This is what he would look for in your business if he was going to buy it:
1. Do you have a consumer monopoly or toll bridge e.g. are you the Coke brand of your market or are you
the only “newspaper” in town.
2. Do you have consistent, steady and increasing earnings (net income after all expenses on the profit and
loss) over time (10 years) …
3. Do you have a high (20% or greater) return on equity (take all of your assets in the business, minus all of
your liabilities equals your equity) … divide this equity by your earnings … this will give you your ROE …
you can do this for your last year of earnings and also your average for the last 10 years … do for each of
the last 10 years … what is the trend and do you have greater than 20% or slim.
4. Do you have the ability to reinvest those earnings into the business and compound at the high rate of
return?
5. Each year do you have to spend heavily on retooling or repairing plant and equipment or do you have to
invest heavily in R and D?
6. What is your business worth or what would you pay for it? To find this, take your yearly average
earnings, multiply by 10 years and then discount those back to present value at a rate of 15 to 20% to find
the current value.
7. Long term debt needs to be low (this in part is an indication that you are a cash generating power-
house) … Debt to Equity should be 33% or less or you should have the ability to retire your business long-
term debt within one to two years using business earnings.
8. Good margins … both net and gross.
If you don’t have the above then you may be a business suffering from poor, underlying economics and it is time to ask yourself, how can I start looking towards investing in businesses or ventures with better economics working in their favor.
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