We have been getting more cases this year involving people with plenty of cash who want to get a better return than a savings account and with less risk than the stock market. Ironically they are moving to private equity deals.
1. They want to be a 100% investor with no other financing. So much for minimizing risk.
2. They believe that they can succeed if they buy an owner-operated business that involves knowledge and experience that they do not have.
3. They do not comprehend that amortization of the asking price of the business for sale will take all of the profit and maybe more.
4. They do not question financials with declining sales and increasing gross margins even though the product mix has not changed.
5. Some have the view that hyperinflation is on the way and they will have large absolute dollar profits to offset their investment in today’s dollars.
All of these risk factors need to be considered as being a threat to sustainability.
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