Buy a business to create cashflow

Many investors have a lot of IP equity but poor cash flow/serviceability to add more IP into the portfolio. What do you think about using IP equity to buy a cash cow business to improve cash flow?

 

Yeah good idea but what business? Don’t forget there’s this corona thing floating about.

 

Over the last 12 months, that has been one of the best way to destroy one’s net worth and reduce one’s income .

 

Why not start a business rather than buy one.

 

Nor me.

I am still down 24% since 19-Feb. My five worst performers are four banks and one REIT, all down 30+% and dividends will be smashed for next 1+ years.

But I am not worried. That is exactly why one should have significant cash reserves.

One of the biggest risk with owning a small business has always been the risk of going belly-up. The best defence against that risk is to have significant cash reserves as many business owners are learning right now.

But big businesses have the same risk. Ask Virgin.

How many big businesses are doing SPP right now (with discounted share prices) to shore up their balance sheets. I am aware of COH and RHC (both in the heath sector) as I own some of their shares.

For me, it is all about risk and reward.

With small business, it is high risk and high reward.

With big business, it is lower risk and lower reward.

My experience (I owned four in my working life) has been that one will typically make a lot more money (growth and income) from a really successful small business than from a really successful big business.

And that is the way it should be:- owning a small business is long hours, hard work, high risk, massive stress, ...

But in retirement, I do enjoy owning (a share of) a big business .

 

Absolutely. And you can buy the business as a going concern. Why not? There’s probably a franchise idea in it.... could call it ”Datto’s Dope......anyone with a wardrobe can be in business”

 

You could always look at it from the ''Legal'' side and just buy into the medical side as most of those companies are price wise at all time bottom end prices from the several that i still hold..

Rather then a cheap faulty light in a old cupboard that ends up burning the house down and your insurance tells you no can do after the Police and Fire report ,or move to Canberra ..

 

I think medicinal cannabis is still in it's infancy. Too man hurdles to get a script. When these problems with acquisition are overcome then pot companies will blossom.

 

Why not start a business, instead of paying someone a multiple on cooked books?

 

Yes why not? Spend a bit of time researching your area of business. Even an Amazon business where you can build your own brand and eventually sell it if you want to and so on.

 

If the goal is to assist serviceability the benefit won't be immediate, 2 years down the track yes

 

Two year waiting is not too bad if business can generate $100K+ net income pa and boost significant serviceability level for your borrow capacity. Wage earners do not easily raise salary by $100K in 2 years

 

Yeah for sure! Never said it was bad, just not immediate

 

The difficulty with the op suggestion is that if businesses were that lucrative, there would always be someone prepared to accept a lower return which would make the purchase of your business unviable. 12 years ago I was offered $10 million for my business which would have netted the buyer slightly less than 10%. He bought so many other businesses that he went bust and the vendors got their businesses back for 30c in the dollar 2 years later.
The best business is a side hustle that develops. Do a search on side hustle threads.