STOP PRESS: Investor Finds Bank-Owned Bargains Galore!

Posted on by
8

I am (temporarily) shelving today’s post because a very interesting e-mail arrived in my in-box last night.

 It was an e-mail newsletter from a foreclosure and real-estate listing service that I use, called RealtyTrac.

This particular article caught my eye, because I love anything that shows that real money is made when you ignore conventional wisdom; the headline read:

Investor Finds Bank-Owned Bargains Galore

“I just bought two brand new homes as REO from the bank,” said a Tennessee-based investor [Kirk Leipzig] in December. “I am buying five more new homes next week from the bank. I am buying $750,000 homes for $450,000 … This is the time to buy, and to make a killing out there,” continued Leipzig, who’s been a RealtyTrac subscriber for about nine months. “But you need to totally understand your market and educate yourself daily on your market. Then go buy, buy, buy.”

What’s most surprising about Leipzig is that he is not buying and holding – as many experts recommend in a down market – but buying and flipping.Now this really goes against conventional wisdom i.e. “housing prices are low … they can only go down … nobody is buying … you will be stuck with real-estate” …Maybe all true … maybe not … who knows? But, this guy has an answer for all of that:

“All the properties I currently buy are for flipping only,” he said, acknowledging that he always has a backup plan because of the difficulty selling in the current market. “I always buy a property now to flip, but in the back of my mind I know I can lease-option it, or rent it if it does not sell as quickly as I would like.”

I have to admit that ‘flipping’ real-estate is not in my particular comfort zone – I have never flipped anything (unless you call ‘buying’ majority share in a business for $0 down and ‘flipping’ it 18 months later for $6 million … but, that’s another story) …

However, for those of you looking to take some risk in what I would call The Business of Flipping Homes” as a somewhat risky way to make money in the short term (i.e. with a possible very large reward if you can replicate what this guy is doing) in order to then INVEST the excess proceeds into your long-term INVESTING (i.e. buy and hold) strategy, this just may be worth considering?

Whether you try and replicate what this guy does, in your own market, or try something else entirely different in the real-estate field “you need to totally understand your market and educate yourself daily on your market” …

… then, don’t just sit on your thumbs along with the rest of the herd … do as this successful business person does: go buy, buy, buy!

Add to: | blinklist | del.cio.us | digg | yahoo! | furl | rawsugar | shadows | netvouz

Most people fail financially, not because their dreams are too big, but because their dreams are TOO SMALL.

Posted on by
12

How should you plan for your financial future? 

Conventional thinking says to look at your current salary then it says that in retirement you need some larger-or-smaller percentage of that salary to live on – some people say that you need just 50% to 70% of your pre-retirement salary in retirement … others say 100% to 120% – hence you need a certain lump sum invested in a certain way to produce that weekly or monthly withdrawal.

Now, this may produce the RIGHT result for SOME people, but I believe that any resemblance to what MOST PEOPLE would want to retire on is purely coincidental.

Here are two examples – obviously extreme – to illustrate:

1. Less is more

Let’s say that you like surfing … in fact, if to surf every day and just ‘be one with the waves’ is your Life’s Dream, then, I say “go for it!” …

… Go ahead and cash in your 401k and other assets now, move to Byron Bay (Australia) and you can pretty much live the rest of your life on the beach, living off government handouts.

Plenty of people are happily living this ‘dream’ right now …

Requirement: 0% (give or take) of your current salary

2. More is more

In 1998 I had the audacity to imagine a life where I could be ‘free’ to travel physically, mentally, and spiritually … I costed this life in terms of:

(a) Time – I would need to retire within 10 years so that I would be free to travel where and when I liked,

And …

(b) Money – I would need about $250k a year in PASSIVE INCOME, indexed for life … my dream didn’t say that I couldn’t travel Coach!

The only problem, in 1998 I was running a struggling business employing 5 people, losing $5k a month, $30k in debt, drawing only $50k a year, and my wife still had to work … what’s more the business had been running that way for 5 years!

Requirement: 500% (give or take) of my (then) current salary

The outcome for me was positive (I didn’t just pick the name of this blog out of thin air!), I firmly believe BECAUSE I had a Big Dream. My challenge is now to shift from aiming towards it to actually living it.

But, the point here is that your LIFE should dictate your finances, not the other way around … dream first …

… only then, financially plan accordingly.

Add to: | blinklist | del.cio.us | digg | yahoo! | furl | rawsugar | shadows | netvouz

Maybe Dale Carnegie was on to something?

Posted on by
9

In his famous book, How to Win Friends and Influence People (first published in 1936), Dale Carnegie – the great public speaker, personal improvement trainer, and prolific author – showed that success very much hinges on your ability to ‘influence people’.

In fact, as I think back, my greatest successes have been with people who have liked and admired me … and my greatest challenges have been with those who haven’t.

You can invent the greatest mouse-trap in the world, but nobody will beat a path to your door if they smell a rat 😉

This is Dale Carnegie’s summary of his own book; apply some of these ideas and you will succeed in life.

Remember, no matter what you do other people are the key to your success:

Part One

Fundamental Techniques in Handling People

  1. Don't criticize, condemn or complain.
  2. Give honest and sincere appreciation.
  3. Arouse in the other person an eager want.

Part Two

Six ways to make people like you

  1. Become genuinely interested in other people.
  2. Smile.
  3. Remember that a person's name is to that person the sweetest and most important sound in any language.
  4. Be a good listener. Encourage others to talk about themselves.
  5. Talk in terms of the other person's interests.
  6. Make the other person feel important - and do it sincerely.

Part Three

Win people to your way of thinking

  1. The only way to get the best of an argument is to avoid it.
  2. Show respect for the other person's opinions. Never say, "You're wrong."
  3. If you are wrong, admit it quickly and emphatically.
  4. Begin in a friendly way.
  5. Get the other person saying "yes, yes" immediately.
  6. Let the other person do a great deal of the talking.
  7. Let the other person feel that the idea is his or hers.
  8. Try honestly to see things from the other person's point of view.
  9. Be sympathetic with the other person's ideas and desires.
  10. Appeal to the nobler motives.
  11. Dramatize your ideas.
  12. Throw down a challenge.

Part Four

Be a Leader: How to Change People Without Giving Offense or Arousing Resentment

A leader’s job often includes changing your people’s attitudes and behavior. Some suggestions to accomplish this:

  1. Begin with praise and honest appreciation.
  2. Call attention to people's mistakes indirectly.
  3. Talk about your own mistakes before criticizing the other person.
  4. Ask questions instead of giving direct orders.
  5. Let the other person save face.
  6. Praise the slightest improvement and praise every improvement. Be "hearty in your approbation and lavish in your praise."
  7. Give the other person a fine reputation to live up to.
  8. Use encouragement. Make the fault seem easy to correct.
  9. Make the other person happy about doing the thing you suggest.

Sound advice from one of the 'soundest advisors' of all time ... just wish I had paid attention sooner ... I would have been sitting on the beach, sipping pina-coladas 10 years earlier!

AJC.

Add to: | blinklist | del.cio.us | digg | yahoo! | furl | rawsugar | shadows | netvouz

"I noticed you have incredible traffic for a 3 month old blog!"

Posted on by
19

blogrdoc 

This was a comment that I just received from a fellow blogger …

I didn’t know I had any ‘fellow bloggers’, but bloggers seem to have an ‘unofficial’ fraternity … so, I guess it’s kind’a nice to be part of a ‘group’ even if I didn’t set out to do so.

I have been communicating off-and-on with one particular fellow blogger that I only know as the mysterious  blogrdoc (that’s him in the picture!) ever since he left me a rather ‘flattering’ comment on one of my earlier posts:

I’m sorry, but if you made $7M, you would *NOT* be running a blog.

I immediately knew that I would like this guy!

After we got to ‘know each other a little better’ through a series of comments and e-mails, blogrdoc asked me a question that I thought I should share with you all:

I wanted to get your opinion on something. I’d *like* to make 7M in 7 years. Do I *necessarily* need to assume a lot of financial risk to do this?

No … blogrdoc … you just need an awful lot of luck 😉

You also need to take at least some risk and put in an awful lot of sweat … it’s just that the risk doesn’t need to be financial, and the sweat can be a little less or a lot more depending upon how quick you want to become rich (and how much ‘rich’ means to you) …

Let’s look at it this way:

If you want to make $1,000,000 in 20 years, just buy a house and keep up the payments and … wait.

Guaranteed millionaire!

If you want to make $7,000,000 in 7 years you need massive passion/action – and, a little (or a lot!) of luck – to get it …

But, if you want to end up somewhere between the two, then we can talk turkey.

First, here is blogrdoc‘s plan:

My Strategy is a multi-layered approach and will include: 1. Blog/Ad based revenue (for starters, I am aware that this is extremely difficult to monetize. Particularly for me since I don’t have too many connections. 2. Several product based revenue ideas. May file for a patent then license. 3. ???

Blogrdoc has hit the nail on the head … these are excellent Making Money 201 strategies:

1. Blogging may not make much money, but it may bring in some (at least 50% of which should go towards your Investment Plan) … the more money it brings in, the shorter the time to the ‘end game’.

2. But, blogging also brings those ‘connections’ that you need to make your life a success … this is just a new twist to an old game called ‘networking’ … it’s not what you know, but who you know that counts.

3. Product based ideas become businesses … businesses (with a lot of hard work, and a little luck) become income … income becomes fuel for your Investment Strategy and we are back to 1. … the more money these businesses bring in, the shorter the time to the ‘end game’.

Now, here is where I think the people who have taken the time to read this whole post get their reward:

In none of these cases am I anticipating putting more than $10k or so at risk. My main concern is that I’ve got a family and I just don’t have the stomach to put too much at risk. I can’t just leave my day job or anything like that. Do I have a chance? Am I looking at this all wrong?

No, my friendly-neighborhood-bloggerman, you are doing this all RIGHT!

Even THE Guy Kawasaki (Apple co-founder; founder/ceo of Angel Investing firm) started his last two successfull online ventures (including Alltop) on something like $10k each … I am into three right now, with a max. of $50k committed to each.

Here’s the low-risk (but, not no-risk) way to reach your financial goals … for any blogger and/or just-starting-out business person out there:

… I can’t promise that this simple plan will make you $7 million in 7 years (first, you have to really need it to get it … just wanting it won’t cut it), but it has a better-than-even chance to make you more money than you ever thought possible:

i) Maintain your Making Money 101 habits: pay yourself first (you know, that “10% into your 401k” thing); pay down your consumer debts (car loans, c/cards, etc.); buy your own house (better yet, buy a rental).

ii) Accelerate your income: Use any excess cash from your job, your side ventures (e.g. ‘starbucks experiment’), tax refund checks, anything that helps you to build up little pots of investment capital.

Hint: that does NOT include anything in (i) … never ‘gamble’ with anything you cannot afford to lose … and you cannot afford to lose your savings or investments … ever!

iii) If you want to get rich slower, simply add these ‘pots’ from ii) to your Investment Plan … if you want to ‘roll the dice’ and take, really, only a little extra risk to (maybe) get rich quicker, use these little pots of investment capital to fund your ‘product based revenue ideas’ and fund those patents.

Warning: this money has to come from somewhere … it will probably be the same money that you used to use for vacations, new sunglasses, baseball tickets, fancy dinners … you know. ‘stuff’ that you couldn’t possibly begin to do without 😉

iv) Starting more than one venture part-time (not necessarily more than one at a time, though) is exactly the kind of ‘controlled risk’ thinking that I like … just make sure that you have your ‘end game’ in mind right from the start (who are you going to licence those patents to? Who is going to buy those ‘micro businesses’ that you spin off).

v) Until the income from one of these ‘side ventures’ makes it seem stupid for you to do otherwise (you will know when this time comes), by all means: keep your day job and keep feeding your family!

vi) If you work hard, delay gratification, stay innovative, keep investing, get lucky, and keep those Step (i) Money Making 101 habits in place the whole way through, you probably won’t need $7 million to do whatever it is that is in your Life’s Dream … but 7 years should be just about enough time to get there.

Good luck to blogrdoc and all of the other Personal Finance (and other) bloggers out there …

… indeed, good luck to anybody who is reading this in order to break out of the pack. Hopefully, by following the advice in this post and others, you’ll need a little less of it (luck) to succeed!

Add to: | blinklist | del.cio.us | digg | yahoo! | furl | rawsugar | shadows | netvouz

Devolving the Myth of Income … Part II

Posted on by
13

In Devolving the Myth of Income … Part I we explored the following question: “what’s your definition of ‘rich’ … would being a highly-paid professional (such as a doctor) or a high-flying executive (such as a high-tech sales rep) earning megabucks-per-year do it for you?”

Today, I want to finish exploring this subject by looking at question recently posed on Networth IQ a web-site for people to track (and discuss) their own Net Worth.

The question was posted by mario  (you may need to register and log-in to see his Networth IQ Profile):

Like many Americans, I have a great deal of equity in my home, built up by “trading up” over the past 20 years. At this point I have over $2M of equity in my home, which represents two-thirds of my overall net worth. While this is all good, I am starting to feel like this flies in the face of my diversification goals; how can I consider myself diversified if I have 66% of my net worth tied up in one piece of real estate? I would sell the house in a minute except for the tax consequences. Does anyone have a strategy other than selling?

Here is a guy with a high-flying sales career, earning more than $250,000 a year and he’s less than 50!

He also has a house worth $2,000,000 …

…. now, you could be describing me!

But, there’s only two differences:

1. If I choose to stay in bed tomorrow … that’s OK. Stay in bed the next day … fine. The day after, the day after … it doesn’t matter. Even if I never bother getting out of bed again … the money keeps rolling in.

2. I can afford my $2 Million house, my Maserati and my $250,000 a year lifestyle!

Let me explain …

In a recent post I wrote about the Fisherman and the Investment Banker; ‘Mario’ is the Fisherman, I am the Investment Banker … what happens when Mario’s ‘fishing career’ stops?

When Mario stops, his income stops, and he can no longer afford his lifestyle. This is mainly because, Mario’s Investment Net Worth is much lower than his Notional Net Worth.

Here is what the Mario’s of this world – that is, those with high-flying corporate jobs and those in high-income-producing businesses (and there are plenty of both!) – need to do to ‘bullet proof’ their lifestyle:

1. Stay in the habit of saving – maintain the same good savings and debt control habits and (relatively) low-cost lifestyle as I hope you had when you were starting out, because you will need these habits when the income eventually stops flowing in … that will happen when you retire but it may happen even sooner than you think.

2. Only buy as much house as you can afford – obey the 20% Rule  and make sure that you only carry enough mortgage that you can afford without compromising you savings and investing goals.

3. Revalue your house every 3 to 5 years  – whenever your equity exceeds 20% of your Net Worth (Mario!), refinance the house and put 100% of that money towards your Investment Plan.

4. Accelerate your Savings Plan– save at least 50% of non-reinvested business income, every future pay increase, bonus, tax refund check, found money (the loose change in your pockets, Aunt May’s inheritance, that lottery win … anything and everything!). Enjoy the other 50% … go ahead … you worked for it!

5. Implement your Investment Plan – Every time that your Savings Plan builds up sufficient funds, add to your investments by buying and holding for ever any mix of the following that suits your skills and interests (do NOT trade with this money … build up a separate ‘spec fund’ if you want to do that):

a) Income-producing real estate, and/or

b) 4 or 5 direct stocks in companies that you understand and would love to own, and/or

c) Low cost, broad-based Index Funds.

I prefer investing in exactly this order, simply because you can leverage (i.e. borrow more) and improve returns by selecting/managing carefully (a) over (b) over (c) … but, that’s personal choice.

This simply boils down to saving more and spending less (now) to live well and securely (later) … no matter what you income is today … delayed gratification in action!

Add to: | blinklist | del.cio.us | digg | yahoo! | furl | rawsugar | shadows | netvouz

The ONLY three ways to invest in stocks … and, some ways NOT to …

Posted on by
15

So you want to invest in stocks?

And, why not be a bit of a contrarian by getting in now … when the markets are all beat up, and there is doom and gloom around, that’s when most of the money in this world is made … so, if you do want to invest, how?

Well I covered a bit about this subject in a recent post, comparing Index Funds to ETF’s … but, I want to go into it just a little bit deeper:

First of all you need to understand what type of investor you are:

1. Are you a Speculator – living on the edge, trading stocks/options (i.e. gambling) type? Nothing wrong with that – you could be the next George Soros.

If you are, then sign up for some newsletters and courses, such as the Tycoon Report (has the added advantage of being free!)

2. Or, are you a Value Investor – buying cheap, holding for the long term type? Are you the next Warren Buffet? Obviously, nothing wrong with being the world’s richest man, either.

If you are the next WB, then buy yourself a copy of Rule # 1 Investing by Phil Town. It will tell you exactly HOW to value stocks (what measures to use) and WHEN to invest (what indicators to use).

3. If you don’t have the patience for the latter (2.), or the stomach for the former (1.), then buy yourself some units in a low cost Index Fund … keep buying … and, wait!

That’s it in a nutshell …

… but, wait you say … what about:

4. Mutual Funds – too expensive and 85% of fund managers don’t even beat the market

5. Growth Stocks – if you have no special skill or knowledge, what makes you think that you can beat the Fund managers in 4.? You can’t (unless, you are lucky … then you are really just back at 1.).

Did I miss anything?

Add to: | blinklist | del.cio.us | digg | yahoo! | furl | rawsugar | shadows | netvouz

The most important question that you can ever ask about your own business …

Posted on by
8

A little while ago a wrote a post that asked “why are you in business“?

It sounds trivial, but as I mentioned in that post, it is THE most important question that you can ask in business.

Here’s the comment to that first post that inspired this follow-up post:

I just read your post and to be honest I’ve never thought about this. There are several reasons why I am in business, but I have to admit I’ve never thought about the “end” result, let’s just say 15 years down the road. Hmmm….

So, why are you in business?

The answer, of course, is to sell it … tomorrow … eventually … or, not at all.

But, even if you choose NOT sell it, you should act as though … when the time is right … that you will sell it ….

… to yourself!

Why?

Because this kind of thinking forces you to do things with your business that you would otherwise not bother to do …

… things like setting out a clear chain of command (easy if you are flying solo … not so easy if it’s you, your brother, your aunt, and three cousins running the show!)

… things like setting out clear systems to run every aspect of the business (especially if it’s all just sitting ‘in your head’ and the ‘heads’ of those around you).

… things like pretending that you are creating a ‘franchise prototype’ and that one day there will be 1,000 more just like it …

… because, if you do, one day there just might be 1,000 more just like it!

 The difference between Subway and your local sandwich shop … the difference between Burger King and your local hamburger shop …

 Is ONE GUY who dared to imagine a larger business than the one that he had.

The difference between the McDonald brothers and Ray Kroc is the difference between two guys who had a great little business and the guy who made a multi-billion business from their little idea …

… by systematizing an already great (but, small) business!

Let me share a personal story …

In 1998, I had a little business built upon a great little idea but it had just trundled along for 5 years getting new clients here and there, growing slowly, but for one small problem …

The business was losing me $5,000 a month and I was struggling to take out $50,000 a year (my wife still had to work).
Then one day I had a vision of how my future life simply HAD to look:

1. No work (my vision required me to have LOTS of spare time on my hands)

2. $250,000 a year (to ‘fund’ my ideas … ideas that involved a lot of travel and creativity)

 Now, earning $250,000 a year is one thing – but, I had to get it with no work!

That meant that I needed about $5,000,000 sitting in some passive investments … trouble is I had no investments …

… except my little money-losing business.

That, my friends, is what drove me to massive action … to make my business somehow ‘worth’ $5 million to somebody … in 5 to 10 years!

It was this ‘massive action’ that took me to expanding my business across three countries … at the same time, building up a multi-million dollar real-estate and investment portfolio … all the while, keeping my eyes and ears open to try and quickly learn all the rules of the ‘money game’ …

Now you know how this site came to be called $7 million in 7 years.

Do you see why your future business success starts with a question?

Add to: | blinklist | del.cio.us | digg | yahoo! | furl | rawsugar | shadows | netvouz

Education – a curse or a cushion?

Posted on by
13

People often ask me what it takes to be an entrepreneur.

Probably the best book that I can refer you to is the E-Myth Revisited by Michael Gerber … it has changed many business owners’ lives (including my own).

 In it, he shakes the myth of the entrepreneur being some sort of ‘knight on a white charger’ – you know the type, like Jack Taylor, the founder of Enterprise Rent-a-Car who was a navy pilot in WWII then went on to launch Enterprise in 1957, taking it to $78 million revenue before handing the reins to his son, Andy in 1980 (it’s now a $7 billion company!)

 Here’s how Andy described his father:
 

My father was the true entrepreneurial risk taker. He was the guy flying airplanes off carriers. He did not see taking a $25,000 second mortgage to invest in a business as a huge risk, because he saw real risks being taken during World War II.

There’s no doubt that adversity makes for better entrepreneurs … adversity gives you a ‘nothing to lose’ attitude.

Contrast that with the educated middle-to-upper-middle class …

… once you finish college and put in a few years learning the corporate ‘ropes’ it’s very hard to let go of the comfortable $50k – $150k that you are earning (and that your lifestyle has magically jumped up to meet … you know: cars, toys, vacations, etc.) to jump into a business that all the odds point to going broke.

 You see, that education that we strive for, to lift us out of the middle-class, actually serves to keep us there.

Now, I happen to have a college degree, and it has served me well …

… but, after 6 years in the post-college corporate world, I was bitten with the ‘entrepreneurial bug’ so badly that I was miserable every day that I was still at work after that little epiphany (I used to LOVE my job until then).

Yet, it still took me 4 years to leave …

If I was still working, no doubt I would be well on my way to saving $1 million or maybe even more by the time I retired at 65.

 But, from where I now sit that is WAY too little WAY too late …

Add to: | blinklist | del.cio.us | digg | yahoo! | furl | rawsugar | shadows | netvouz

How to avoid being 'house rich' yet 'cash poor' …

Posted on by
6

I recently read about a very interesting predicament for a reader on Free Money Finance  – one that is, unfortunately, all too common.

 Here is what the reader asked on the post on FMF:

 To start off, my husband and I purchased our home in 1987 for a little over $100,000…..[ her husband died after a whole series of family tragedies]……The house is the only asset I have left and the only thing I have to pass down to our children.

Now, you will need to read the entire post on FMF just to understand the tragedies that this poor woman has had to endure …

…. on top of that, she now has to face an uncertain future because their only form of ‘financial planning’ was to own their own house.

 This is an all-too-common story. In fact, I am reminded of two recent stories from my own family:

1. My wife’s mother died living on a government pension, no vacations, walked wherever she could, and otherwise penny-pinched to survive. Yet she died and left her three daughters (including my wife) a house worth nearly $800k and no mortgage!

2. My 95 y.o. grandmother (still living!) spends all of her income on supporting my mother and two sisters (all capable of working, but choose not to), struggles to pay her own bills (she had to borrow $40,000 from me to pay a Land tax bill). She gave my son a check for his birthday when we went to visit her last Christmas … the check bounced!

However, she just sold an investment property that she had held on to for many, many years (clearly, it became so run down that income was very low) for $4.5 Mill!

Kind of reminds me of the guy who lives like a miser but has a secret $1,000,000 stash of cash stuffed into his mattress.

These are examples of being ‘asset rich’ and ‘cash poor’ and, unfortunately, describes so many Americans reaching retirement age.

The solution is the 20% rule …

If you didn’t read the original post, this ‘rule’ says: have no more than 20% of your net worth tied up in your house (plus another 5% max. tied up in cars, furniture and other possessions).

That is simply another way of saying that you must have 75% of your Net Worth in income-producing assets (if you are at or near retirement age) or in a mix of income and growth assets (if you are at least 10 years off retirement).

If you are nowhere near retirement, and this will be your first home purchase … go ahead and break the 20% rule … but, reassess every year and make it your goal to build up enough free equity (that is, more than the 20% rule allows) … when you do, be sure to use that equity to invest or you will end up exactly where this post says you don’t want to be!

Having a house … and only a house … is no way to live.

Add to: | blinklist | del.cio.us | digg | yahoo! | furl | rawsugar | shadows | netvouz

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

Posted on by
9

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?

Add to: | blinklist | del.cio.us | digg | yahoo! | furl | rawsugar | shadows | netvouz