This is interesting and you've said it before not long back.
Can you explain the business/job difference as you refer to it here? Is it about equity again?
A business has two goals. You can target the one or the other - or if you get really lucky, both. In the UK and the US, profit is the goal and often the only goal. Rent a shop for £1k p.c.m. and sell goods that earn £5k profit and have $2k other costs and make £1k profit per month. After 25 years you have eaten all that profit - well, it wasn't much to start with! Just £1k a month, so don't all shout at once!
After 25 years of paying rent, you have nothing. The owner of the building has a building that is fully paid for by your rent. You could have gone elsewhere and bought a shop building and after 25 years have had a building. Equity - the other goal of business!
When times get tough - or as Warren Buffett puts it, when the tide goes out and we have a recession, you can use that equity to bridge the shortfall or use the crisis to buy more equity - another shop or whatever your business direction might be. The trick is to create a solid financial foundation on which your business is built. You never over-reach yourself. You keep adding to the net equity in your business.
This means that when everything goes pear-shaped and the business collapses, or you just want out and you have no heirs to pass the business onto (or you don't like them - always a possibility!) even if all you have is a corner shop, it is worth real money. A rented corner shop business is worth roughly the same as a bucket of warm spit. But the building is worth real money.
We have all kinds of magic names for swimming naked. We have all kinds of magic structures for debt. Leverage. IPOs. Fresh share issues. Venture capital. Private equity. Angels. Bonds. And good old investment. All debt by another name. All different ways to swim naked.
And if you look at the balance sheet of a company, you see how often we allow others to swim naked at our expense. I have been involved in the analysis of a company whose 'receivables' and inventory have escalated. They are listed on the 'assets' side, but if they don't get to receive them receivables and move that inventory, then they flip-over to the naughty side!
And at the moment, not only have both nearly doubled in the past year, but their debts have increased by 10% and 'other liabilities' (that's all those unopened envelopes in a shoebox under the stairs) are now almost as large as their debt. A medium-sized company with just 1,400 employees and their liabilities exceed assets (some of which look decidedly dodgy) by over $100m. They've mortgaged all their IP and they are now in default of the covenants on that mortgage.
Now that's what Buffett meant with swimming naked!
Never let a good crisis go to waste! There are going to be loads of viable businesses going belly-up in the next few months.
People are going to be sitting on buildings with no tenants paying the rent. Shops will be boarded up. Car dealerships will close. Wholesalers will be chasing returns of unpaid goods in failed shops and putting them on eBay. Airlines will stand outside government buildings, holding out the begging bowl. Good stocks in good companies will be sold off to cover bad positions in rubbish companies. The floating hospice trade (cruises) will sink.
And the DFS sale really will come to an end.*
Now is not the time to buy a business. Now is the time to wait for the fire-sale of all the assets!
*I lied - it won't!
