Buying an existing business is a practical path to financial success

I want to talk to you about what I genuinely believe is the opportunity of a lifetime. No, it’s not becoming an AI expert or influencer.

Angry hairdressers hear this: Scott Pape is sorry. It’s him that his wife is embarrased by, not your work. Jason Edwards

Today I want to talk to you about what I genuinely believe is the opportunity of a lifetime.

No, it’s not becoming an AI expert.

The cyborgs are getting exponentially smarter and will soon view us as golden retrievers (and leave us to sniff each other’s butts while they do the heavy analytical and computational work. Good boy!).

Nor is it earning your living as a YouTuber, or, god forbid, as an influencer. No matter how much you hustle, for most people being an influencer is a low-paid sales grind flogging teeth-whitening paste and vibrators.

Instead, the opportunity of a lifetime that I’m talking about is a lot more practical … and profitable.

Like what?

Like window washing.

Seriously, here’s a question I got this week:

Mr Pape,

I am 23 years old. Three years ago I started a very unsexy business: cleaning windows. Last year I netted $160k working, on average, 35–40 hours a week. I went into business as I didn’t want to be a slave, and I like the freedom that comes with money. I currently have $300k invested in the stock market and $90k in cash. My question is, what else should I do with it?

Sam

Sam is my new hero.

He’s not repaying HECS. He’s earning great coin. And he’s not only working far less than most of us, you can bet when he knocks off he might stare out a window, but he certainly ain’t thinking about them. That’s because Sam has what he calls an ‘unsexy business’.

Speaking of unsexy stuff, let’s talk about Baby Boomers – and the opportunity of a lifetime:

There are 2.6 million small businesses in Australia.

And almost half of the owners of these businesses are run by people over the age of 50. (In contrast, only 8 per cent of small business owners are aged under 30 … down more than 50 per cent since the 1970s).

In other words, they’re all getting older, and they’ll increasingly be looking to retire.

Who is going to buy them?

Young(er) people of course.

And here’s the kicker: many of these businesses are being sold for a song, or even closed when the owner retires. And these are the types of businesses that you want to buy. After all, they’re established, having made it through the ‘kill zone’ of the first five years. They have regular clients, reliable streams of revenue, and trained staff and systems in place.

So what’s not to like?

Well, how about not having enough money to take advantage of this ‘opportunity of a lifetime’?

Fair point.

Which brings me to my first question …

Tread Your Own Path!

Help! My Hubby Won’t Retire

Question

Hey Scott,

My husband of 43 years has his own small business and it’s his identity, but I would like him to retire. Thanks to modest living, saving, superannuation and an inheritance, we have $2m under our belt. We own our own home and have zero debt. He’s never taken long service leave, only three or four weeks off every year, so I reckon it’s our turn to spend some time together and enjoy life more. But he won’t (can’t) bring himself to stop working. Please tell him he’s a nong.

Lonely wife.

Answer

Hello Lonely Wife!

Your husband sounds like a typical nong-y small business owner.

And we all have the same disease: it’s our baby that never really grows up, and will always need us.

So let me offer a suggestion:

Your husband needs to find someone young, and full of energy to shack up with*.

*In a business sense.

Selling a small business lock stock and barrel can actually be quite difficult, especially if the business owner is central to that business. And another big problem is that banks generally don’t lend people dough to buy a small business, unless it’s against an asset like a house, which limits the pool of buyers.

That’s why one idea I suggest to the business owners is to sell the business to one of their workers, or to find someone who is willing to take over the business, and structure it as a multi-year earn out, where the worker earns a small wage, while paying off the agreed price for the business over say three to five years.

Why would they do that?

Because it works for everyone.

The young worker learns how to run the business while the owner is there.

The owner gets to start to wind down … and not annoy his wife (you).

And he also not only gets to mentor someone, he knows that his baby is hopefully in very good hands.

The Greens Party Listens

Question

Hi Scott,

You seem to be singing from the Greens playbook. This week they are shrewdly threatening to not pass the government’s Help to Buy scheme unless they agree to stop negative gearing and freeze rents. Plus, their stunt on calling out the number of pollies that own investment properties (most of them) was also very Barefoot. So, are you a member of the Greens party?

Sarah

Answer

Hi Sarah

I’m a V8-ute driving, gun-owning, farmer, who has proudly never eaten tofu. So no, I’m not a member of the Greens party (or any other political party for that matter). However, that allows me to sit on the (barbed wire) fence when it comes to politics. So, I think the Greens should be congratulated for not supporting the Help to Buy scheme because it’s a dud policy that will incentivise broke people to buy homes they can’t afford.

However, their policy proposal of freezing rents is Barnaby Joyce-like embarrassing. Think of it from the landlord’s perspective: if the government limits what rent they can charge, what incentive do they have to spend more money maintaining the property? And what’s stopping them from bypassing these laws and getting a higher rent from Airbnb?

Look, there are no easy answers to our housing crisis – and it’s something that’s happening the world over. Yet if I was a politician for a day, I’d wave my magic wand and scrap all the first homeowners grants and policies like Help to Buy that simply serve to push prices higher, and instead spend the billions on rebuilding public housing so vulnerable kids (and their parents) have a secure roof over their heads.

You’re a Dick, Barefoot

Question
Scott,

I’m a hairdresser, and I didn’t appreciate you starting your column last week with the idea that your wife was embarrassed about you being mistaken for a hairdresser. It just made you sound like a dick. Don’t alienate the people you are trying to help. Do better.

Michael

Answer
Hi Michael,

I actually got a LOT of emails this week from angry hairdressers saying the same thing. For the record my wife is embarrassed by me – not the idea of hairdressing. Mainly though, she gets annoyed that I wear free T-shirts instead of the nice ones she buys me. Apologies to all the hardworking hairdressers.

Disclaimer: Information and opinions provided in this column are general in nature and have been prepared for educational purposes only. Always seek personal financial advice tailored to your specific needs before making financial and investment decisions.

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Originally published as Buying an existing business is a practical path to financial success