Do *not* pay for "blue sky"

Yes... we are absolutely interested in your $50,000 bar for sale with 3 stools and no customers.
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bolueeleh
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Re: Do *not* pay for "blue sky"

Post by bolueeleh » Thu May 17, 2018 7:02 pm

tell that to apple, google, microsoft, airbnb, uber, tesla, ................... or any company that started after people discover the "intrinsic" value of branding :D
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Re: Do *not* pay for "blue sky"

Post by LaudJohn » Thu May 17, 2018 7:37 pm

OK. So you risked your capital once and then advised others, I get it.

You have never done this in Cambodia but are the academic expert, I get it.

You have never started a business from scratch and sold it, bar a consulting business where your expertise is what you are selling, I get it.

You are an academic who loves theory over practice, I get it.

You do not consider the value of the current income stream at all.

You do not consider that with correct management and redirection a business can quickly become profitable.

How about a business I bought a few years ago in Cambodia that had never made more than costs? Not worth anything by your statements I guess?
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that genius
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Re: Do *not* pay for "blue sky"

Post by that genius » Thu May 17, 2018 8:21 pm

LJ is looking to tell everyone how smart he is again.

Come on, we'll bite, tell us your story of rags to riches, of how you started on 440, and single-handedly saved the scobienz busdev-capitalist dream

No one else's knowledge counts.

Where are you sat?* Check grammar, he's sooo smart.
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Re: Do *not* pay for "blue sky"

Post by Barang_doa_slae » Thu May 17, 2018 8:38 pm

that genius wrote:
Thu May 17, 2018 8:21 pm
LJ is looking to tell everyone how smart he is again.

Come on, we'll bite, tell us your story of rags to riches, of how you started on 440, and single-handedly saved the scobienz busdev-capitalist dream

No one else's knowledge counts.

Where are you sat?* Check grammar, he's sooo smart.
Touché! :popcorn:
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Re: Do *not* pay for "blue sky"

Post by chkwoot » Sat May 19, 2018 7:19 am

Dangerous Dave wrote:
Thu May 17, 2018 4:59 pm
Someone in a thread I started with a question recently asked why anyone should continue to answer all of my questions if I was never going to offer anything else. So here goes. Before moving to Cambodia I was a professor of Economics for fifteen years and, before that, I worked in the field of Economic Development for ten. This is the career field within which persons are tasked with attracting new business to a town, retaining and expanding the businesses the town already has, and getting people started with their business ideas -- in which capacity I had many opportunities to counsel individuals who wanted to buy someone else's existing business.

And here's the thing I learned about that: Effectively nobody who owns and operates a business is capable of fairly assessing its resale value, for the understandable reason that they are far too intimately invested in that very question. In particular, business owners *always* expect a prospective buyer to pay for not just the assets of the business, but for the "fact" of the existing customer base as well. "I've built this dingy little storefront into a $700/day retail trade," so the logic goes, "so now someone has to pay me for that accomplishment."

In my former profession this is known as "blue sky" and, as hard as it may be for some folks to accept or believe, it is *utterly* valueless.

If you are thinking of acquiring a business, you must never, ever, *ever* pay for blue sky. The value of any business takes the form of the assets being offered, net of unpaid liabilities. And in the rented-storefront-retail space, that amount is, I'm sorry to say, almost, *always* zero.

For starters, note that the existing owner is asking you to pay for his or her expertise -- *but*, hang on a minute, the whole *point* of the sale is that his or her expertise is disappearing, right? I mean, it's not like the seller is planning to sign on as an employee after you've bought them out. So in order to believe that the existing customer base is actually worth money, a person would have to cynically view the general public as so blinded by the logo on the sign that they don't even notice that the place is under new management. That might be true if we were talking about a McDonald's franchise, but it ain't even remotely true if we're talking about a sole-proprietor restaurant, retail boutique, or bar. No, in those cases, as soon as the present owner is gone, the value of the existing customer base drops to zero, precisely because there's no rule that says they ever have to come back.

But it's even worse than that, because the idea that a buyer should pay for someone else's blue sky ignores the alternate strategy available to any aspiring entrepreneur -- namely to open the exact-same business right next door. If the existing entrepreneur really was successful in building up a trade, that trade would be geographically centered on that location, but NOT beholden to that specific front door (again, excepting cases of franchise-driven brand loyalty). All the prospective buyer would have to do is say, "Oh, okay, thanks for your time," shake hands with the seller, walk right next door and rent the storefront that shares a long wall with the one for sale, and the customers would all be right there anyway.

I had this lesson remembered to me by the very nice and personable owner/operator of "The Flicks" movie theaters. As many of you know, he's been trying to sell the theaters for quite some time now, and part of his rehearsed presentation is to offer to "show you all of his books for the past three years." And that's just the perfect example of someone expecting you to pay him for his blue sky: The books mean *n*o*t*h*i*n*g*, at least on the revenue side, the instant the seller flies back to his outfitters' business in Nairobi. They might be useful for drawing up your own cash-flow projections and budgeting for your debt service, but as an actor on the fair value of the theaters they are useless. And once you strip that aspect of his presentation, all you're left with is three leases (fair purchase price by someone else = $0 by the way), three projectors (pretty close to ditto), a movie collection, an outdoor sign or three, and a couple of popcorn machines. You could open right next door to the guy and call it "Flicks 4" for less than $3,000 in start-up costs. You could even use the exact same typefaces and color scheme in your signs and promotion materials. And there wouldn't be a thing he could do about it.

Do, not, pay, for, someone, else's, blue, sky, ever, period.
Thanks for the contribution Dave. When I first came here, I would have agreed with you 100%, but now I know there are many variables that you're not taking into account.

Regarding your "Flicks 4" scenario, you are assuming:
1. That the place next door is available for rent at the same rate and terms of "Flicks 3".
2. That the place next door Is already laid out the way a successful "cinema" should be. If you need to knock down walls and/or build some, then costs go up, and you'll be paying rent without any revenue until the work is completed (could take months here).
2a. The landlord will allow you to knock down and/or build walls. Have you been to Lone Star? They have 4 really big guestrooms upstairs. The original owner wanted to modify at least 2 of them to add at least 2 more rooms, but the landlord said no. I haven't been there since he sold, so things might be different now.
3. That the building's electrical system is working correctly and SAFELY for a "cinema" business that probably uses more power than a residence, or whatever the place next door is.
4. That the bathrooms are already fitted to western standards.
5. $3000 is enough. LOL!

I could go on and on.

If the place next door is not suitable, then you'll need to look father away from "Flicks 3" and not be able to steal their customers because of location.

Flicks 3 is operating now. No major modifications are needed. That has value.

In conclusion, your advice is good, generalized, textbook advice for someone living in a first-world, logical (western logic), ethical (western ethics), non-corrupt country, with a fair and just system of legal recourse. I agree with not paying for someone else's "blue sky", but I don't think you know how freakin difficult, and EXPENSIVE, simple shit can be here. Hell, even crossing the street can be a terrifying ordeal in Cambodia, right?!

Ps: I think The Flicks is a horrible business, and has lasted this long because of "slave labor". Anyone remember "Boom Boom Room"? Good internet wiped out their "brilliant" business idea almost overnight.
I am sooooo very sorry if you can't understand or appreciate my sarcastic facetiousness.
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Re: Do *not* pay for "blue sky"

Post by LaudJohn » Sat May 19, 2018 9:04 pm

that genius wrote:
Thu May 17, 2018 8:21 pm
LJ is looking to tell everyone how smart he is again.

Come on, we'll bite, tell us your story of rags to riches, of how you started on 440, and single-handedly saved the scobienz busdev-capitalist dream

No one else's knowledge counts.

Where are you sat?* Check grammar, he's sooo smart.
Not really.

I used to value things like this for a living.

My valuations were accepted by banks for lending purposes.

The OP has left out so many factors that can have value it is not funny. I was going to use that as an example. I was typing that as I boarded a plane.

Doesn't matter. No skin off my teeth.
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Re: Do *not* pay for "blue sky"

Post by John Bingham » Sat May 19, 2018 10:39 pm

The Op's advice is confusing garbage. I'm not sure what his point is but he can fuck right off if he thinks he has reciprocated on all our help to him.
xxxxxxx
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Re: Do *not* pay for "blue sky"

Post by xxxxxxx » Sat May 19, 2018 11:40 pm

Why would current customer foot traffic and brand name recognition not count for anything of value, regardless of the actual owner? Yes, you COULD theoretically open up a nearly identical business very near a existing business, but that does not remotely guarantee similar outcome, and you completely discount all value of the hard work, hassle, and cost associated with creating that initial business. If you take it over, you save all that cost and effort.

The OP is not distinguishing between taking over a failing business and taking over a successful business. If someone wants to exactly copy an existing failing business, then have at it.

Aside from a smaller bar or two back in the old days of PP, I can't think of any establishment I frequent where I even know who the owner is. I only really notice changes in product quality, price, and service.
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Re: Do *not* pay for "blue sky"

Post by kptic » Sun May 20, 2018 1:18 am

OP might have a decent point. Look at Garage Bar. While the original owners operated it, the TOF crowd was always in there spending money, making the place seem lively. Once the place got sold, the 440 inner circle who mostly went to hang out with jm and each other, stopped going there quite as much. It also didn't help that Larry's had just opened up across the street. The bloke who bought the place from the original owners definitely paid for "blue sky" thinking he would inherit all of the customer base.
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Re: Do *not* pay for "blue sky"

Post by adamB60 » Sun May 20, 2018 2:36 am

Hey dave a[preciate your thoughts

im interested in finding how one can protect a business in Cam re protection rackets, lease sales to others, after you have created a success etc etc.

care to discuss

Im wondering if it is seriously possible to protect and create something for the long term and if so how, who has got the right model and how do they gte buy these challenges?
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