Small Businesses are an excellent investment that typically yield 100% to 500% returns. As Hayden Advocates in “The Million Dollar Mentor” small business is not a place to seek fortune. His opinion is that the self employment avenue is a fallacy. Something people with no plan or concept of earning a million dollars in a specified number of months will do in a vain attempt to buy themselves a job. (Well he is a hard realist)
Its a mistake to see it as the way to financial independence UNLESS it proves to be VERY lucrative and just not worth selling.
Very few small businesses qualify for this decision. So the lead here is not to get involved in the first place. The lead is to buy and sell these entities. As there definitely IS a fortune to be made trading these assets.
Amazingly there is a steady stream of buyers of these hard work-small return endeavours. People buy for their own reasons and its not up to us to question their reasons. As opportunity investors we work to provide people with what they seek at prices they are willing to pay. (For the businesses you have built for little money and time or the businesses you have quickly turned around and resold)
Most people would like to be self employed for two reasons. They would like to tell their boss goodbye. The other reason is usually found in some vague notion of a payday in some future undefined time. Hayden talks about this in the “Mentor” and discusses how self employed people simply buy themselves the “benefit” of “management headaches” for little recompense.
There are two compounding avenues to take with small business.
Small business investment is very lucrative because like Residential Real Estate, many of the sellers are non-professionals. They may have basic business skills but don’t understand the value of their proposition which leads to deals for below intrinsic value. They typically sell their businesses for 70 cents of $1 of value or they tend to pay $1 for 70 cents of intrinsic value when buying existing small businesses. This is their individual choice and the target of our activities.
Many of these business operators are cash flow investors who mistakenly include their own labour as part of the cash flow equation. Understand? A cash flow investor will look at a business that returns $50,000 net profit (after costs of doing business) and will be willing to pay $100,000 for it because they reason they will have their money back in two years. On the surface, this may sound reasonable. After all as an opportunity investor that’s 50% profit per year.
But.
When you include the cost of your own time and labour into the equation, you really aren’t doing that great at all.
But what they really fail to grasp is that the asking price is arbitrary and based on earnings, this $100,000 was fictitious until the buyer makes it real.
So the two leads are
1/ start-ups
2/ converting low priced assets into high priced assets.
1)Start ups.
When you find a demand in any particular area, you recognise that you have a potential business. If existing supply fails to meet that demand adequately, you stand to compound your seed capital dramatically. This is where you will find those rare beasts, businesses that you shouldn’t sell for a quick return because they are just so lucrative.
An example of a current demand that is not being met is in the after market automotive industry. The area is booming as people tend to modify their vehicles to their own requirements. The existing supply (businesses that cater to this need) is not keeping up.
This particular segment is very interesting, it has been booming for years and shows no signs of softening. The phenomenon is being witnessed right around the world. The automotive revolution is spanning the globe and continues at an exponential rate.
Aftermarket sales is just being ignored by big players who are focusing on larger meatier segments of the general automotive industry.
There is a defined opportunity here for the opportunity investor that may last decades and beyond. Start businesses in the after market automotive industry and sell them 2 at a time.
In particular, what is interesting is the automotive tint industry which seems to be very lucrative and in high demand. Truly a winning combination. Its lucrative because the cost of tint film is a few cents, but the cost of the service is hundreds of dollars per car.
Explanations of the demand can be found in the current alarm about global warming and the green house affect. The damage the sun does to exposed skin and retinas is very motivating for many people who are willing to shell out for the protection tint film provides for their family.
Because of the cheapness of the tint film, there is an opportunity to start up with little money exposed. There is some other things you may need but the cost could be very low if you approached it right.
2)Converting low cost assets into high value assets.
This is the traditional “re-hab” approach. Just like in Real estate you can buy cheap and sell high, just by buying small businesses in distress which have “obviously repairable problems”. This is where the vision is. As a professional you apply your knowledge of the specific area you pick and review businesses for sale in that area. You identify the profit and devise the way to extract that profit.
Of course, here you will need access to funds, whether borrowed or saved.
As a small business entrepreneur, your only interest in them is to resell them rapidly for a profit. This is where the capital gains is, this is where the rapid wealth is.
Martin Thomas is a professional investor and CEO of http://www.opportunity-investor.com
Martin enjoys sharing insights into wealth accumulation. If you would enjoy building your own money machine, please follow the link above.
Filed by admin at 9:46 pm under School of Investors