The Warren Buffett Business Factors
Applying the secrets of the world’s greatest investor

Those of us who’ve ever done any buying or selling of shares have probably heard about Warren Buffett. The Warren Buffett business factors are the principles that have made “The sage of Omaha” the world’s second richest man (only beaten into second place by Bill Gates), and the only man in the Forbes rich list to have made it there purely from buying and selling stocks and shares

Lets take a brief look at the warren buffett business factors in no particular order of importance, and apply them to the small business owner.

• Stick to what you know, and that which is within your area of experience, expand on that experience, and stay focused.

  Don’t attempt to achieve things that require skills outside your area of expertise, as this will inevitably lead to mistakes, and mistakes in business mean unnecessary costs. Instead, work out the value of your time and buy in the services you need, leaving you more time to develop what you’re good at.

• Only enter into a business agreement, investment, or project where you can reasonably predict the outcome with certainty.

  Predictability means that the expected outcomes will be achieved. Consider risk factors to a business deal or arrangement, and make sure these factors have been fully mitigated with an action plan or back up arrangement. Best of all, steer clear of something where there are large factors beyond your control.

• Maintain emotional detachment in your business dealings. Invest only with a business perspective, do not let the others or “the crowd” persuade or dissuade you, but rather develop your self and your trust in your self. Make a point of learning from your mistakes.
• Identify what kind of business deal you want, then determine what you are willing to pay. Small fluctuations in the price of what you need to buy can vastly affect your returns in the long run.

  Be prepared to wait or negotiate for the right price as this will affect what you get out of any business deal.

• Work out the return on capital of your business, and try to make every business deal at least the same if not better than that return.

  If your business is delivering excellent returns on capital (and this is the reason why many entrepreneurs are in business in the first place) then keep as much money in your business as possible to take advantage of the money compounding success theory. Buffett has made more money than most of us added together, because the gains on his gains have been accumulating since before we were born!

  The returns kept in an incorporated business will avoid personal taxation unless paid to yourself in the form of a salary or a dividend

• Use other peoples money to leverage returns. If your return on capital is greater than the cost of using other peoples money, then make sure you use their money as much as possible, not forgetting about your margin of safety. Warren has had great success with insurance companies, using this principle.
• Only appoint or work with managers of outstanding quality. Use managers who act in the best of interest of the business and hence the owners of the business at all times.

  Examine their track record carefully, and see what the trading pattern of businesses where the managers have worked looks like. Have the management intelligently used any previous earnings of the business, or have they squandered it?

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