สร้างธุรกิจขนาดย่อมแบบที่ วอร์เรน บัฟเฟตต์ โปรดปราน

by อดัม บราวน์ลี, ศุภิกา กุญชร ณ อุยธยา (Translator)

The guide to making money the Warren Buffett way
The book that presents the same fundamentals that Warren Buffet used to turn an initial $105,000 investment into a $40 billion fortune in a way the general reader can apply, Building A Small Business that Warren Buffett Would Love is a succinct, logical, and straightforward guide to financial success. Highlighting one simple message: that Warren Buffett successfully invests in great businesses with strong fundamentals, it argues that these fundamentals can be replicated in a small business to yield outstanding results. Offering a solution for people wanting to start a business to provide additional income in today's uncertain economy, and designed to help entrepreneurs build fundamentally sound, small businesses using Warren Buffett's business investment perspective, the book covers:

An overview of Warren Buffett's investment methodology and how it applies to small businesses
The details of the Buffett investment criteria—a consumer monopoly, strong earnings, low long term debt, and high ROE with the ability to reinvest earnings—and the application of these fundamentals to both start-up and existing small businesses
An approach to building a small business that applies the well respected principles of Warren Buffett, the book presents an exciting new look at the steps to success that have been proven trustworthy by one of the richest men in the world.

คู่มือสำหรับผู้ประกอบการธุรกิจขนาดย่อมเพื่อทำเงินด้วยวิธีการแบบ "วอร์เรน บัฟเฟตต์" หนังสือสำหรับผู้ที่ต้องการเข้าใจถึงพื้นฐานที่ดีของธุรกิจและหลักการสร้างธุรกิจให้แข็งแกร่ง เนื้อหาในเล่มจะสอนวิธีการลงทุนธุรกิจด้วยรูปแบบที่วอร์เรน บัฟเฟตต์ หนึ่งในนักลงทุนที่ประสบความสำเร็จมากที่สุดในโลกเลือกใช้ ซึ่งก็แน่นอนว่ายอมเป็นวิธีที่ดีและได้รับการพิสูจน์มาแล้วว่าใช้ได้ผลจริง โดยสังเกตได้จากปริมาณทรัพย์สินมหาศาลของมหาเศรษฐีนักลงทุนผู้นี้

คุณจะทราบถึงข้อมูลที่จำเป็นสำหรับบริษัทที่เพิ่งเริ่มต้น และบริษัทขนาดย่อมที่ดำเนินการอยู่แล้ว เพื่อเรียนรู้การสร้างธุรกิจขนาดย่อม ไม่เพียงแต่อยู่รอดได้เท่านั้น หากแต่ยังจะนำพาองค์กรไปสู่ความรุ่งโรจน์ในสภาวะแวดล้อมทางเศรษฐกิจที่ไม่แน่นอนอีกด้วย

Genres: Business, Finance, Buisness, Nonfiction

296 pages, Paperback

First published January 31, 2012

Reviews

[Harry Harman · Rating 5 out of 5]

I want to see a consumer monopoly …
With a strong track record of earnings.
With a healthy return on equity.
With the ability to reinvest those earnings at a high rate of return.
With little or no debt on the balance sheet.
With the ability to increase prices with inflation.
With a healthy net and gross margin relative to other businesses and industries.

Buffett seeks out strong, steady 10-year earnings track records.

Buffett uses return on equity for comparison purposes. dividing earnings by the amount of invested equity. For example, a fourplex generating $10,000 in yearly earnings, with $100,000 of invested equity, is producing a 10 percent return on equity ($10,000/$100,000).

(by the way, rate of return and return on investment are the same thing)

A capital gains investor should sock away enough cash to weather at least two years of a downturn. In negative years the cash is used. In positive years the cash is replenished.

A rental property investor can greatly reduce taxes on the cash flow through depreciation and expense shifting

Just as all roads lead to Rome, all babies go through Gerber.

as a form of insurance, franchises typically do not expand widely until they have a proven business model. Subway, for example, opened 12 working stores before they opened 100. Thus, as a franchisee you have another assurance that the business model works across markets.

It is still a business model gamble to open store number 30 in Kentucky if the previous 29 all operate in Wisconsin.

determine the fair market value of the assets and use this to determine the price. As a simple example, let’s say you own a lemonade stand along with some mixing spoons, a couple of pitchers, and a box of lemons in inventory. You determine the wooden stand is worth $100 based on the price of the lumber from a local hardware warehouse minus some wear and tear, the spoons are worth $5, the pitchers $10, and the box of lemons cost $25, giving you a selling price of $140. If the buyer is going to assume the debts as well, then simply use the equity in the business as the selling price. For example, if the lemonade stand has $50 in long-term debt, and the purchaser is going to assume this note, then the fair price would be the total asset value of $140 minus the $50 debt for a value of $90.
The Earnings Approach
This method is closest to how Warren Buffett values a stock investment. In this approach, the average earnings from the past three to five years are divided by a capitalization rate, typically the rate of return expected from the investment.
Average earnings of $100,000 divided by a cap rate of 20 percent gives you a business value of $500,000. The $500,000 investment provides a 20 percent rate of return.

Keep in mind two things about small business tax returns: 1. Typically, business owners run up as much “other” expenses as possible in order to get a tax break. This is called “expense shifting” and will be detailed in the “other” deductions section. It includes such things as meals and entertainment, mileage, cell phone, home office, and travel. Add these back in.

Warren Buffett seeks out businesses with strong, steady 10-year earnings track records. The first sign of a strong business that Warren Buffett loves is found in a rock solid earnings track record that is consistently on the uptick, an indicator that the business can potentially repeat the positive past.

Subtracting cost of goods sold from sales results in the gross profit, and dividing this number by sales provides the gross profit margin. If the business is struggling to produce earnings, gross profit margin is one of the first places to check to see if in fact you are paying too much for the product or perhaps not charging enough, relative to others. If for every dollar in sales, your business is making 50 cents while everyone else is making 60 cents, you are either paying too much for the hamburger buns or not charging enough for the hamburgers.

If net income is lower than the industry average and gross margin is not problematic, then we know that the problem lies somewhere within the operational expenses. Common size industry ratios can be obtained easily from your local banker or Small Business Development Center. Figure 3.1 Common Size Income Statement Source : ProfitCents

If the business is in an industry that produces healthy, growing net margins year after year, it may be possible to repeat these earnings results and build a business Warren Buffett would love. If not, the earnings cards in your industry are stacked against the business, and it is prudent to seek out a more profitable industry.

General and administrative expenses (salaries, rent, and utilities) are high at 34 percent compared to 25 percent. The owner of this business would want to dig down into the selling and G&A costs and learn to manage expenses that are out of line with the industry

Month-tomonth expense tracking is also highly recommended—if cost of goods sold shoots up to 60 percent one month after averaging 50 percent for the past six, then something is not right, but at least you can manage it now because you caught it through month-over-month monitoring. Also, there is no need to make progress in one month and then backpedal the next.

what really helps the small business owner the most is primary marketing research—or getting out there, pressing the flesh, and asking the customers what they want.

you can typically obtain local market consumer spending data from local resources such as the Chamber of Commerce or Small Business Development Center.

Income - Expenses = Earnings

we want to determine whether the business can produce a strong 10-year track record of earnings and then from there, waterfall into the other Buffett parameters such as return on equity, retained earnings, and low debt levels.

Can you expand profitably or adopt a marketing strategy to increase income? Can operational expenses be trimmed? Can the product be bought cheaper while maintaining a standard of quality? I highly recommend obtaining common size industry financials from your local bank or Small Business Development Center. These will allow you to compare your expenses using common size ratios.

the value of a business can be found by taking its yearly earnings, calculating the future value, and then discounting back to present value. If you have a hamburger stand generating $1,000 a year in earnings, in 10 years you will have $10,000. But if you also invest those earnings along the way, let’s say at 9 percent invested monthly, you will have $16,126.

Thus, for a hamburger stand business generating $1,000 a year in earnings with a reinvestment rate of 9 percent, we should be willing to pay $6,812 for the business today. If you want a higher rate of return, say 15 percent, then simply use 15 percent to find the present value of the future cash flows.

Six Degrees of Hypersensitive Separation Although 9 percent and 15 percent are separated by only six points, remember how sensitive the time value of money is to rate changes. Take $10,000 Invested l. Over a 60-year period, the 6-point difference leads to a $42 million difference!

Once you have found the business value by first projecting the future value and then discounting it back to a present value based on a desired rate of return, you next apply the earnings growth rate as found earlier in the McDonald’s example. Simply take the business earnings from 10 years ago and the current earnings level (if this is a case of a start-up with no track record then use the projections), use 10 for the number of years, and compute the rate of return. For example, if a business had $700 a year in earnings 10 years ago and current earnings of $1,000 a year, the financial calculator inputs will be: Building from our previous example, this means that if you buy the hamburger stand at $3,986 for a 15 percent rate of return, the earnings will continue to grow at a rate of 3.63 percent a year.

Table 4.1 displays three 10-year track records of three consumer monopoly companies that Warren Buffett was at one time or currently in love with: McDonald’s, Coke, and Wal-Mart. Above all else, this picture should give you a crystal clear expectation of what to look for in order to build a business that Warren Buffett would love. Remember, return on equity is found by dividing the net income, from the income statement, by the equity found on the balance sheet.

Return on Equity = Earnings/Equity

Return on Investment = Earnings/Initial Investment

Cash Flow—Technically, this is the change in cash on the cash flow statement after all sources and uses of cash have been accounted for.

two variables go into the return on equity formula: earnings and equity. Thus, the solution is rather straightforward: Generate as much earnings as possible with as little equity as possible.

The component parts of earnings as culled from our income statement are revenues and expenses. Thus, in an easier-said-than-done fashion, the way to greater earnings is to increase revenues and decrease expenses.

Can new revenue generating assets be purchased without using titanic amounts of equity? If not, you should be willing to shift investments in the same manner that Warren Buffett shifted the capital of the original Berkshire Hathaway, the textile manufacturer, into consumer monopoly insurance companies.

The lesson here is to not get married to your business if it is in fact a bad business

franchisor can provide existing franchise financial data from comparable locations that can be used to paint the financial picture of your franchise start. In other words, the analysis will be grounded in real life numbers, not on a high stakes forecast.

The current ratio and the quick ratio are two examples of liquidity ratios. The current ratio is used to determine liquidity of an existing business by dividing current assets by current liabilities. If the current ratio is greater than 1.0, then the business has a chance of being able to pay short-term bills. The larger the number, the better the chance of paying the bills. If that number is less than 1.0, the business may be in rough water. However, decision makers will also take into account industry norms. If the industry standard is 4.0, that current ratio of 1.0 is not nearly as good as it would be in an industry with an average of say, 1.5. The quick ratio, also called the acid test, is a measurement of liquidity without inventory being calculated and is found by dividing current assets, not including inventory, by current liabilities. Comparing the quick ratio to the current ratio gives decision makers an idea of how dependent liquidity is upon inventory.

Inventory turnover and average collection period are both examples of asset management ratios. The inventory turnover ratio measures how often your company gets rid of and restocks an average sized inventory. It is measured by dividing cost of goods sold by inventory. The higher number is better because higher numbers mean you’ve more quickly gone through your inventory.

This means fewer of your business dollars are tied up in inventory. Inventory can cost you in storage, taxes, insurance, and interest as well as time. Inventory and time are not friends.

Average collection period measures how long it takes to collect on sales on credit. When you sell on credit there will be a lag time. That lag time is measured by the average collection period. It is found by dividing Accounts Receivable by sales and multiplying the total by 360. Obviously, you want the number to be as small as possible. Ideally, you want it as close to your company’s terms of sale as you can get it. If the number exceeds your terms of sales significantly—greater than 30 percent—you show that you are not being as strict with your credit choices as you should be or there is significant customer dissatisfaction.

Profitability ratios include return on sales, return on assets, and return on equity. The return on sales ratio is the most basic measurement of profitability and says something about how well you can keep down costs and expenses.

The return on equity ratio, our important Warren Buffett ratio, builds on the return on assets by taking leverage into account, and it is found by dividing net income by equity. Debt affects return on assets and return on equity, and the two will be close if debt is small. When debt grows large, return on equity is higher than return on assets when the company is doing well, and lower when the company is doing poorly.

Most institutions and individuals want to know exactly what you plan on doing with their money. The best place to start with how you will use the funds you are requesting is to provide a summary of your business’s financial needs. This is found in the uses of funds section of any standard business plan.

Retained Earnings—The Fuel for the Engine of Compounding Returns Warren Buffett invests in companies that have the ability to retain and compound earnings at high rates of return. Typically, companies with low plant, equipment, research and development costs will meet this mold.

Remember, a business with a 20 percent ROE is far superior to a business generating an 8 percent return even if the second business is meeting the industry average.

If I start a business with $20,000 in equity and generate $4,000 in earnings the first year, the return on equity is 20 percent, correct? ($4,000/$20,000). If in the next year the business generates $3,600 in earnings as a result of spiraling expenses, yet the equity level drops to $18,000 due to buybacks, guess what? The return on equity will still be 20 percent! Of course, in our paradigm of building a business that Warren Buffett would absolutely fall in love with, our second sieve, “with a strong track record of earnings,” will catch this.

If the business continues to generate earnings on its equity base of 20 percent a year, then the following year, the business, theoretically, should generate $4,800 in earnings. If this is retained at a 20 percent rate, equity will go up to $28,800, and the following year the business will generate $5,760 in earnings (if the ROE remains steady) and so on. Thus, you can see how earnings and return on equity combine to form a compounding powerhouse.

we plug in the current price of MCD, (at the time of this writing $75.78), $320.64 for the future value, 10 for N or the number of years, and compute the I/Y, which gives us the company’s projected annual compounding rate of return. In McDonald’s case it is 15.52 percent.

old adage for buying a house: “You make your money when you buy.” Similar, yet different. So, if you waited to buy McDonald’s at a price of $65, then your rate of return would go up to 17.3 percent.

Low Research and Design, Low Required Investments in Maintenance and Upkeep … Low I Tell You, Low. The reason why: A business that has to continually nurse large expenditures in this area will always be hampered as to earnings. heavy expenses in maintenance and upkeep (think automotive)

If you put $20,000 down on a $100,000 rental property and it generates $3,000 a year in cash flow, what is your rate of return?
• Rental Cash Flow: $3,000
• Appreciation: $6,000
Total = $9,000
$9,000/$20,000 or 45%
You can also simply add the two rates of return to find the 45 percent return: 30% + 15% = 45%.

If the property drops in value by 10 percent, how much have you lost?
Answer: $100,000 × 10% = −$10,000
Based on the initial investment of $20,000, what is the percentage loss?
Answer: $10,000/$20,000 = 50%
In the world of stocks, however, a 10 percent loss would only equate to a $2,000 loss (10% × $20,000).
Additionally, if your rental property asset has dropped in value, it is safe to assume that not all is well with the economy and rents might also suffer. Let us assume that rents drop from $3,000 to $2,000 in the rental scenario. The total return during the downturn will be −40% (–$8,000/$20,000).

As long as the up-front cash flow analysis is detailed and accurate; the financing terms are favorable; and quality property management, that does not let the property depreciate into a trash heap, is in place, the risk should be mitigated.

He even goes so far as to say that a mortgage on your personal residence is bad debt since, although the house is appreciating in value, the house is taking money out of your pocket on a monthly basis through upkeep and maintenance, taxes, and insurance.

he likes businesses with one to two times earnings of long-term debt on the balance sheet and no more.

Peter Lynch, formerly of the Magellan Fund and author of One Up on Wall Street, likes companies that have a debt to equity ratio of 33 percent or less. ² This means that for every one dollar in debt, a company should have $3.03 in equity.

So, the debt prescription is as follows: Zero personal debt.

On the balance sheet, find the item labeled “total non-current assets” and the corresponding dollar figure. This is the business’s long-term debt.

Next, find the net earnings or net income figure on the income statement.

If the resulting number is less than or equal to two, then congratulations, you are conservatively financed and should continue to maintain or reduce this level of debt.

If the resultant number is many times the magical number of two, say twice as much or five times as much, then it may be time to think about amputating some nonproducing assets by selling them and using the proceeds to pay down the debt.

You get to depreciate residential real estate property over 27.5 years and commercial over 39 years. If a property produces cash flows at $20,000 a year with depreciation of $25,000, then it generates a tax loss of $5,000 and no tax is paid on income.

A property investor can roll over property gains tax-free by buying bigger properties using a 1031 Exchange. The capital gains do not go away—they carry forward

inflation can be defined as the U.S. dollar buying less and less over time.

Keep in mind, though, that this math is dependent on the number of shares outstanding remaining the same or, even better, decreasing through buybacks.

Warren Buffett likes companies that can retire their entire long-term debt in one to two years strictly out of earnings.

Gross margin is found by dividing the gross income (revenues minus the cost of goods sold) by the total sales; both can be found on the income statement. Net margin is found by dividing the net earnings (everything left over on the income statement) by total sales dollars. The larger the number the better, and a business that has been able to deliver a healthy net margin over the years that beats both the industry average and global industry averages is a business that Warren Buffett might fall in love with.

It is fine and dandy that Joe is a superior business manager, but keep in mind that Mr. Buffett is looking across the entire business spectrum. In other words, although Joe’s hamburger stand looks great when compared to other restaurants, Warren is looking for businesses that generate outstanding gross margin, period.

Time will tell if the long-term focus is truly a short-term focus

Source : Industry Averages.com , reproduced with permission.

it looks like we all need to get into the beverage manufacturing business, since the net margin in this industry comes in at a whopping 17.69 percent. Coke, anyone?

[Ezra · Rating 5 out of 5]

Great tips for entrepreneurs or small business owners. Basically the book help you to build a business that meet Warren Buffett investing criteria: strong ROE, consumer monopoly and good financials. Every entrepreneur and small business owner should read it.

[Johannes · Rating 3 out of 5]

Okay, now a good listen. Would be a far better read. Best once business is underway.

[Quote A · Rating 5 out of 5]

Warren Buffet is my go to person when it comes to investing, and being someone from finance background, this audio book had all the nooks and crooks a finance guy like me could hope for. The slow and understandable pace of narration and the practical approach to financial problems were something that I absolutely adored. And this book is out there for free for all VIP members, Isn't that a delight? I would totally recommend this audio book to all those who are starting their business and need a no nonsense approach to getting it big.

[Himanshu Sinha · Rating 5 out of 5]

If you like books that are related to investment then definitely you should go with this. This will give you initial insights of investment banking . talking about narration it was good i really enjoyed this while listening .generally we feel bored listening this type of audiobooks or books but this will not get you bored.

[Kate · Rating 3 out of 5]

made me even less interested in Buffet and certainly not a fan

[ดิตถานนท์ ครุฑเมือง · Rating 5 out of 5]

There is an incredible connection between business and the world of stock investment.

[Sivaram Velauthapillai · Rating 3 out of 5]

Everyone should aspire to build a business Warren Buffett would buy. Even if you don't sell it, it would be a great business that produces solid profits over the long run. Being a longtime Buffett fan, I kind of know what he is looking for. There are certain criteria that are important and this book goes over them. The book isn't perfect and misses some things Buffett likes in businesses but it does cover the major elements. If you are an entrepreneur or thinking of starting a business, this book provides some information on what you should be aiming for.

[Phil Sykora · Rating 5 out of 5]

I'm going to summarize the things that Warren Buffett loves most in six words: McDonald's, Coca-Cola, Disney, Kellogg's, Campbell's, and Walmart.

Create a small business that most closely emulates the attributes of those businesses and you, too, can have a business that Warren Buffett would love. Create a consumer monopoly. Have a strong track record of earnings, a healthy return on equity, the ability to retain earnings and the ability to increase prices with inflation. Have low debt levels that could be paid off with one to two years of earnings. To top it off, have a healthy net and gross margin.

But I'd say it's worth a read for the information on goal-setting in the epilogue alone.

Well-written, well-researched, and packed into a short, reader-friendly couple hundred pages, I'd recommend this to anyone interested in business or Warren Buffett.

[Dexter Wilson · Rating 4 out of 5]

Strong look at the fundamentals most important for a long term investor. Digging into the core elements of Buffet's investment philosophy to create your very own Warren Buffet worthy small business! A bit of a dreary read but the insights and references are worth it!