Very soon, I will finalize the settlement of the biggest acquisition of my life; an island and it’s resort, here in Fiji.
This week I have been in Nadi and in Suva, the capital city of Fiji, having meetings with the minister of tourism, the head of the TLTB (Fiji’s government landlord), and my lawyer. Each day settlement is getting closer.
So it’s exciting, but also exhausting. It’s been close to a year since I first decided to move forwards – I didn’t anticipate it would take even half as long as it has!
Once the deal has settled, then the construction stage can begin. See this plan here I’m holding up? That’s what we are going to build. Over 200 rooms, built in 6 stages, over 6 years.
It’s going to cost a lot of money. But when it’s done, it’s going to be a truly worldclass resort, in one of the very best locations in Fiji.
I was reflecting on all the different countries I’ve built businesses in – and some of the bigger lessons learned along the way.
I wanted to share with you some of those lessons:
1.) Don’t get emotional about the purchase.
Rationality and logic must prevail in your decision making process.
In the case of buying an island and it’s accompanying resort business, this is easier said than done!
I still remember the first time I saw this island in daylight. I’d arrived the night before, after a 20 hour journey from Kuala Lumpur, and immediately gone to sleep around 8pm.
The next morning I woke up at 5.30am fully refreshed and alert, and decided to go explore.
The sun was only just starting to come up, and besides the waves crashing just 15 meters away from my front verandah, there was pure silence.
I remember walking along the beach for 10 minutes, and then swimming out into the ocean, to look back onto the island.
I imagined what it would be like to own the island – to be able to say it was mine. I pictured visiting the island for many decades to come, and having it as my own little private paradise.
In that moment, it was very hard not to let emotions influence my decision!
Whatever business you invest in, there will always be some emotion – but it cannot be the driving factor in the decision. Once you get attached, you’re going to overpay. (sidetip – if you’re ever thinking about selling your own island, it’s easy. Just pay for your potential buyers to come take a holiday there for a couple days!)
Anyway, after my first visit I started to find out more about the financials.
I looked at what the business was netting each year, and what I thought it could net once I did the major renovations and built out another 200 rooms.
I also looked at the synergies which could be created with my other business (MOBE) when we’d start doing our mastermind events there. In marketing appeal alone, that would be worth many millions of dollars.
So don’t get attached or emotional to the business you’re looking at buying; it’s got to look good on paper first.
2.) Buy the underlying assets, not shares in the company.
Lets say Company A owns an asset, and its the asset you want to buy.
Try to always negotiate with the seller to just buy the asset outright.
When you buy shares in the company, you’re also buying all the liabilities that come along with that company. And many of them may be hidden from you during your due diligence.
For example, when I invested in my Costa Rica resort business – Sunset del Mar Resort – there were a lot of skeletons in the closet.
The previous owner of the company owed money to everyone.
To the government (taxes, social security for staff, lease payments).
To past employees.
To past vendors.
The legal team I hired was able to find out about most of these skeletons, and we took them into account when presenting an offer price.
But if I could have just bought the land and buildings, it would have been much cleaner.
If you have no choice but to invest in the company which owns the assets you want, then consider starting a new company right after the purchase, transferring the assets across, killing off the original company (de-registering it), and then paying the taxes for the transfer.
If you end up having to pay a few percentage points in taxes, at least you have piece of mind that some past liability you don’t know about isn’t going to come back to haunt you.
3.) Insurance – You Need It.
Depending on what business you’re investing in, the need to have insurance will vary.
In the case of an island resort in a cyclone prone area? Yep, you’ll definitely need it.
And it’s not cheap either. We’re talking hundreds of thousands of dollars a year.
A couple years ago, Cyclone Winston hit Fiji. This was the most powerful cyclone ever recorded in the Southern Hemisphere. In some areas, the damage was catastrophic.
It shut down the island and resort I’m buying now for 2 months – and the neighboring island, less than a mile away, was shut down for an entire year!
So cyclones here are no joke. You need serious insurance.
Different business types are going to have their own version of ‘cyclone risk.’
For my parents farm business, it’s going to be the weather.
When they have over a million dollars of capital they’ve borrowed from the bank to pay for all the fertilizer, chemicals, machinery, and lease payments on the line, a few days of frosts can wipe out their entire crops. Close to a years worth of work can go down the drain.
For a gym it could be public liability insurance. Someone running on the treadmill gets distracted and goes face first into the mat – next thing the gym owner can be up for a million dollar lawsuit.
Look at the business type you’re investing in and be ready for those ‘worst case scenario’ problems. Each country, and each business type, will have their own unique versions of this.
Protect yourself from day 1 of taking over the business, and get a good insurance broker who will look out for your best interests.
4.) When raising external funding (eg. from the banks), put together a team that projects expertise and credibility.
I’m 30 years old, have extremely little experience running a resort business, and have never owned a business in Fiji (let alone an island!).
From the banks point of view, lending me 10’s of millions of dollars to go build a 200 room resort out in the middle of the ocean does not exactly look like a sure-thing.
So before I even paid them a visit, I did what I’m going to advise you to do; put together a team of people who’s experience and credibility made mine almost irrelevant.
I went and found the best expert consultants I could.
For example, the accounting firm I hired for all the due diligence and forecasts, was Price Waterhouse Coopers (PWC). I could have gone and found a local two-bit accountant, and paid 1/3 the fees. But they just wouldn’t have had the same amount of credibility.
Same thing with the legal firm I chose. They weren’t the cheapest, but they had the best reputation with the banks in the area.
And the main expert I hired to oversee the whole deal (which has taken close to 1 year) is perhaps the most respected and well-connected resort developer in the whole of Fiji.
I got lucky with finding him. A couple years ago I met him during a coffee break at a resort investment conference in Hong Kong, and stayed in touch. Without that one chance encounter, I wouldn’t have even known the island was for sale.
These days he’s based out of Macau, overseeing a $3.2 billion development for a resort and casino. But in the 90s and 2000s, he was here in Fiji and building the resorts for Radisson, Sheraton, Marriot, and many other major resorts.
So I hired him to help me put this deal together, and he’s done an incredible job.
You want to do the same thing; assemble the very best team of experts and consultants you can.
5.) Have someone on the ground pushing the project along, who you can trust (but never trust them fully).
When investing overseas, it really helps if you have someone on the ground who can be moving the project along.
This includes meeting the lawyers, getting government approvals, dealing the accounting firm, liaising with the seller, and handling all the other unexpected surprises along the way.
Trying to do this yourself through emails, text messages and the odd call over different time zones is very difficult.
You need someone on the ground who can go have face-to-face meetings, push things along, and get straight answers.
If I had not flown to Fiji about 5 days ago – this deal would have not got done on time. I would have incurred $1,200 / day in penalty costs for being late to settle, and the bank loan would not have gone through.
The lawyer, the banker, and various other people involved had no sense of urgency and were not getting each other what they needed (even though they literally have offices about 5 minutes from each other).
Unfortunately that’s normal here.
Everything is done on ‘Fiji time’ – which means there’s no rush.
‘Fiji time’ is great for the tourist and resort guests looking for a relaxing holiday. But for business purposes, it means deals take much longer to get done.
By being here in person, I was able to find out what the hold-ups were and get things back on track.
So if you’re making a big investment in a country (particularly if it’s a country where things are known to move at a relaxed pace), then get yourself a good project manager who you can depend on.
6.) Have checks and balances – all the way from buying the business, to running it.
If you’re going to invest in a business overseas, and you don’t plan on being there most of the time, then this is especially important.
You need people on the ground you can trust to make sure things are being done in the right way.
But as much as you trust those people, you should never trust them fully.
Always have checks and balances. On everyone.
I’ll give you an example.
When I took over the resort business in Costa Rica (which I later renamed Sunset del Mar Resort), I was actually on the other side of the world back in Malaysia.
The deal was getting done and I was getting updates on Skype and through email.
Initially, 3 or 4 people were acting on my behalf. Some locals, others from overseas.
In the first few months things moved slow. They had to get all the permits to even start the renovations. And then they needed to find local contractors.
Late 2016, the major renovations began.
We had some really good contractors, doing great work.
But we also had a lot of… well… lets just call them ‘dirty rats.’ People who were setting up side-deals on just about every transaction. People who were purposely delaying every job, to stretch out the billable hours.
When I did move to Costa Rica in late February of 2017, in preparation for hosting the first MOBE Mastermind there in late March, I saw there was no possible way the resort would be ready.
And it didn’t take too long to work out what was going on.
There were 2 local managers who’d been hired, who were making a small fortune off of my project. They were getting paid on just about everything.
Every time there was a new project, they’d go set up a deal with the vendor and collect 10, 15, even 20% on what was being spent. And I was being overcharged on just about everything.
One of them showed up one day with a shiny brand new car. After I fired that guy a month later… I then saw him selling my old resort furniture right off of his Facebook page! He’d told me months before that the furniture could not be sold because it was too old, and instead he’d donated it to a local school or something to build ‘goodwill’ in the community.
I’m convinced that I easily overpaid by $400,000 USD during the main renovation.
There’s many upsides to investing in Costa Rica – but one of the downsides is that it’s customary to pay kickbacks on just about everything.
That’s why you need to watch what is going on like a hawk.
If you can’t be present, find someone on the ground who is very good with numbers, pays attention to the details, who speaks the local language and knows the culture, and who will look out for your best interests.
And then watch them like a hawk too.
Do not be afraid to ever question any and every expense – even the little ones, under $50.
Till this day, I have Skype groups where every single cash outflow gets posted. Daily.
I check the groups every few days, and if there’s something I don’t recognize – even if it’s for $20 – I’ll ask what it’s for.
You should do the same. It will keep everyone on their toes, and when they know you pay attention to the details, they’ll pay attention to the details.
I have friends who run multi-million dollar businesses, who constantly get ripped off. They’ll tell me stories of their own staff, or different vendors they’ve had, who’ve literally stolen 10s of thousands of dollars or more from them. And it happens over and over again.
This is what happens when you don’t pay attention to the details!
One final point;
After reading the above, some might call me a micromanager. Or they may accuse me of having trust issues. It wouldn’t be the first time.
But to those people, I’d say this:
“Go run a real business for a few years, which grosses 7 or 8+ figures annually, and do it all with a ‘hands off’ approach. Then come talk to me.”
As one old mentor used to say to me constantly, “if you want to keep honest people honest, have a check and a balance.”
7.) Make friends with the right people
Depending on what kind of business you’re investing in, there’s going to various places / institutions you need to get approvals from to get the deal done.
For example, if you invested in a restaurant, I imagine you’d need to go get a whole bunch of approvals different health inspectors, along with various licenses, before you opened to the public.
In my case, investing in different resort business’s has required getting permit approvals from the local municipality. Building permits, along with all the licenses to have guests stay on the property, eat the food, swim in the pool, etc.
Whatever the equivalent is for your business type, my advice is to make friends with these people. Get on their good side from the start. It will make your life much easier.
But also, beware that if you’re investing in a country where there’s a lot of corruption, it’s inevitable you’re going to get asked to pay some bribes.
I had this happen to me personally just a few months ago in Costa Rica.
About 2 months prior, I’d gone and visited the municipality office in person, to meet the head person in charge, and ask about building more rooms on the property.
One of the inspectors working in that office befriended me. He told me he know about the challenges of being a foreign investor, and also gave me his personal cell. “Call me if you need anything,” he said.
Later, he started showing up for some ‘surprise’ inspections.
But I found out through another source that the municipality had not even scheduled these – he was doing them on his own.
He’d then text me, almost demanding to meet with me personally about some big challenges we would soon have, but which he could help me easily resolve. In other words, he wanted to be paid off.
The moment you start paying bribes to get things done… you’re going to set a precedent. If you pay off one rat, more will show up.
So just be ready for it.
8.). Hang on to as many of the good staff as you can. And make sure in your agreement with the seller, you have the opportunity to meet with them all prior to settlement.
No matter how good the procedures and documentation is for the business you’re looking to acquire, there’s always going to be things only certain staff members know.
These things could have taken them years to work out. And if they leave, you immediately lose all of that very valuable know-how.
Maybe they have certain contacts. Or maybe they now how to solve a particular reoccuring problem in the business. Or they know where certain things are.
When I got the resort in Costa Rica, I got lucky in that several former staff members who’d worked there for a long time came back and asked for a job.
I hired them right away.
One of them – the gardener – has been working at the property since his late teens. He’s now in his 40s.
Another – the main maintenance man – has literally never worked anywhere else besides the resort, his entire life. He knows the property like the back of his hand; where all the underground pipes are. How old the septic system is, and how it all works. Which particular trees roots are burrowing under certain rooms, and destroying the plumbing (and how to prune back the tree roots every 6 months so it doesn’t happen).
All business’s will have those kind of people. They are intimately involved with some aspect of the operations. You as the outside investor really need to hang on to as many of them as possible. They’ll help you have a much smoother transition
A couple days back, I officially when and met with about 25 staff on the island I’ll soon be taking over, and talked about my future plans.
We went into the traditional Fijian meeting room, and I sat down cross-legged in front of them (and they also did the same with me), and the current general manager explained to them I was the new owner.
Many were concerned about losing their jobs – I told them not to worry, and that as a first-time island resort owner, I needed them as much as they needed me. Most have been working on the island for many years.
Then I explained the future plans to build a major resort there over the next 6 years, and talked about all the opportunities they’d soon have.
If you invest in an overseas business with a lot of existing staff, make sure you have your version of this, before settlement occurs.
9.) Before you invest in a business overseas, take into account the business environment and laws of the country it’s based in.
Some countries are very friendly to business. They have fair tax rates, and they make it easy to hire (and occasionally fire when you need to).
Other countries seem to look at business owners as if we are parasites.
It’s like they’ve set everything up to make the business owners life as hard as it can be. High taxes, terrible labor laws, way too many holidays, expensive necessary permits to get anything done, etc.
Let’s start by talking about the labor laws. They’re essential of course – they need to be fair to and protect both sides.
But in some countries, everything is in favor of the employees.
Currently I’m doing business in about a dozen different countries. There’s one particular country I have a company in, which if I had my time again, I’d never have got involved with.
The labor laws are just ridiculously lopsided.
It’s near impossible to fire anyone, even if they’ve done something terribly wrong, and are causing damage to the business.
And when you do let someone go, you can almost count on them going to the labor board to file a complaint – it’s a perfectly normal thing to do. And of course, you’ve got to pay them out for a few months of salary as well – again, even if they did something terribly wrong.
Other countries might have a lot of red tape when it comes to getting permits and approvals.
Costa Rica for example is notoriously slow for getting permits approved (at least the kind of permits that a restaurant / resort / bar might need).
I’ve been wanting to add another 25 rooms to Sunset del Mar since 5 months ago. If I’m lucky, we may have some of the permits approved 3 months from now. It’s just very slow. And not only does my business suffer, but it prevents a lot of new jobs from being created for the locals in the area. So on one wins.
Another thing to look at is public holidays. I have a company in a country where there’s a national holiday every 3 days (maybe a slight exaggeration, but that’s what it feels like).
Of course my staff there love the holidays. And I’m not saying holidays are bad – some rest and rejuvenation is a good thing.
But when you’re trying to get things done, it’s better to be in a country where work is not viewed as a terrible thing everyone should be frequently relieved from.
So in assessing the business you want to invest in, look beyond just the future cashflows of a business and how it stacks up against competitors. Consider the country’s business environment itself.
10.) Watch the consultant fees closely, and use the consultants only when necessary.
I’m talking about lawyers, accountants, and anyone else with very specialized knowledge and high hourly rates.
When you’re involved in getting the deal done, there’s going to be certain jobs you can do yourself, or which you can have a much lower-paid person take care of.
For example; when you’re negotiating the price for the business, and the payment terms for the business, you can deal directly with the seller on all of that without involving the lawyers too much.
You don’t really need a lawyer charging $400 / hour to rack up 50 billable hours acting as a middleman initially. Save the lawyer for the final stage, when your letter of intent (your initial offer formally written out and sent to the seller) has been accepted.
They can then handle getting the official legal agreement written up, and all the finer details of the deal.
It’s the same thing with a lot of the initial finance / accounting work.
If you already have an existing business, then see if you can offload some of number crunching work to them, instead of going to a Big 4 accounting firm who’s going to come back a month later with a multiple-five figure bill.
Another tip when dealing with high paid consultants; put a cap on the amount of billable hours for each period.
If your lawyer has no limit on their billable hours, you can expect them to start finding new jobs and other ‘essential tasks’ you didn’t even know about. And the first you’ll hear about it, is on their bill.
In one of my deals, I hired a lawyer to handle getting the sales and purchase agreement done, as well as registering the necessary company’s in that country.
I paid them an upfront $10,000 retainer, and we had a lose verbal agreement that the 10k would cover everything.
6 months later, I received a bill for over $50,000!
To be fair to them, they’d done a lot more work than was outlined in the initial scope. But $40,000 more than what I was initially told? I don’t think so.
After this, I made sure that I always set limits on what could be charged. Anything over that, I tell them they need to keep me in the loop and get my approval first.
11.) Make sure the seller will stick around after settlement.
You don’t want them to disappear the next day after settlement, because you never know what surprises you’re going to have.
In my case with buying an island resort, I’ve covered. The seller is not running off anywhere – they are stuck on another island running another resort, half a mile away!
In all seriousness, they’ve been great to deal with. There were a few tense moments in the 1 year back and forth negotiations, but we are now working together to bring the settlement to a close, and they’ve offered to provide a lot of assistance for the next 6 months.
They are already sharing all their contacts with the wholesalers (eg. travel company’s who refer a lot of business, along with the contracts and rates), the providers (eg. for food, liquor, etc), internet / phone providers, and anything else that we need.
Being days out from settlement, each day I’m finding new things I had not thought of. Eg. today I realized the liquor license needed to be transferred into someone elses name. On things like this, they are going right out of their way to help.
This is the kind of arrangement you need to have with the seller. It will just make those first few months so much easier for you.
12.) Look for well documented processes in the business you’re buying (and when you take over, continuously stickler for documenting processes.
At the end of the day, a business is a collection of processes, and people who are responsible for implementing and monitoring those processes.
Every part of a business has processes.
Processes for handling customer inquiries.
…for fulfilling services.
…for recruiting new staff talent.
…for launching new products.
For most businesses, these processes are stored inside everyone’s heads. Which is a real problem.
But for a small % of businesses (the much more successful ones), these processes get documented.
Inside of MOBE for example, most of our processes are stored in the company’s intranet. It’s kind of like our own membership website, where each staff member can login, and see all the processes relevant to their role and division.
I first started to record these processes (and asked others to do the same) in 2013. We’d reached a monthly revenue ceiling, and I knew the one major thing holding us back from scaling, was all the disorganization and chaos that came with no documentation.
We are still a long way off from having all the documentation where it needs to be. It’s still a constant struggle to get people to write out processes and keep them updated. But I continuously stress it needs to get done.
If you’re buying a business, this is one of the first things to look at; have they been documenting their processes.
The less documentation you have, the less the business is worth.
Just take a look at some of the most successful franchises in the world. They all have extremely detailed operation manuals. This is what their target market (potential franchisees) want – they want instructions. They want certainty on how things are supposed to be done. The more certainty, the more money they’ll pay.
In the case of the Fiji resort I’m buying, I already know there’s virtually no documentation on anything. The existing resort brings in less than $5,000 most days, so it’s a small operation with few enough people that they can get by having all the processes in peoples heads. This will be one of the first things I’ll change.
So those are the big lessons I’ve learned. I could list out more – I’m always learning. But the 12 I’ve covered here should help you at least avoid making some big mistakes.
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