Not really. But clearly profits after paying a manager are far more valuable than those for an owner operated one. Let's assume the business under owner/management has EBIT of $100k/a the value is limited because you could not really put in a manager and get a fair risk weighted return on $200k investment.
This is true, and the reason why I stopped looking at businesses at this pricepoint ages ago. You have to be in them every hour yourself. Some people want that, and maybe that's all they can afford too.
If it had an EBIT of $200k you could employ a manager and still have $100k/a which would easily pay any finance and pocket a nice income. That business I would not sell to you for $400k.
Now you're talking! This is where we are at pricewise. The business we are buying is netting approx $200k, and is asking $380k - which we offered. I think this is about the entry-level for this type of scenario, based on my trawling.
Anything less doesn't ever seem to have enough "padding" to whack a manager in.
In the case of a business of this size asking 4 or 5 times nett, which was mentioned earlier, and what you elude to as the price you'd want to sell it for, it defeats itself as a viable prospect (for me) because the extra finance costs would wipe out much of the profit you would pay yourself as a wage - you would be forced to work it yourself and get rid of the manager, which is not my goal.
No doubt there are folk who will pay those numbers for a business, but it's a lot of money to fork out and still be tied to the 40+hour week job. If I'm going to go that path, I could do it with a $100k fish and chip shop and still make a similar income. Pass.
You end up only being able to sell to an owner/manager, and one with LOTS of other equity to use as currently the Banks won't lend on those numbers you want. They want to see servicability; not potential servicability.
As with everything in life you must pay for quality, it's permanent. The price is temporary. That's quite different to suburban housing so you must think differently. You are buying a business, not an income!
No; I'm buying an asset that has a good income. But like all assets, there's a degree of involvement from the owner of course.
My head is here now; if I have $500k to spend, what's the best way to leverage that to increase my
income NOW?
I used to think; buy another property, then another, then another. So, we did that.
The problem with that has been this; after nearly 8 years at this investing caper, we have built up some nice asset wealth, but still don't swan around like James Packer living the life from the income it doesn't generates.
Time to get serious and make some income from it.
So, now my mind is thus; each $500k of equity to spend will nett me $100k per year to spend (or more) and bugger-all grinding away to get it. That's a 20% nett return on yield.
Could I whack it in shares and get a better dividend return? Maybe; but I don't have the expertise to accomplish that and I doubt the ability to protect the capital from a sudden loss.
