By Younas Chaudhary
This blog is the first in a series of 16 tips on making a deal. Let’s begin with the importance of doing homework. In all humility, I want to share this knowledge freely with you. If you can learn anything from my successes and failures, I hope you will learn to avoid my mistakes as an entrepreneur over the past 40 years!
Homework is boring, tedious, and tiresome, but it forms the backbone of all future steps when making a deal. Homework is like the foundation of a building and if the base is not solid, the entire structure might collapse later. Start doing homework on a deal with 3 simple questions:
1. Why do I want the deal?
2. What will I gain from the deal?
3. How can I successfully close the deal?
I used to buy and sell used cars in Canada during the mid-seventies and followed 3 steps to get the best deal when I sold them.
Step one: What car should I invest in? I had little money and I would buy cheap cars that I could fix and sell easily to those who were looking for a low-cost ride. Before making an offer to buy a car, I would do a test drive, learn about its prior history and find out why the owners wanted to sell the car. This would help me figure out if I would make money when I sold it.
Step two: What car should I get? I always wanted to buy/sell cars that were reliable, so my buyers would have a rewarding experience.
Step three: How will I close the deal? I wanted to secure the best deal possible and went to remote locations to look for good used cars. I would evaluate my options and buy a car that I could sell fast.
Making deals is hard work, but the results can be rewarding. Once you develop a consistent work ethic, making deals will become simple and easy.
Now, let me share two real-life examples from my experience in the energy industry.
Let’s start with a successful deal. One of my companies purchased an oil & gas well in Texas. I studied the well’s sale package and made field visits to see the well site and operations. I probed the gentleman who showed me the well facilities and during our conversation he told me that the potential seller had stopped investing money in that field for some time. He gave an in-depth history of the field and told me to consider making some changes to enhance operational efficiency. After I closed the deal, I followed his advice and in 3 months I got a good payout.
I asked questions, did my homework and it became one of my best deals.
Now, let me tell you how I failed. My company owns oil & gas wells in Louisiana and one of the wells appeared to have good potential. We sidetracked the well with very little homework beforehand. After spending five times more than the original allocated cost, I stopped operations as I was throwing money at a project that I did not fully understand.
This was a large loss that could have been avoided if I had spent more time doing my homework. I learned a lesson: if your costs are increasing with no positive return, stop the bleed, rethink, and regroup.
Here are 3 takeaways for you:
Homework requires pre-planning: Invest time and effort in pre-planning. This will save you money, reduce waste and give you a good idea of your end goal.
Homework increases your confidence level: A thorough analysis in the early stages of a deal will make your decision-making process robust and reliable.
Homework increases credibility: By doing your homework, you will gain credibility and trust with investors and lenders.
So, always do your homework and let me know what you think of Tip #1. Next week’s blog is Tip #2: “Assess your market!”
Find out more about me in my best -selling book “From dirt roads to black gold.” Note that 100 percent of the proceeds from the sale of this book will help people in need through my foundation, the YBC Foundation.
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