What can we all learn from Warren Buffett? First and foremost, he doesn’t buy on sentiment. Yes, it’s easy to be passionate about wine and coffee, but when buying businesses it’s more important to be a dispassionate, skeptical number-cruncher. Your brain must rule the buying decision, not your heart or in this case your taste buds.

Buffett is also known for his disciplined approach to measuring value. He favors businesses that are profitable and generate high cash flow that in turn can be used to buy even more super cash generating businesses. It’s a remarkable cash-building cycle of success.

If your target wine and coffee business isn’t profitable today and you do not previously have experience turning around a retail operation, it’s probably best to wait for a better, less risky acquisition. Buffett would probably want me to emphasize this point further. You’ll lose less money by waiting for a more lucrative opportunity.

Buffett’s also a guy who likes to invest in well-managed companies with broad-based consumer demand, (insurance, razor blades, candy, etc.). And as a final point of guidance, Buffett buys bargains. He doesn’t like to open his wallet unless he is buying below a company’s asset or market value. It’s a cushion to offset unexpected financial needs or yet another way he delivers upside to Berkshire Hathaway investors.

I must admit, what you describe sounds a little speculative. Yes, there may be some long-term upside in owning a building and some cases of reserve wine. However, the more relevant test is if the retail business of buying and selling coffee and wine can generate considerable cash every single year you own the business. What you ultimately sell the building and company for should be an extra bonus, not the total reward. Buffett buys businesses that he is happy to own in up markets and down markets. You can too.

I am sympathetic to your entrepreneurial eagerness to just get going. But, at any price?

Many first time business buyers want to own a business so badly they skip the tire kicking process (called “due diligence” by professional investors), ignore warnings from knowledgeable advisors and never challenge the purchase price. They assume that they can fix nagging pre-sale issues after they own the business without ever really thinking through the kinds of problems they are prepared to handle. This is how successful business buyers become unsuccessful business owners.

The great thing about Warren Buffett is he willingly shares his investment wisdom with people like you and me. Then it’s up to us to apply his proven, no nonsense approach to smart business buying to smaller acquisitions like your wine and coffee store.

Come back next week for a detailed list of due diligence questions that will help you determine if this retail opportunity qualifies as a bona fide Buffett bargain. Then check back again the following week when I finally get around to answering your question about how to raise $100,000 to complete your retail business acquisition.

Thanks for writing.