Choose Wisely! 6 Very Difficult Businesses to AVOID

this is the video where I go into what the worst business sectors that you should invest money in start or grow in and I'm doing this from a position of experience we're standing in my warehouse right now I'm trading businesses myself my employer people and I've made some mistakes and I've made some big wins and I want to sort of wrap that up into a video here on YouTube so that you know what you should avoid with a 10 foot barge pole and here's the funny thing about this video because I'm actually going to talk about some of the sectors that I'm already trading in and what I've done to tweak them so that they are actually better businesses when you can get a good model then you can scout that model up and you know that you can rinse and repeat it you know like the McDonald's model they know it works and they go and go again we want to find the right models so that we're setting ourselves up for profitable businesses restaurants one of the worst sectors that I've come across and there are some unicorns and I actually feel like I own one of those unicorns and I'll explain that at the end what do I mean by Unicorns yes there are a few that actually do make money but as a rule of thumb I think it's a really terrible business sector it's also a little fact here is if banks are willing to lend to restaurants and Hospitality businesses and they're not they don't like them because the failure rate is absolutely huge you've got low Revenue per employee now if you've got sectors that are high Revenue per employee just usually means they're a lot more profitable let me give you a quick example you've got a million pounds or a million dollars of Revenue and you've only got two staff you've got half a million pounds worth of Revenue per employee there's a good chance you're going to be super profitable not so with restaurants you could do a million pounds worth of turnover at a restaurant and you could have 30 40 50 staff why so many staff you might say but you can have a lot of people just uh in part-time hours Friday Saturday Sunday everything's going like gangbusters and it could be like the Mary Celeste Monday to Thursday that's something that you don't really want in a business we want nice boring predictable cash flow I don't like the high capex costs so say you're going to set up a restaurant it's going to cost you a million quid to set the thing up you've got to pay that off over a period of time through depreciation say your restaurant makes between five and ten percent net profit out of your profit you've got to pay back the loans or the capital that's been deployed to set the the restaurant up you pay that off over five or ten years everything's great now we've paid all of our Capital costs off but hey loads of competition is opening within the sector there's so many restaurants and they're gonna steal some of your pie even if you're better than them and that means you've got fickle customers it's a sector where the customers are so fickle they want to try what's new in the town and that's really hard to build loyalty unlike other sectors like an accountant you know as long as your accountant is doing a really good job they're with you for the whole of their lifetime one final challenge with this sector is the high rates of turnover taxes you've got business rates you've got vat insurance premium tax and all the other cocktail of turnover taxes which means that the government are taking more of your turnover than you're actually keeping in profit but I did tell you that I have a restaurant I actually own a big ice cream parlor and why does that ice cream parlor make money and why does it do better than most in the sector well it's big enough so if you do really want to open a restaurant make sure you've got capacity because you haven't got capacity you can't leverage the management you can't leverage the overhead you can't leverage your catering team you can't leverage your marketing you need to make sure preferably you own the the thing that you operate off so you haven't got high rents and the rents are going up all the time and try and find Legacy businesses it's better to buy one that's been around for 50 100 years so everyone knows it and that's what I bought I bought 100 year old ice cream parlor that's big enough with the overheads were really low and very little competition because we're the Legacy brand in the town and that gives us that unicorn status where most are just about getting buyer we're getting by and we're making profits and we're paying down our loans and we can refurbish the place so there's my little tips if you are going to be in the sector dog walking cupcake making and party planning three very me too low barrier to entry sectors when you're starting a business you want to be as high a barrier to entry as possible because it protects you against competition now those three sectors that I spoke about dogwood literally get yourself a lead and you're in business and that means that you're vulnerable people go oh they're making some money over there just walking a dog I'll do the same and that makes customers not want to pay very much because so many people can do it you're effectively swapping time for money any business sector that is swapping time for money that cannot be scaled to be a commercially profitable Enterprise that works without you in it should be avoided at all cost yes it's attractive because you need no money to start it but it's not attractive because no one wants to buy the thing when you sell you're effectively just building yourself a profitable job no one wants to buy a profitable job if you want to build yourself a profitable job the smart thing to do is just go and get a job and not have any of the risk of self-employment the big top piece of advice is be as high barrier to entry as possible have that mindset and get rid of all that low barrier to entry stuff Boutique clothes shops so many people have the illustrious idea of opening a stupid little shop and what you're going to get is stupid little results which I don't want for you I I want you to put your effort your time and energy in something that's not just going to yield results retail's really difficult the big boys really struggle with it and you might think your little shop idea is going to really work but look at the facts High streets are dying and if you want to be a really good retail shop you've got to make sure you're in a massively High footfall area you want to make sure your overheads are really low because you're going to be faced with this you're going to be holding loads of inventory you've probably got no experience of what inventory to hold and so therefore you're going to sit on lots of stock and stock is cash I know because I hold 1.6 million pounds worth of cash for one of my other businesses and holding stock really can cause you cash flow problems one way you could make Boutique retail work and I still don't like it is making sure you're in a niche and remember there's riches and niches so that could be doing specialist clothes for larger people or tall people because people would go out of their way to find you but then you've got to make sure that you're known and you've got to have a big off Street marketing off High Street marketing campaign to bring people to you and you think think of your retail shop as a showroom rather than a place to do business we're seeing cars moving into shopping centers right now and using that passing trade to show people their cars but they're not actually buying the car on the day and driving it off from the shopping center the retail that's going to work now is experience and showroom based where you don't actually need the shop to drive the revenue it's a really difficult business to be in and I would avoid doing BT retail at all costs and I speak from experience I used to own three party shops the rent the rates the staff the fickleness of the turnover it was one of the most stressful times of my life I would avoid at all costs I've seen other businesses very difficult to make money from some of the worst that I've come across that's hotels and the comedy factor is I actually own this hotel that we're in right now and I only bought it a few months ago knowing that they are very difficult to make money from why well the hugee capital intensive you know you need millions of pounds to set one of them up then when you've set them up you've got customers that come and go so you've not got regularity of customers well you might have some contractors that come regularly but it's not like a Danish or a score an accountancy practice where the customers are very very regular but also you need lots of staff and usually their hospitality and Leisure staff that are low skilled and then you've got to train them up to make them highly skilled and they're in a Fickle Marketplace they could be you know traveling or they could be at University and that recruitment process is just getting harder and harder as people don't want to work in these industries as much huge capital expenditure very difficult to staff now we've got a situation where we've got third-party booking agents the airbnbs the bookings.com that actually own the data of your customers and so it's really important that if you do want to get into this hotel industry you've got to have very Deep Pockets which is in a way it makes you high barrier to entry which is to me a very strong part of business and you've got a hugely depreciating asset you do these rooms up and then in three years time because people don't really look after them they're in and they're out you have to redo them up all the time so there's a constant need for more Capital to go in to make you very competitive in a highly competitive Marketplace there's lots of hotels but why do I like the world for inheritance tax reasons here in the UK you can pass the hotel onto your family inheritance tax free they are a trading business with commercial property entwined into it which for the UK is very tax efficient and also I like if you can create multiple revenue streams so when you've got an asset like this you need to sweat it so yes we've got a very active Pub bar function area a restaurant area we're doing meeting rooms and wakes and then we're doing all my own seminars here so why have I bought this hotel is because I've tweaked the model to make sure that we sweat the model more therefore we turn it into a commercially profit wins price and most hotels don't do all that stuff and that's why they struggle and they just about get by we don't want it to just about get by we want you to be super successful selling on e-store that you don't own you know what I'm talking about here Amazon eBay not on the High Street Etsy what I primarily don't like about this is yes they have a brand that people trust and they buy from them and that could elevate your revenues quite quickly but the main thing I don't like is they own the customer not you they own the email address and that's one of the biggest no-nos in business because there's two things I think make a business really valuable an effective profitable team that run the business so it's a commercially profitable Enterprise that works without you in it but we also understand a database of customers is of huge value and I've bought custom companies based on databases alone the customers that know and love and trust a business and I want to buy into that but if you're selling on Amazon you're selling on eBay or Etsy or not on the High Street they own all of that and if they decide to Shadow ban you or just take your product off their website because they can buy it themselves and do it cheaper and yes they do do that that's the end of your business so it's actually better to do a bit more of a slowly slowly catchy monkey approach and build your own customers using content marketing and your own e-web store that's why I bought party pieces it's a brand that's sort of 35 years old everyone knows it people come to our website direct we get the email addresses we own the customers we've got the database and we build a big wholesale business that's why I've got this massive Warehouse literally every day 10 to 20 000 pounds worth of wholesale businesses going out each day which gives me the volumes to do the little and often orders as well I am on Amazon I am on eBay the problem is I feel like I'm just professionally moving money around for them you know we've employed someone full time to do all of our listings Amazon keeps most of the money but I am on there because I like the awareness and if you are going to be on these e-market places that are not your own make sure you're building your own brand otherwise literally the worst of the worst if you're not creating your own brand by selling on all these other web websites just a disaster game so just avoid at all costs build your own brand sell on your own website build a wholesale business that's the way to smash the internet another awful business to get yourself involved in is these events businesses and they're really ego businesses I mean lots of the types of businesses that I'm talking about today around hospitality and later is like oh we own a coffee shop or we own a restaurant or all we own a hotel well look this one here is another one of those oh I've run my own events but really you want to be thinking about this from a business point of view from a profit and loss point of view and I'll tell you why events are so tough to make money it's you've got to get lots of people to buy from you just once and that's not good business sense what's much better for business is this a little bit of money from a lot of people a lot of the time what you've got with events businesses money once that's it it's over you're not building a database you might come back in a year's time you've got loads of competition you don't own the site that the event operates out of you've got to hire stuff you've got to buy stuff and use it just one once now here's the oxymoron to this little description that I'm talking about we're standing in a location that we own this is Marsh farm animal Adventure Park and in many ways it's an event business but what are we doing different what have we done to improve the business model for profitability well we own the site we sell an event to someone then we create another event on the site that we own we own the database and we've got events happening all the time on a site that we own so when we invest cash into capital expenditure we're getting to reuse that capital expenditure we own the Marquee Big Top behind me we don't rent this thing so we buy it once and we get to use it for years and years we get to have the car park and do all the infrastructure in the car park and we own that thing we're not renting out and paying loads of money on stuff that we never own and there's massive tax advantages of owning stuff rather than renting stuff as well they're some of the worst businesses that I've come across hope you like this video don't be a massive favor if you do like it hit the like button subscribe and hit me in the comments below what videos would you like house to make next see you real soon

Channel: James Sinclair

Views: 918,663

Keywords: business failure, business fail, business owner, business growth, business tips, entrepreneur, entrepreneurship, James sinclair

Id: DxsAAnN7xJk

Length: 13min 4sec (784 seconds)

Published: Mon Jul 17 2023