Whether Buying or Selling a Business You Can Learn Something From Warren Buffett

I want to talk about two issues both of which emanate from renowned investor Warren Buffett which are great lessons for both prospective business buyers and sellers.

Lesson For Sellers:

The annual Berkshire Hathaway meeting was held in Omaha, Nebraska last weekend. About 25,000 faithful showed up to spend time with Buffet and his business partner Charlie Munger in what has become a love-fest with the brilliant investors and somewhat of a pilgrimage for the shareholders.

The thing I find incredible is that Buffett and Munger spend most of the time answering questions from shareholders. These are not rehearsed questions or ones that have to pre-approved. They’re straight from the floor and I’m told Buffett doesn’t dodge any of them. It is just great to think that the world’s richest man is completely open with his shareholders and devotes the majority of the meeting to their questions.

(By the way, if you really want some great reading, get a copy of the Berkshire annual report to shareholders – it will be some of the best, down-to-earth company insight you will ever read. Here’s a list dating back to 1977 http://www.berkshirehathaway.com/letters/letters.html)

The Berkshire meetings have followed this question and answer format for years, regardless of the company’s performance. In Buffett’s eyes, the company belongs to the shareholders and more importantly, every question deserves a response – there are no secrets at Berkshire nor do they feel the onus is on the shareholder to dig through the minutia like some public companies do to uncover the really story.

On the other hand, The Office Depot annual meeting was held last week down the street from my office. That company is getting hammered on all fronts yet I was told that  their CEO would only take pre-submitted questions, with strict time constraints….something is definitely wrong with the process here don’t you think?

It reminded me of the countless interactions I’ve had and have been party to with buyer clients over the years with business sellers. I always laugh when sellers or their intermediaries are apprehensive about having meetings or disclosing pertinent data, even to qualified buyers until an offer is submitted. Or, when questions are deferred with the response: “you can look into that during due diligence”.

If anyone could substantiate not answering questions, it would be Warren Buffett yet he is always an open book (and quite engaging) with his shareholders. I figure that if he can spend two days answering shareholder questions, then no seller is immune from the same process.

Lesson For Buyers:

When asked about the recession he said: “I would define that as a situation where people are doing less well than they were three months, six months or eight months earlier and most businesses find themselves in that position too.”

Talk about removing the economic and political BS we constantly hear and putting it into plain English.

He was also very direct when stating that his company is NOT in the business of predicting the economy…if he was, he said he would invest in the S & P futures market and not businesses.

Buffett’s long-standing take on business success is VERY simple and so critical right now. If you’re running scared finding every possible reason not to buy a business because you’re worried about the economy (make sure you read my prior blog about the recession at: http://blog.bizquest.com/2007/12/recession-what.html) and be sure to follow Buffett’s decades old PROVEN formula to create enormous wealth:

Step 1: Turn off the stock market
Step 2: Don’t worry about the economy
Step 3: Buy a business not a stock
Step 4: Manage a portfolio of businesses

So there you have it - solid advice that has worked for Warren Buffett. If you want to buy a business, focus on the long-term, not the immediate newsworthy trends. If you’re selling, get everything on the table, warts and all,  and make the process transparent for everyone.

Comments

[ZipDrugs Legal Online Pharmacy]

Interesting insight, but i think it is hard to turn off the economy when buying a small business since a lot of them are very dependent on the general economy.

[Richard]

There's a larger, more important issue at hand here. There will always be ups and downs to the general business climate over time and certainly, not every business will be impacted either way. The main point however, is that regardless of the economy, a long-term view of business ownership must be taken. For those buyers who set aside all their plans and completely abort the project because of the economy, well chances are they're not cut out to be business owners altogether. On the other hand, the true entrepreneur understands that there's always an element of risk but they manage it. That's not to say one should be reckless. Rather, the strategy should be to understand each opportunity and recognize the ones that despite the overall economy, can be sustained near term and grown over the long term.

[Website Business Broker]

Richard,
I have to have both sellers and buyers I deal with reference your blog here - this is great objective sound thinking - I sold a little ecommerce business in early 2002 because I was a bit burnt out but also because of the uncertainty of the economy after 9/11. While I did pretty well - that business went on in the first year to triple sales revenue and became the foundation for a Top Internet retailer and Inc 500 company - Netshops!
I deal with buyers and sellers all day and it is interesting to listen to the mixed perceptions about the economy - some are a bit anxious while others see it as an opportunity - the latter having the long term vision liken to The Warren Buffets of the business opportunity world.
David Fairley