The idea of acquiring a business that you don’t need to be involved in on a daily basis and that can generate passive income sounds great in theory. Unfortunately, in the real world this doesn’t work well in most cases. This is especially true for small businesses and even more so for new business owners.
Absentee-run businesses generally equate to absentee profits if you don’t have the right team and a proper management plan in place.
Unless you have a wealth of experience running a business, how can you know who the right person is to run it if you don’t even know how to run it yourself?
There are several alleged “gurus” selling overrated programs that will teach you how to own an absentee-run business to generate passive income. Of course, among their many absurd claims is how you can not only buy these companies with no money down, but also ones that generate hundreds of thousands of dollars in profit, and better yet, you can do all of this in about one go. month. Don’t fall for these ridiculous scams. It’s completely illusory.
However, the most important issue to discuss is the very concept of buying a business hands-off. It is certainly possible to start a business by considering handing over day-to-day operations to a manager and moving from owner-operator to overseer. It’s a brilliant idea. But there needs to be a plan in place to make it happen.
For a new business owner, it is essential to first immerse yourself in the business to understand how it works, what improvements need to be made, who the key people are, what growth initiatives make sense, what problems need to be solved and a whole bunch of additional aspects you need to learn. And this is where the challenge lies: you must first learn the job before you can determine what the ideal manager profile is. Think about it: you buy a business and you start there from day one. You don’t even know how to turn off the alarm yet, so how do you know who is the best manager to put in place? Even if there is currently a manager, it takes time to get to know them, trust them and be sure that you are willing to bet on them to manage your investment.
What if the manager resigns? Now you’re stuck with an investment and you don’t even know how to run the business until you can replace them. This is a guarantee that the company will quickly go south. Even if there are other employees in place, if you have not been involved in the business, the employees have no connection to you and certainly have no confidence in your ability to run the business until a replacement director is in place. This scenario is a recipe for turmoil.
Don’t buy a business blindly
If you’re going to do this, do it the right way
If you are considering buying a business and your goal is to make it disappear, the ideal plan is:
- Determine what type of business you can acquire that can easily be transferred to you as the new owner.
- Learn the trade by working full-time initially
- Analyze and evaluate staff, systems, customers and all other components of the business
- Maintain a list of functions that you, as the boss, perform each day
- Get to know the employees. Identify anyone potentially capable of managing daily operations
- Build the profile of the ideal manager
- Once you understand the ins and outs of the business and what it takes to make it work and move forward, you can begin the process of hiring a manager to replace you.
- Give yourself a transition period of three to six months working alongside the manager
- Have formal reporting procedures in place so you always know exactly what’s happening
- Always maintain control over company finances, bank accounts and outgoing payments.
- If you determine that the person you hired is not right for the job, fire them quickly and repeat the exercise.
It is certainly possible to start a business in a way that eventually leads to hands-off ownership, but it takes time and a good plan. If you do it correctly, this can be a very lucrative situation. If you don’t do this diligently, you may quickly find yourself bankrupt.