The Safety Net - Choosing The Right Hat

Tuesday March 1, 2016

Dear Nettie at The Safety Net, 

I have potentially got a great business opportunity which I believe will give me an excellent return on investment and I could really make a difference with the money that could be made in quite a short period of time.

The problem is that I haven’t got all the money up front and don’t believe I can raise it through the usual traditional ways – what would you suggest?

Terry

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Well Terry – this is a tricky one for which I will wear 2 hats, one we will call ‘the sensible hat’ and the other we will call ‘the risk hat’ – which one you wear is your business decision!

A sensible hat wearer would say 'If you can’t afford it, you shouldn’t do it'. They would probably also make a list of the pros and cons – agree it’s a great idea, but always refer to it as a lost opportunity or something that cropped up at the wrong time and still be talking about it in 5 years’ time as ‘The opportunity that could have changed the business!’

A risk hat wearer will be very different – they would say 'If the deal really is as good as you think, and you have done your due diligence, then see how you can raise the money to grab the business opportunity'.

As an example, I know of a property developer who was presented with a business opportunity; to buy a house privately at below market value with a view to selling it later at a substantial profit. The property was not in good enough condition to get a mortgage, therefore the buyer had to have cash and at the time we were in recession.

The developers decided to look at this with the risk hat on – if they could buy the property, complete the work to ensure it could have a mortgage in future, then they would have two choices. 1) Sell at a profit and get the money back or 2) Get a mortgage on the property and rent it out (the latter being the worst case scenario) – however they did not have the upfront funds.

The sensible hat wearers said they should not do it, however knowing these people as I do, they knew the bigger picture.

They disobeyed all the rules and raised the money to buy the house. Both Directors used their credit cards and savings to buy the property and renovate it; they then sold it and netted enough funds in profit to put a deposit into another development.

Is this good business advice – NO IT’S NOT, but sometimes by understanding the risk and your own business and market, you can make the decision that you are comfortable with, and so long as you have your eyes wide open to the consequences of it all going wrong, then it may be worth the risk.

Good luck with your decision and finding the right hat for your outfit.

Nettie

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