Business the forgotten ASSET CLASS
When New Zealanders think of investing, it’s usually KiwiSaver, property, shares, bonds, funds, term deposits, and these days: crypto. There’s another, sometimes lucrative investment, that people may not consider. That’s building or buying your own business.
It’s more risky than passive investments such as KiwiSaver. And it’s not easy to get your money out.
But risk tends to be commensurate with returns. Returns longer term from those businesses that don’t fail in the first year tend to be higher than most other assets that investors plough their money into.
Businesses, like shares, pay income, and should over time build up capital value. So, as well as taking a salary to live on, you should be able to sell a good business at the end and come out with some capital. That means building something that is saleable, not just trading your labour as a contractor.
Start-ups and business expansions are probably the most profitable from the point of view of capital gains. Some people also build their capital in franchises by buying a new franchise, which grows in popularity, or taking a failing franchise branch and turning it around.
Some people always plan to go into business. Others have an opportunity present itself, such as buying the business they work in.
Siblings and salon owners Craig Gullett and Michelle Van Staden used savings to buy the upmarket Salon 1925 in Auckland’s Newton Rd. Gullett, who previously owned a business in South Africa had been collecting a customer base since he moved to New Zealand and building a reputation for himself that he took to Salon 1925. Buying an existing business was more expensive than starting from scratch, but meant taking on many of the previous owner’s clients in a proven location.
Some capital is needed to buy a business, although sometimes it is possible to borrow that from lenders. Gullett and Van Staden put in $50,000 between them and borrowed to cover the rest of the cost of getting up and running, which amounted to $90,000. As they build up the business they are earning an income as well increasing the value of their capital.
Not everyone is cut out to own or run a business. People who keep saving in shares/ funds and other growth investments will also build capital over the long term. Housing markets do go in cycles and long term ownership is another way to build capital.