Reinforce Your Business Finance Model for the New Year

There are many easy ways to borrow money for your business. Sadly, not all are wise. Many businesses that are large resort to government help when they fail. They ignore the fundamentals that caused their business to fail. It is important before negotiating a loan that you understand how to pay it off. One of the greatest in business, Warren Buffett, gave a simple rule to transform your business financially. Love what others avoid, and avoid what others love.

What are the businesses around you loving? Things such as easy, quick, USA, Europe, debt, high prices, high profit, quantity, Facebook, selling, practical, friendly, popular, legal, talking, white collar, office, deception, or domestic. All of these behaviors have a lot of competition, because they are what your peers are doing. If your business does these things, you will lose out to the competition, and likely need to go deeply into debt to just survive.

Buffett’s rule for success is to avoid these popular things. What is the opposite of these common business behaviors? Things such as hard, slow, China, India, save, low prices, low profit, quality, Baidu, buying, imaginative, tough, unpopular, questionable, listening, blue collar, outdoors, honesty, or international. These qualities are more unpopular, so they will have fewer competitors. If you model your business around what other people are avoiding, you will potentially have far better income. Buying low, and selling high is the path to sure riches. The best businesses take what people are avoiding, and convert it into something that people are hungrily loving. A good example is the iPhone. Manufacturers were eagerly avoiding going overseas for their electronics fabrication because of uncertainty and racism. Apple chose to break that trend, and had the Taiwanese manufacturer Foxconn fabricate the iPhone for cheap. They then shipped it to the USA and turned it into something popular that people bought obsessively.

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Apple became one of the world’s largest companies. The quick way to become a poor company is to do what everyone else is doing, and then translate it into something that no one wants, or that everyone is doing. You will barely break even.

Think of your company as a function in math. It takes something that is unpopular, and translates it into something that is popular. You will profit immensely if you buy unpopular things and turn them into popular things.

If you are in a tight spot looking for a loan, make sure that you research how you are going to pay it off. What is your company currently doing wrong that requires a loan to begin with? Many companies buy something popular and turn it into something popular. Or they buy something popular and turn it into something unpopular. If either of these things describe your business, this can show you why you are not succeeding financially. Make the buying part of your business something unpopular. This lowers the expense for your financial statement. Creatively turn the something into a product or service that people crave greedily. A good example might be a natural pizza restaurant. They buy veggies, fish, flour, and tomato sauce, which are unpopular in and of themselves. They turn it into something popular, gourmet organic fish pizza. This type of thinking is what can put your business back on track.

The average business owner is failing because they are insisting on buying something that all of their peers are buying. They know how to sell, but they are refusing to suffer in their buying behavior. This lowers their overall profit by increasing their expenses. Do not buy a new luxury car for you company. Go for the old van instead. Do not buy from the gourmet caterer for lunches. Have your own food services department make cheap sandwiches.

To profit, you should only buy from suppliers who fabricate things cheaper and of higher quality than you can do yourself. The law of comparative advantage states that businesses and individuals profit the most when they sell what they are good at doing, and buy from others what they are bad at doing.

You might be confused at how this works for your company. Make a list of the things that your business does much better than the competition. Be honest with yourself. Think about who has been buying from you recently. After you do this, make a list of the things that you do much worse than the competition. Where are you losing out? You should be importing what you are bad at doing, and selling what you are good at doing. Again, the best and most profitable companies take something that is generally unpopular, and they turn it into something that is very popular.

The challenge in business is doing what your competitors are afraid to try. Often times, what the competitors are afraid to try is precisely where the highest reward is. The company that dares to be different will get the profits from the marketplace. The business that dares to go overseas will end up with much lower workforce expenses.