NZB: Why do so many Kiwis invest in property?
BRAD: Property investment is part of the culture here. You don’t need much business acumen to do it and you can make a further profit when you sell the property on.
Investors see this as a safe option with rental income creating cashflow to repay the mortgage and provide a passive income stream. There is usually a profit on the sale of the property. Historically there were no capital gains taxes payable and loans for investment properties were easy to get. This is all changing, and many investors are now considering alternatives to property.
NZB: Why should investors consider a business then?
BRAD: The initial outlay to buy into, or start, a business is often less than buying a property. If run well, your cashflow should be positive and returns on investment higher.
With good management and planning you can sell your business for a healthy profit.
With a rental property, your investment would return five to six percent. A business will typically yield 10 to 20 percent.
NZB: What’s the most common approach people take to business ownership?
BRAD: Most people are small business owners who are wrapped up in the daily concern of cashflow and fail to consider the value of the overall asset. Most business owners never consider selling their business.
Many business owners have also left their skilled jobs to go out on their own. While that’s great, some are just employed in their business. They work the same hours and pay themselves a wage – it’s just an income.
I ask business owners to look at business investments as they would an investment property. Don’t connect emotions to it; don’t get attached. Separate your passion from business – passion is not a good guide. If you love what you do, then sell that business and start a better one.
We can feel tempted to stay within our knowledge and skill comfort zones.
Here’s some motivation – just look at the lives of millionaires. Most, if not all of them, have sold a business or two along the way. That’s where the profit is!
NZB: How do you go about making business investment easier?
BRAD: Educate yourself! Get to know the industry and business. There are also skills that you can learn for yourself, without the need for qualifications.
We’ve just launched the Wise Advice Academy, a practical, online training resource for business owners and leaders. The online resources allow you to learn bite-size pieces of practical knowledge – from accounting and sales, to marketing and media relations – that you can learn at your own pace and implement in your business.
NZB: Tell us about the different types of business investment in New Zealand.
BRAD: There are two types of investment – active and passive.
A hands-on approach allows you to a) start a business from scratch, b) manage and run an existing one or c) buy a damaged ‘doer upper’.
Businesses that are for sale due to bankruptcy or liquidation might not be failures for you. They might have had bad management, or genuine reasons for failure. Research the reasons – you might get a bargain.
A passive investment allows you to leave the management to someone else. Find a business with good management, do your due diligence and market research. When buying it, consider the resale value.
The three top trends we’re seeing now are technology, manufacturing and services to meet the needs of population. Technology needs supporting services – such as manufacturing, software, mobile applications, for example.
We have an ageing population, so think about what their needs are.
Consider Council developments and infrastructure plans. Like property investments, check out the hot locations, trending companies, newspaper articles and business listings. Like open homes – look at lots of listings to learn about the market.
Chat with your adviser and think long-term. There’s a difference between a good contract opportunity and a business investment.
Also, research funding opportunities through Callaghan Innovation, NZTE and other organisations, depending on your industry and stage of business.
NZB: How can you get a good return on your investment?
BRAD: Ensure your investment is profitable. Your cashflow must be positive to attract buyers. Prepare your business for sale like you would a house. Clean it up. Market it well. Make sure your brand is in tip-top shape, your team is happy, your website, social media and reviews are good. Your systems must record where your clients convert, your best-selling products or services and your highest spending clients.
Know your financials too, and have excellent HR and health and safety systems. Professional buyers will pay a premium for all these ‘chattels’.
Sell through a specialised broker, they can connect you to ideal buyers. You could also consider selling a percentage of the business first to give an investor confidence as they are sharing risk with you.
Continuously work on improving systems and profitability. A growing business is better to sell than one which has peaked.
Finally, have a good exit plan as part of your business plan.
NZB: What are the pitfalls of business investment?
BRAD: Don’t cut corners with staff and don’t place yourself in charge of staff if you have no experience or skill with them.
Have proper mechanisms in place for knowledge retention too, to avoid the loss of valuable knowledge when key people leave your company.
Also, don’t cut corners in your research and look ahead to future trends.
NZB: What kind of support do you need?
BRAD: Get a business advisor or coach, someone who will construct a business plan with you. Work with a financial adviser, bank or lender. One of my clients invests in hospitality businesses. He turns them around in about eight months and makes a 150 percent profit. It’s important to have the right team behind you.