Hello all,
I’ve always been intrigued by the concept of investing in businesses, but what does this mean, and how does one go about it?
- Start my own. Not really an option for me. This is not investing per se in my book but rather a way of replacing my current income.
- Buy an existing one. OK, sounds good. But can one buy a business for say $200,000 - $500,000 that will run itself? Will a bank lend for that?
- Join a syndicate or group, provide funds to others to begin or buy a profitable company. Where on earth do I find opportunities like this?
Cheers
TB
Running businesses is one of the best investments going, because the value and the profitability of it are all under your direct control.
Buying them is not too hard, but the borrowing levels are different than for property; most lenders are looking at around 60-70% LVR's so you need to come up with bigger deposits. Existing businesses can be bought using LoDoc and NODoc if you have an ABN already. Accountants need to be consulted for the details for your circumstances.
Also, smaller businesses are not "run themselves" propositions generally. I would say that unless the business is turning over at least $1 mill it is not a "hands-off" proposition.
I ran Prop Shops at golf clubs for 25 years. My last one had a turnover of around $400-450k per year. It netted me around $80k, but the hours were minimum 60+ per week. Work out that hourly rate! I couldn't leave this business in the hands of a manager; not enough profit. So that's agood indicator I think.
But the benefits were hidden; I got to run many living expenses through the business, so the real profit was greater, as to pay for those expenses with after-tax money would have required a much higher paying employeee salary, working for a boss under his/her terms and so on.
But you can start with a small business, work hard for a few years and build it up, then look to moving up in levels. Fish and chip shops, cafes etc are good for this, but are work intensive.
But it can depend on the business. For example; laundrettes can be hands-off if they are big enough.
I am currently in negotiations to buy a business costing $150k plus stock (another $100k). This is not big by any means, but it will provide an average income, easy hours, lots of tax perks, and will be the springboard for another, bigger one in a year or two, and so on, until there is enough businesses or a big enough business to have it managed.
But I don't expect to be totally hands-off; it's fun running them, and I would always like to keep a small hand in the goings-on.
The profits will be used for living expenses, and re-investing back into the business, and the wife's income will be used for more investing in property.
The purchase will be done using existing equity and another loan for the balance. Basically; I am buying a job.
Providing funds to others to buy businesses is risky. I wouldn't do it; especially if it is a start-up, unless you know the person and the nature of the business intimately.
The same goes for investing in businesses with others.
