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The Way Forward – Buying A Business

The Way Forward – Buying A Business

The Way Forward For The 30 Percent Could Be Buying A Business

Buying a business is a potential way forward for the 30% of Australians on a different road to the other 70%. This is roughly the proportion that are not homeowners.

Keep in mind that being a homeowner does not mean you don’t also own a mortgage as well. If you are in that group and your mortgage is substantial, you have a hard road ahead, too. But it is not as hard as those who don’t own a home.

The maths shows that without substantial help from the bank of mum and dad or other sources, those living on an average income will find a great deal of difficulty getting into an average house.

This will cause fundamental changes in the Australian Character because the cohort is so large and so concentrated among the young.

It is hard to fathom what those changes will be and there is the likelihood that since it will impact en masse, through an entire generation of Australians, the new normal will somehow actually end up being normal for those in it.

Workable Solutions For The 30 Percent

I have already written about the housing affordability crisis or 2023 and how a wage-price spiral could help bring house prices back into line with average incomes.

The problem is that it would on balance it would cause more destruction in other areas that outweigh the benefit of bringing house prices back into line. And that is if the growth in house prices moderates. Something that is not at all guaranteed.

The Way Forward Buying A Business Article Image Young Home Owner Holding A Set Of Keys

A wage-price spiral that feeds into long-term inflation will be corrosive to the efficient functioning of a price system that is already under attack because of the crowding out of the private sector and the tendency to use targets as a policy tool rather than rational analysis.

It is also likely to end up igniting a round of speculation that could make matters worse, although I think that the advance of house prices in relation to average income has run its course.

The difficulty of buying a house has placed a hurdle in front of those that are considering where to apply their effort and resources and could push them into other areas.

That area could be buying a business.

Of all the assets available for purchase, one has not succumbed to the above average price rises that have either put them out of reach of an average income, or simply increased the risk of savage price reversions. This asset class is small to medium businesses and why buying a business is an avenue to get your income back into line with average house prices.

Why Are Businesses So Cheap?

There are two causes of this that I can think of. The first is the relatively abundant supply of businesses as the baby boomers keep heading into retirement. This is the opposite of the housing shortage behind recent price rises.

The Way Forward - Buying A Business Article Image Baby Boomer in a Hard Hat

The second is the scarcity of finance available to purchase a business.

In a serendipitous world, it would be a case of a meeting of mutual needs. I have written an article about how a seller of a business is likely to attract the best price if the seller acts as a lender of last resort for those buying a business and provides vendor finance.

This would be especially attractive for someone buying a business if it was taken one step further, and the seller offered the finance based on an earn out.

This is not an exit path that Australian businesses have chosen on their own volition, preferring to be paid up front and in full for a business.

Novel Solutions Beckon

However, just as the idea of working from home was a novelty until it became a necessity, the same forces are now operating in business sales with more and more business sales embracing vendor finance and earnouts as part of an exit strategy.

If the difficulty in securing a place on the rung of the home ownership ladder has reached an inflection point in terms of severity, it may force those seeking to improve their lot to turn their attention to how they will go about doing it differently.

Buying a business offers a way to produce the income required to enter the market for residential property. It provides the source of leverage and the arena for enhancing productivity sufficiently to bring income in line with prices.

It may also be the saviour of the Australian economy, which is stuck in a morass of declining productivity and real incomes.

If reform has become too difficult for our government to contemplate in the areas it controls. The drive may well shift back into the hands of individuals seeking to make their business more profitable.

Circumstances are ripe for entrepreneurial skills to blossom. The adage that necessity is the mother of invention may be the catalyst that takes our country from a nation of property speculators to a nation of entrepreneurs.

There is no choice but for the young to learn the important skills of networking, problem solving, critical thinking innovation and, most important of all, self-discipline.

The Way Forward Buying A Business Article Image Young Entrepreneurs At Work

It is not a straightforward path, but buying a business may be the path that moves us via the 30% from being the lucky country to a productive country.

Who Is Going To Save Us

Rather than looking to government involvement to solve all problems and the bounty of our mineral and agricultural wealth to pay for it all, we have arrived at a point where individuals, in charge of a business and responsible for their own wellbeing and that of their staff, must confront the challenges that stand in the way of their prosperity.

We did not reach this point by design, but the challenges that confront those who want to live the wonderful life that Australia offers will have to meet those challenges differently.

It is hard to peer into the future and see how people adjust to harsh realities, like the housing crisis. A lot of pessimism has crept into the discussion of this problem, but it may end up being our saviour if it forces us to become adaptive.

If only we viewed climate change in this way.

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