Bill Bartmann Wealth Strategies: Doing Your Due Diligence
Bill Bartmann Wealth Strategies: Doing Your Due Diligence
When you consider the wealth strategies of buying a business, there are some due diligence issues you want to make sure you have thought your way through before you spend your hard earned money. The specific things that you really want to think about before you buy a business are; why is it for sale?
This is almost an obvious question that you have to ask, and get an answer to, that you feel is credible. Why is the individual who is selling their business selling?
Dont take the first answer you hear; this is when you have the right to be skeptical. If somebody is giving you a deal that is too good to be true, sometimes they are too good to be true. Depending on the answer they give you, you get to start making your own decision from that point.
Next, ask them, what is their general perception of the industry? Your perception of the industry is probably the same as most of the customers youre going to find and track.
Even though this other business has been in business and it has some customers, Im sure your intent is going to be to increase the volume of business. Well, this industry might have a negative perception.
A classic, recent wealth strategy would be the subprime mortgage business. It was thought of as a very, very good business a few years ago, one that a lot of people got into and, quite frankly, a lot of people made money. However, in the last few months, that whole industry has really taken a beating. Now if youre trying to buy a subprime mortgage business, first of all its going to be a lot cheaper, but secondly the likelihood of you getting new, better, and different customers is greatly reduced.
So, you need to think beyond the history of the company youre buying and start thinking about the future of the company youre buying, specifically not just the industry but the business itself.
Lets use the subprime mortgage market as an example of considering the industry before you make an acquisition. You want to look at the individual company youre thinking about buying within a particular industry, and ask, is this company one of the good ones?
Is this company doing something well and right, or is the company one which hasnt done it well and right? When you buy the business, you become them. You inherit not only the business, the customers, the market, but you also become them in the eyes of the consumer.
If theyve done some evil deeds or done something that has alienated them from the marketplace, then this is going to radiate onto you. We have all driven by places that say under new management. Why do you think theyre saying that?
Its a pretty clear signal that the old management didnt do a very good job, and they want the marketplace to know that somebody new is in town, somebody new is running it. Isnt that a waste of advertising? Isnt that a waste of your hard-earned dollars? You can change peoples opinion over the course of time, but wouldnt it be better to buy a business where you didnt have to change anybodys opinion, where they already liked you and they had a good reputation in the community? Of course, it would. These are things you need to find out in the course of your due diligence.
Whats the long-term outlook for the business in the industry youre now deciding to buy a business in? Is the industry at its height and soon to fall off? Remember the dotcom bust? Remember how all these companies rushed in and everybody who had a dotcom behind their name was an instant expert and could make a lot of money? Well after awhile, the market got saturated, and whenever that happens, it comes down the other side.
You need to think about where is this business and industry in the market trend? Where is it on the rise? Where is it on the decline? Im not saying you shouldnt buy a company on the decline, because you can and sometimes thats where some great bargains are, but youve got to know the difference.
The only way youre going to know the difference is if you do some homework and some research. Next, whats the competition? Whats the competitor doing in your neighborhood, in your community, in your city, in your market? Youve got to really understand that. Are they increasing or are they decreasing? Are there more people coming into this business than there was a year or two years ago, or are there fewer people coming in?
Right now in the United States, the real estate market is suffering quite a bit. For a lot of savvy investors like Bill Bartmann, that is a great time to come into a market because the competition is reduced. Conversely, even a year or so ago, the market was on the absolute rise, which would have been a really tough time to get in because youre going to be competing with everybody and their brother.
The next item is; how has the product line changed in the company that you are looking at acquiring? Are they still doing the same thing the same way? Are they still making the same product they have made all of their life? If so, do you really think that product has much of a lifespan left? Some products last a very long time; most of them, however, dont. Most of them run a lifespan and then fall off. So even though the company youre looking at acquiring may have a great history, you cant assume thats going to continue.
Do your own research to find a basis to believe that the market will continue. In Bill Bartmanns case, he doesnt want it just to continue, he wants to have some optimism that its actually going to increase, rather than just hold its own.
The next thing you want to consider in the due diligence scenario is that you want to go out and interview some of the customers. That may sound awkward and may sound like a lot of petty stuff, but its crucial.
If you can talk to five or ten of the customers who buy products from that company, youre going to learn a treasure trunk of information. Now most companies who are selling are going to be a little reluctant to share their customer list with you because theyre going to be afraid that if you decide not to buy the business, you would then know who their customers were. Then, you would be able to solicit and take their customers away from them.
So, they may ask you to sign a non-solicitation agreement and thats okay. Its just part of the bargain youre going to have to make. You want to sign an agreement that says, Youre going to share with me the list of customers before I make the acquisition, and for the purpose of me interviewing them. Im going to talk to them and see what they will tell me, and if I decide not to buy your business, I promise not to solicit them for my new business.
Conversely, you may find out some things that are going to make you run away from this transaction, so be a bit leery as to the names this company is going to give you. Its an old endorsement trick that theyll only give you the names of the people who are going to say the right thing from their point of view.
What you want to be able to do is pick names randomly. You want to be able to go to their books and records. You want to review the accounting records of their customers and scroll down the names and decide which five or ten to contact. That way, it will be absolutely random. Then, what you find out from these people is probably going to be generally true and accurate for all of the customers across the board. Most sellers are going to pucker up a little bit when you ask them to do this, but insist on it because its really important.
Due diligence is preventive medicine. Its doing things in advance of a transaction to make sure that everything stays smooth and orderly through the life of the transaction. If you take the easy way out, you might win. You might get lucky. Maybe nothing bad will happen, but are you willing to gamble that? Are you willing to risk making the investment of a lifetime, and be so cavalier about it that you didnt do some of the homework? Thats pretty expensive gambling. Youd be better off to go to Las Vegas and put it all on red, and nobody in their right mind would do that. Take it from Bill Bartmann who has taken his own advice in the real business world, and pay attention to all of these due diligence tips and wealth strategies. They will save you a ton of money.
by: billbartmannopportunity
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