Real estate investment. House and coins on table.
Lately I have had clients coming to me looking for funding to buy a business. It could be a franchise food chain or an established health clinic. To do the application, there are additional pieces of information we need:
-Past 3 years’ financial statements
-GST returns
-Lease agreements
Be careful with the liability that business has, as it may not make much money if it’s carrying a lot of debts or is borrowing money to keep it working.
So, is buying business a good idea? Let’s examine this:
-Buying a franchise food chain usually comes with $400,000 price tag to the franchisor for the business. In reality, you are effectively buying yourself a job! On top of that, you can’t necessarily grow your business, as the franchise company has a strict control system you have to follow.
-With buying an established health clinic, it usually costs several hundred thousand to one million. At first, it can sound like a good idea since it has an established client base, but the reality is again, you are buying yourself a job and there are existing clients who may decide to go to other clinics which means that you effectively lose part of your investment.
Also pay attention to when the vendor purchased the business and for what price, why they are selling.
However, if you are inexperienced, unemployed, and lacking in confidence to build your own business, buying a read-made business would be your only choice.
Last year, I was offered to buy an existing home loan book, I answer is the simple “No, thanks.”
In fact, since I set up my own business one year ago, I have built my own book worth over 80 million.
Have you thought about using the funds to invest in your own business? Don’t forget with the baby boomers retiring, there will be around 150,000 businesses for sale for which you may only need to pay the chattels if there are no other buyers around, or even nothing by simply taking over their existing leases if they are willing, so you get a business and they get to enjoy the rest of their life. In fact, I have come across a client who paid $1 for a café business in the CBD and another who paid $1 for a water-sport gear shop in Westhaven.
~Lucia