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Building a Small Business That Warren Buffett Would Love by Adam Brownlee

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CHAPTER 3

Strong, Consistent, and Growing Earnings

For a business to be successful, it must have strong, consistent and growing earnings over the long term. In part, this chapter provides “Income Statement 101” details and asks you, the small business owner, to review the profit and loss statements over a ten-year period, investigating for strong, consistent, and growing earnings. Start-up business owners should project realistic earnings going forward and look for strong earnings potential. If the earnings do not exist or are not likely to exist, then the question becomes why—why not, by God? If a solution cannot be found, then it is time to reevaluate your situation, kind of like when Lisa Marie Presley realized that her husband climbed “giving” trees and thought he was Peter Pan.

Warren Buffett seeks out businesses with strong, steady 10-year earnings track records.

Through the Eyes of Warren Buffett

In Buffett’s world, ownership of a stock means that the earnings belong to you.1 As a shareholder, you technically own a piece of the underlying business. If you own a 25 percent share in a local hamburger stand, then technically 25 percent of the earnings belong to you. If you own 25 percent of a consumer monopoly company such as Coke, then congratulations, you have more money than almost anybody and need to have me over sometime.

The first sign of a strong business that Warren Buffett loves is found in a rock solid earnings track record that is consistently on the uptick, an indicator ...

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