Considerations from an expert on potential business investment opportunities in times of economic uncertainty.
As the economic slowdown persists and redundancies rise, more Kiwis are looking to go into business for themselves because they want to earn more and enjoy greater control over their lives, but most startups will end in failure, New Zealand’s biggest business sales firm warns.
Bruce Cattell, CEO of Link Group International, says the illusion of job security leads many to consider entrepreneurship, either by buying a business or starting on their own. However, statistics show that 63 percent of New Zealand start-ups fail in the first year.
“Not only that, but start-ups are also capital intensive and can take years to start realising a return. If you were to go out and start a business from scratch with the aim of building an annual income of $200,000 for example, it’s going to be high risk because you’re learning and having to pioneer a new market.
“You’ve got to fund the business on the way through and pay your household expenses. With a fair wind, it’s going to take you 2- 3 years to achieve your start-up goal.”
Business buyer inquiries are up 35 percent in 2024 compared to previous years, which suggests more New Zealanders are catching on to the strategy of buying a going concern instead.
“Existing businesses offer immediate revenue, established customer relationships, proven cashflow and an established business model. This allows the new owner to service debt and generate income from day one. Entrepreneurs can apply their skills to drive growth further.”
The best businesses
Cattell says the best businesses are usually those that trade in the boring stuff, which could be any business that deals in essentials rather than those that rely on discretionary income, particularly during an economic downturn.
“People cannot do without food. You could go into a business that sells food or one that serves the supply chain; for example, food packaging, catering equipment or ingredients like crumbs for fish fingers.
Repair and maintenance businesses also tend to do quite well because they’re not something we can really do without. “The supply chain model works here too. For example, importing motor oil, tyres, electronic components and tools. In our experience, these businesses are less affected by economic downturns because they provide necessary services,” says Cattell.
Three considerations for potential business are:
- Assess alignment with skills: Evaluate whether the business aligns with your skills and experience. Success is more likely if you can effectively run the business
- Evaluate business performance: Examine the business’s track record and current market conditions. Past performance can indicate future success, reducing risk.
- Determine funding feasibility: Ensure the business is financially viable, then assess whether you can fund ongoing financial obligations.
Franchises also present a lower-risk option with their established systems, market research, and proven demand. “Franchises in food, home services, and niche manufacturing have shown resilience through economic challenges. Buying an existing business or franchise offers a path to financial independence and a stable income, especially during uncertain economic times,” says Cattell.
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