Hi,
I am looking at ways to generate income from IPs equity. I guess this is also part of the property investing cycle ....
Has anyone got experience in purchasing/ owning/ selling fully managed businesses ?
Do these things actually exist and how "fully managed " can they be ?
I have searched but could not find anything. If there is already a topic on this please point me to it.
Thank you.
Soya; you're playing my song!
This is
exactly the path we are heading down now.
We have made some nice cap gains out of our property portfolio over the years, but the income from it wouldn't support us unless we sold a big chunk of it to retire debt, and even then it'd be only just ok, so that's not our plan.
So, we're using our equity to buy managed businesses instead of IP's currently. We are about to buy no.2.
Fully managed businesses are out there, but you need to buy at a price point where there is enough nett profit to pay you AND the manager a decent income each, otherwise what's the point?
You need to set in your own mind what your "decent wage" for you is from each business. Mine is $100k - not bad for doing very little.
From my experience of trawling the businesses for sale sites and looking at Vendor Financial Statements, you would need to start looking at around the $500k range as purchase price to achieve this. Very general, but it's the starting point, and go up from there.
Of course, as you go up, you get to make more income, and you may be able to negotiate (especially in this climate) a $500k price down.
We put in an offer of $300k on a $450k business (nett profit of $190k - this is about enough to achieve my objective) which has been sitting there for nearly a year now. Owner works 1 day per week apparently. We offered back in Nov last year. Vendor laughed at me. Expected that, but I needed that price to make my figures work.
Spoke to the agent a couple of weeks ago - the asking is down to $420k, and the agent reckons $350-$375k might secure it now. This is now a good deal, but we are in negotiations on another one right now, so I'm out for the time being. I'll offer $340k in another 3 months if it's still there. So, they're out there.
At and below this figure, most businesses are owned and operated by the owners - good income usually, but lots of hours. Been there and done that. That's ok if you're starting out and are driven to get established quickly. I'm 48 - time to relax and enjoy the fruits and pay someone else to do all the hard work.
The biggest hurdle for most people with all this is to accept that
they don't need to really be there for the business to operate successfully.
Having said that, I would say that all business owners are involved in their businesses, but the level of involvement is set by your own mindset towards being "hands-off" of "hand-on".
My chosen profession (golf) is very "hands on". I've done it forever seemingly, and I am totally sick of that, so for me, shifting to "hand-off" is very easy.
I am now more than comfortable in my own mind to let the manager do what he/she is paid to do - run the business.
Pay them well, get out of their way, be part of the team - but in the background keeping a close eye.
!
