Published on 23/10/2020 by Any Business.Com.Au

What is the difference Between a Managed or Non-Managed Investment?

Are you planning on buying a business for investment or as an owner-operator? These are two completely different propositions suited to quite distinct types of people. Both investment types have a level of risk and demonstrate an entrepreneurial streak, with one being more of a passive investment and the other being an active investment.

Managed Investments

If you're planning on buying a business as a managed investment, you are looking for a commercial opportunity to invest your money where there is greater flexibility than a more traditional investment option, such as shares or bonds. You also have the potential to have more input over the terms of your investment - which can result in greater returns down the line.

There is also the unique advantage of being involved in an industry or niche that you personally associate with and that aligns with your goals, beliefs and interests. You will enjoy the benefits of owning a business, or a part thereof, and have someone managing this for you rather than actually working in the business on a day-to-day basis.

The type of person best suited to a Managed investment

Do these traits describe you and your business investment goals? Are these the types of traits you possess?

• A proactive learner who is an avid reader, willing to pay for knowledge and keep abreast of new developments in the business world.
• Able to remove emotion from an investing decision
• Thrive on risk
• Patient, persistent and focused
• Disciplined to stick to your investing strategies
• Have a long term view, not expect instant returns
• Ability and willingness to stick to a plan while ignoring the crowd
• Have a planned exit strategy
• Be able to keep your ego in check
• Able to understand and use market trends
• Have a strong financial background
• Ability to take a level of care and personal interest in the investment and those involved
• Ability to quickly learn from your mistakes and the mistakes of others

Non-Managed Investments

If you are buying a business as an owner operator or a non-management investment, are you ready to roll up your sleeves and work hard? It is an exciting time – you will be your own boss, you will most likely be doing something that you are passionate about and you will thrive on the freedom and flexibility this brings. It has the potential to become one of the most rewarding things you will ever do and you have no real limit to how successful you can be.

The type of person best suited to a Non-Managed investment

This type of investment is best suited to someone wanting to work in and on their investment. To be successful takes a certain type of personality and drive - do these traits describe you?

• A self-starter who has a desire to be self-reliant
• Value freedom and the ability to control of your own destiny
• Confident in your own abilities
• Proactive, have initiative and are ready to use it
• Action-orientated
• Motivated to set yourself apart from the competition
• Daring and willing to take a certain amount of risk
• Collaborative in nature, know how to delegate, forge strong relationships and create opportunities for everyone involved
• Curious and always searching for ways to improve whatever your endeavour
• Future-focused with a strong emphasis on planning and succession plans
• Open to new opportunities
• Technically aware, if not adept
• Accessible, creative and flexible
• Energetic to cope with the longer hours and greater responsibilities required

The Pros and Cons of Managed and Non-Managed Business Investments

Both are exciting opportunities however both have advantages and disadvantages to consider.

Investing in a Managed Business

Pros:

• As a passive investor, you are free from the responsibilities of day-to-day management.
• You are free to pursue other interests
• Greater level of 'fun' in your investment
• Should provide substantially higher returns
• You can adopt a portfolio approach which gives you a greater spread of risk/return
• Greater income for effort ratio, especially with a >50% to 100% of ownership

Cons:

• Dependent on the quality and capability of the manager/management
• If you are a semi-active investor (i.e. Board Member), it can become time consuming being involved in operational/management issues
• Generally a higher risk investment than traditional investments such as shares or bonds
• Not a ready saleable investment if funds or cash flow is required
• You do not have control if your ownership is less than 50%
• If other investors are involved, all need to share similar views on strategy and exit time frames

Investing in a Non-Managed Business

Pros:

• Do something you are passionate about
• Freedom and flexibility – you will create and follow your own rules and goals
• Control of your business - responsible for all the crucial decisions
• Success is limited to your input and ability
• Obtain and develop business knowledge and experience in areas of the business you have not been exposed to in previous positions
• Develop business skills more rapidly than in a traditional office setting, not held back by lack of experience or seniority
• Financial gain and greater long-term earning potential than in corporate business
• Build your own team and work directly with your customers/clients
• Create your own work/life balance
• Personal satisfaction
• Job security and long term stability
• Chance to build a retirement asset

Cons:

• Total responsibility, especially in times of problems
• Start-up phase can take longer to complete than expected or planned, requiring time and money
• Substantial investment of time and money is required
• Greater liabilities and financial risk
• Long hours and increased pressure to perform, especially in times of uncertainty
• No guarantees that your business will succeed. There are so many internal and external influences that affect the ultimate success of your venture.
• There is no guaranteed pay check and your income may fluctuate considerably
• You will need to be totally self-sufficient – you will not have a traditional support network to rely upon.
• Not all tasks will be enjoyable and it may be hard to stay motivated.

AnyBusiness.com.au

Mary is the founder of AnyBusiness.com.au. She has a degree in Business from Monash University and been helping showcase businesses for sale for over 10 years. In the course of running her own business and working daily with business owners and brokers she has developed a keen sense of the Australian market for businesses for sale and shares her knowledge on this blog and others such as female.com.au

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