Investing in managed businesses

I just wanted to hear people's thoughts on investing in managed businesses and opinions on the most viable options available.

When I say managed business, I mean any sort of business that would still allow you to do a day job. Some examples:

- Buying a business (e.g. CBD bar or restaurant) that is fully under management. You may provide some oversight, but ultimately you trust your management team and staff to run it for you. Interested to hear the business types people think lend themselves best to this category.

- Automated car wash. You may need to hire one person to be on hand to answer customer queries or perhaps strike a deal with the service station to provide that (assuming that's where its based).

- Vending business. Set up your machines in designated locations and either do the collection/restocking yourself or pay someone else to do it.

- Import / eBay. Buy from China, sell on eBay. Bit crowded these days.

So yeah ... let us know your thoughts. What are your preferred business types? Comments on barriers to entry? Fully managed vs part managed? Set up costs. Previous experience / anecdotes. Pros / Cons of investing in business vs other investments (RE, stocks, PMs, etc). Any and all information appreciated.

 

I assume that there can't be much profit in just owning a bar or restaurant and not actually being involved in the management or else the management would just buy it instead.

Vending machines would probably be the easiest, I'm not sure how much set up costs would be, but assuming you don't have to buy the stock directly from the companies (this usually costs more than getting it on special at supermarkets), then you could turn a decent profit with minimal effort. I'm not sure how much it would cost to "rent" space in train stations etc though either.

At the end of the day if you could make decent money without having to do anything then more people would probably do it. I'm guessing anything you do will either require time or not make much money.

 

Perfectly stated. Perfect!

I always laugh at the stupidity of people without experience going into business. Never do it and especially not in hospitality, you'll go broke in a heartbeat.

 

Buying a managed business like a bar or restaurant is an investment in the people running it. When they quit/die/stop performing (and they will), you'll need to find replacements. You basically need to know a lot about the business, the industry, where to find good staff/managers and how to hire and incentivize them.

Even if you're not working "in" the business, keeping tabs on it will at least be a part time job.

 

I'm really not sure how much money is in it and am hoping someone with a bit of experience in the matter can chime in.

With the bar/restaurant example, those that I've seen advertised (and made my shortlist - then sold within a week) had excellent turnover and decent profits to the owner (they were fully managed). Saying that the management would just buy it if the profit was there I believe is flawed - buying requires capital, quite a lot of it, which most bar managers wouldn't have the means to attain. There is also higher risk in investing in a business vs a passive cashflow investment (not to mention more work with books, taxes, decisions, etc).

The bar/restaurant businesses send to lend themselves well to management. I believe its a big reason why lots of football players end up with these sorts of businesses. Most footballers would have little to no idea about money, however their managers do and are the ones who put them onto this path.

I suppose it also comes down to what you define to be "decent money". Is that simply 5% higher return on average than a passive investment (stocks, RE) to compensate for the additional risk? Or is it a 50% ROI per annum or anything inbetween? For me it would be the ability for the business to pay all expenses (including loan) and make me a small profit of approx 10% p.a. of my initial investment.

 

It is possible to have a successful managed business.

The steps would be:

1. Build the business yourself.
2. Develop systems and procedures.
3. Document all the systems and procedures
4. Train all your staff in the systems and procedures
5. Develop more systems and procedures for all the things that you personally do.
6. Assign all the stuff in item #5 to other staff.
7. When you have assigned all your own tasks, and have nothing left to do in the daily routine of the business, you have a successful managed business.

 

While not a managed business .... my wife and I took over a hospitality business with little to no experience quite a few years ago. There was a bit of a learning curve and she worked the business but we were quite successful before selling it.

I do take your points though ...

 

I know a fellow who purchased a car wash. He spends a few hours a day making it run and has a day job. Is rapidly paying off the million dollar mortgage for the land and the business and is planning it for his mid forties retirement passive income stream. He would recommend them. He says it all comes down to traffic past the site - so more traffic, higher initial purchase cost, plus reliable staff, which are apparently fairly easy to find.

 

This is the response to the "if you could make decent money from a managed business, everyone would be doing it". i.e. capital and risk (not many people willing to put up $1M+)

 

Took his savings, sold an investment property and mortgaged his house for it. Not sure of actual returns but he says he cleared off the house mortgage and isn't far away from absolute ownership. Timescale about 3 years. Said buying the land is an essential part of the process and is the future proof insurance.

Horses for courses.