Investing Wisely in Business
- Like Livermore, Zweig and Buffett

As a small business advisor, I meet people on a daily basis who want to leave their employers and start their own businesses. One of the first things I usually tell them is something Warren Buffett is fond of saying:

"With few exceptions, when a management with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact."

The significance of this statement still seems to be lost on a number of would-be entrepreneurs whose business plan revolves around opening a shop or buying an existing shop. Unfortunately, with few exceptions, the traditional high street is dying as a place to go shopping and the Internet has been its executioner. Malls can be slightly more attractive but the competition can be fierce.

In buying a business, you should always be looking for a business where you will be able to swim with the tide rather than fighting it in a stubborn attempt to make money in a dwindling market.

I find that a number of stock market gurus, like Buffett, give good advice aimed at stock market investors that applies equally to individuals hoping to buy a business. Jesse Livermore, a famous speculator, said that the big money was to be made by catching the major trend - and by avoiding/getting out of any investment that wasn't moving in the right direction.

Meanwhile, Martin Zweig, who persistently produced the highest risk-adjusted return of any market advisor in the USA made his money by "staying in tune with the markets and not trying to fight them."

My advice to people who don't want an online business is to open a business that cannot be replicated on the Internet - such as a hotel or restaurant. Don't buy a restaurant as your first move - this ties up a lot of capital. Lease one and see if you can make a success of it. If you must buy, here are some tips from the BBC about raising capital. If you can, you can buy premises at a later date if that's what you really want to do. In buying a hotel, make sure that it truly will justify the capital you're proposing to spend on it. Imagine that you would have to take out a loan to pay the whole cost. Add 50 percent to whatever interest rate the bank is offering you as loan and calculate your repayments on this basis. Will the income from the hotel pay this interest bill and, after all other deductions pay you a decent wage? If not, walk away - unless you see a clear-cut way to improve the hotel's profitability.