BLOGNAME: LOUDER THAN WORDSAn informal, stream-of-consciousness reflection on business ideas, events and issues in modern business, modern life and with some specifics to the web-software industry by Paul Tomori, Internet Entrepreneur
|A Pig In A Poke|
By Paul Tomori
Thursday, May 06, 2010 at 10:28:02 (EDT)
In a transaction I was considering some time ago, my lawyer raised his eyebrows when he saw the details of the deal and he said "Paul, make sure this isn't a pig in a poke". I had heard that expression before and definitely had a feel for what it meant... and... of course, I thankfully took his advice.
A pig in a poke literally means a pig in a sack or a bag. In earlier days, at market, a vendor would present a bag claiming it contained a suckling pig (desirable), when in fact, the bag contained a cat (undesirable). The label on the bag would say "suckling pig". The vendor would refer to it as a "suckling pig", but when the sale was made... and the "cat was let out of the bag", the vendor would run off leaving the buyer "holding the bag".
Interesting how all of these modern-day expressions bear no resemblance to modern day activities in a literal sense. However, in a figurative sense, there are many parallels to a pig in a poke.
The goal in life's transactions is to make sure that if you think you are buying a juicy little piglet in a bag, make sure it really is a juicy little piglet before you hand over your cash. Though, if what you are receiving is a gift with no strings attached, "don't look that gift horse in the mouth" to make sure it has good teeth, just take it with thanks.
Are you considering the purchase of a house? You often see words like "charming" to describe a house that needs a lot of work. So, make sure you're not buying a pig in a poke.
Are you considering the purchase of a used car? If you don't have specific knowledge and skill in detecting hidden problems with a vehicle, then take it to trusted mechanic to get the once-over. He or she will be able to tell you if the car has been in an accident, if there has been body work done to cover up a dent or some rust. You'll find out if the engine is running on all cylinders. You'll learn what additional costs will be required to have the car meet safety standards. Get the buyer's guide to make sure there are no hidden liens on the car (i.e. to make sure that the seller hasn't used the vehicle as collateral for a debt). Pay a small fee to get some expert advice and you'll be more assured that you're not buying a pig in a poke.
You think you have found a nice piece of land in a great spot and everything is screaming "location location location!"... However, what was on that land before? A gas station perhaps? A small factory? Maybe you should get the soil tested? It's not to say that you shouldn't buy the property, but if you determine that the property is being presented as a "pig in a poke", you might be well served to find out if there are costly problems that might compel a change in the price you will pay.
Are you considering an acquisition of a company or the purchase of a franchise? Get all the paperwork on the operation. It's called "due diligence". Do your due diligence! If it's an acquisition, look for things like "related company loans" as these are a sign that there may be some tax-avoidance trickery going on. The trickery might be legit or it might not be. Find out. Look for recurring interest or penalties that are being paid as this might be a sign that the business has serious cash-flow issues. That's ok. You might be able to deal with those issues, but don't do the deal blindly. Those issues should perhaps affect the price you will pay. Ask point-blank questions about any outstanding legal problems, any unresolved customer complaints that could turn into legal problems later, and any tax audits. For certain, request copies of financial statements so you can be assured that on a year to year basis, the company has been professionally accounted by an arm's length advisor.
In a word, be "conscious" about your interactions. Don't bury your head in the sand and hope blindly that you can just trust the other party. If you're looking to buy a suckling pig, and it's being handed to you in a bag, LOOK INSIDE THE BAG. You won't regret looking, but you might regret not looking later.
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