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Guaranteeing a Specific Return on Investment, When Buying a Business

March 25, 2013

We recently saw a notice from an individual attempting to obtain funding for starting up his own business, which stated:  “…need an investment of 100k i will guarantee a 150k return within 18 months…”

Aside from this person’s lack of proper English in his post, (see our comments about the quality of your presentation at https://combrokerbusiness.wordpress.com/2012/04/18/do-you-come-off-like-an-amateur/) the fact that he is GUARANTEEING a dramatic return in a short period of time is the kiss of death in business, for two reasons.

First, with that kind of offer, the only thing that would be guaranteed is that only scam artists and other people who do not really have the ability to help, will respond.  No responsible person will take this kind of invitation seriously, because it is not a routinely, reasonable Return on Investment (ROI).  Note, we do not say that is can NEVER happen:  There are situations where a responsible person might respond; and there are some cases where that kind of ROI have been realized.  But they are about as routine as hitting the Powerball for $320 million – which happened, just days before writing this post – with the odds against success at roughly 175 million to 1.

People that are willing to offer assistance of $100k, are normally going to want to know things like, what the heck is the business in question?  Is there a Business Plan?  Does the writer of that post have Experience?  Investors, believe it or not, are not stupid!  They do not shell out money to people who do not know what they are doing, and they do not routinely answer anonymous posts on the Internet to people who apparently cannot communicate effectively.  This is how those people got the money they would normally lend:  They are careful, discriminating in their business judgments and do not contact people that would seem to have no idea about how to properly and professionally attract their attention.

Second – and this relates directly to the theme of acting responsibly – using a blanket “guarantee” is one of the most irresponsible things that writer can do!  An Investor is going to want to know that his/her investment is handled by a responsible person.  To offer a general guarantee is absurd.  Certainly, the individual making the offer can limit his guarantee before actually taking any funds from an Investor, but the damage has already been done.  The Investor could well, potentially try to hold that writer to his original claim of a guarantee; or, the writer could be accused of misrepresenting the offer from the beginning, and alienating the Investor.  From the Investor’s perspective, if the writer has lied about the guarantee, what else has he lied about?  When is he telling the truth, versus when he is simply “exaggerating” everything else he says.

You only get one chance to make a good, first impression.

Is that writer a legitimate business person, sincerely attempting to start his own business?  Who knows?  Any time someone offers outrageous claims for a huge ROI in a short period of time, most investors smell a scam.  (See our post on this issue: https://combrokerbusiness.wordpress.com/2012/06/12/scams-in-buying-and-selling-businesses/)   Our bet is that no one will get close enough to that writer to find out.

Moreover, if that individual is serious about his guarantee, if he truly believes he can deliver, he is one, dangerous guy with which to do business!  To offer a guarantee without limitations is to create a further opening for incredible liability, if the terms of the offer cannot be met.   If it is such a lock, why is there no bank involved?  If it is so certain, why is it that the writer’s family and friends would not back him?  Why go on the Net?  No Investor wants his money put in jeopardy with a person who cannot understand accountability, and therefore put the investment funds at risk in silly, fundamentally flawed ways.

And how would he guarantee the investment?  Exactly what is he pledging to support that guarantee?  Suppose a tornado hits and destroys the business plans?  Suppose he took sick and was not able to meet the short timeframe he specified?  How many variables can play into either the amount promised, or the amount of time he designated for the payout?

Investors understand the absurdity of that kind of claim, and they avoid them like the plague!  Responsible Investors want to work with other responsible business people.  Making claims that are outrageously boastful, exaggerated or unreasonable are not the mark of a responsible business person.

(Receive in-depth, personal consulting online, with The BAF Group’s principal at https://clarity.fm/donaldbarrick .

The BAF Group LLC is a full service Business Brokerage, with a history of more than a decade of service. Its Principal Broker possesses 25+ years of Business Sales and Divestiture. Although most of our work is involved in the Mid-Atlantic States, we have represented Sellers and Buyers throughout the Continental USA, and a number of overseas Buyers, as well. Some of our listings and additional information about us can be viewed at www.bafgroup.com. Thank you for your interest.)


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