cycles wind their course, competitors come in, commodity pricing appears.

The secret to Making Money 301 is NOT to sit there for long … either:

1. Put yourself back into Making Money 201 – new ideas, new products, new markets, go off shore, become a franchisor … OR

2. Sell! 

But, it all starts with a business that survives the Making Money 101 stage … unfortunately, the odds are against you.

But, Leigh Ann has a great Making Money 101 tool to help you out:

Here is her Where do I $tand Worksheet …

Why don’t you try it out?

Making Money 201 – Going for Broke!

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If Making Money 101 could be drastically over-simplified as ‘saving’; then Making Money 201 is equally over-simplified as being about building your income.

If you were serious about getting your financial house in order quickly, then you probably already did some income building to help you pay debt off quickly while you were working your way through Making Money 101.

Unless you’re a CEO of a Fortune 500 company, or a top professional doctor / dentist / attorney / accountant, then you will need to think about starting a business.

And, to accelerate your business or professional income you may also decide to get into the business of active investing (renovating/flipping real estate, trading stocks and options, etc.).

This is the stage that you get to take RISKS (that’s why you need a solid foundation and plenty of runway … you WILL fail at least once, twice, three times …) because that is the only way to get the big financial REWARDS.

This stage is hard work!

But, it is where you actually sow the seeds that will eventually make you rich …

There are plenty of books and a few blogs around, but most of them are specific to just ONE WAY of making money … the author’s way; some are good and some are lousy.

By the end of this stage you will be earning more than 90% of the US population and will be accelerating rapidly down the runway to financial health … but, spending will also increase dramatically and you will struggle to hang on UNLESS you ALWAYS remember your Making Money 101 lessons about saving!

Paradoxically, you will be the ‘richest’ that you will ever be in your life during this stage IF to you, being ‘rich’ means being able to spend lots of money …

… the problem is that your ‘wealth’ is only based upon your income, therefore only lasts as long as your business or job does.

Also, many of the Making Money 101 rules now need to change, as do almost all of the tools ….

For example, dollar cost averaging and index funds are replaced with sensible investment and savings rules and strategies.

You are still far from ‘rich’ …

In fact, you are still Just Over Broke … but, starting to break free!

Against the odds …

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For those of you who follow this blog, you will know that a key part of getting ahead is increasing your income.

And, you will already know that I think one of the best ways to do this is to start your own business … perhaps part-time, at first, to limit your risk … and, definitely in combination with other financial strategies that I will be sharing with you over the coming weeks.

For me, the gold-standard in this area is still The E-Myth Revisited by Michael Gerber … a book that I will unashamedly admit changed by life.

But, for anybody heading down the entrepreneurial path, I equally highly recommend a book by Guy Kawasaki (ex-Apple, founder of garage.com) called Art of the Start.

Guy can also be found on his blog, where I found this interesting post, that deals with the various myths around being an entrepreneur.

The problem is that the guest author is an academic who uses ODDS to establish that some types of businesses are better than others, and to suggest that it is the type of business that you go into rather than your ‘entrepreneurial ability’ that determines your success.

Here’s where I disagree …

YOUR odds of succeeding in any business venture are exactly 50/50 … either you WILL or you WON’T succeed!

Obviously, that makes no MATHEMATICAL sense, but going into business rarely does.

That’s why the rewards for those who DO succeed can be so high. If it were easy – and if success was GUARANTEED – we’d ALL be doing it!

For example, we intuitively know that the ODDS of being a huge success are so small in, say, sandwich shops.

In fact, the article suggests that the odds of mega-success in that type of business are 840 times smaller than starting, say, a computer business.

Yet, who wouldn’t like to be Mr Subway, Mr Quizno, Mr Togo, or Mr Potbelly?

I’ll even put up $1,000 that says that each of them knew EXACTLY what they were getting themselves into when they started out.

But, somewhere along the line each and every one of these entrepreneurs … in fact, EVERY SINGLE SUCCESSFUL ENTREPRENEUR IN HISTORY … simply said: “screw the odds”.

Having done some ‘odds screwing’ of my own (a number of times, with great success) over the years, I humbly suggest that you do, too.

Please let me know how well you do …

How much should you take out of your business?

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This is one of the most difficult questions if you are a business owner and, like most business owners, it is your primary source of income.

You might say, of course it’s your primary source of income .. that’s why I’m in business! But, that is the fallacy that we will be exploring in upcoming posts.

For now, let me tell you about a conversation that I had with a friend over dinner last night:

My friend said that he had a friend who owned a payday lending business – sounds a bit unsavoury to me, but generates mountains of cash for him.

My friend’s point was that this guy would admit that he’s not very smart, but has a very simple system for dealing with the $3 mill. that his business spins off every year:

1. He gives $1 mill. to Uncle Sam

2. He invests $1 mill. (my friend didn’t ask where or how)

3. He spends $1 mill.

Simple!

But, it’s also wrong …

What would happen if the business had to close down tomorrow (e.g. change in government regulation)?

Unless this guy had managed to save $20 mill. to $40 mill. he wouldn’t be able to keep up a $1 mill. lifestyle (common wisdom says that you should only withdraw 4% from your portfolio every year … I say about half that) …

I believe that it is 10 times HARDER to go backwards in your life (in the event of a financial disaster like if this guy’s business had to close down) than taking a slower run-up in lifestyle in the first place.

This is what I did:

I always drew a minimal salary and tried to live at the median level of the circles that I moved in (for me, this was upper-middle-class college educated professionals).

When my businesses started throwing off more money than that, I invested EVERY penny of the rest, in my case mainly into: (a) reinvesting in the business to expand it, and (b) opening new businesses (3 more), and (c) passive real estate investments.

As I built up equity in (c) – I ignored the ‘value’ of any business until I sold it – I used my ‘divide by 20 – 40 rule’ to decide how much I could spend each year.

Maybe my friend’s friend should have given $1 mill. to Uncle Sam, spent $250k a year to start off with, and invested the rest?

Maybe, after a few years, if financial disaster struck it wouldn’t matter any more what happens to his business …