Should You Own A Portfolio Of Businesses?

Many entrepreneurs start out with the idea that they should own just one business, but as they get deeper into their careers, they discover that it makes more sense to actually own several and manage them from a central hub. In this guide, we look at why it makes sense for people to own a portfolio of businesses. This is something that legendary investors like Warren Buffett have done through parent companies like Berkshire Hathaway, and it’s also something that you might want to look at doing too. 

Risk diversification

One of the biggest benefits of a portfolio of businesses is that you can diversify risks, just as you can with a portfolio of stocks or a portfolio of real estate investments. If one industry goes down, another industry could rise. 

For example, take the COVID-19 crisis. During that period, the travel industry suffered because people couldn’t fly. Entrepreneurs who own travel businesses often found that they might go underwater. By contrast, online businesses surged. People started shopping online and making home improvements, completely changing the balance of how the economy worked. It’s shocks like these that highlight the importance of diversifying the businesses that you own. In an emergency, even if one business fails, another might succeed. 

Multiple income streams

Another benefit of owning a portfolio of businesses is the fact that it can help you generate multiple income streams. Each business could be insecure by itself, but taken together they provide a robust setup that makes it hard to lose money. It’s certainly safer than having a career or a regular job. 

Therefore, when you look for a business for sale, don’t focus on guarantees. Instead, ask yourself about the probability that it will succeed, then factor this into your overall portfolio. Usually, any new business will provide you with greater financial security, even if the actual idea or model isn’t exactly perfect. 

Shared resources

Owning a portfolio of businesses also gives you access to shared resources. Companies that you own can build synergies between each other, including networks, suppliers, knowledge, and customers. You could even merge their back office function if it was appropriate or made sense financially.

If you own one business, you either have to outsource or do everything in-house. If you have shared resources, then you can really start to generate economies of scale. A core team of people around you, like lawyers and accountants, is one example, but simply finding a location for administration is another. You could rent out a single office space and then have employees from different companies working on accounts and finances for the various brands. 

Broader experience

Lastly, owning a portfolio of companies gives you a broader experience of the marketplace and more transferable skills. You learn that what works in one area may be helpful in another area. You can also see links and connections that people with just a single business can’t observe. 

Of course, there are some minor drawbacks like the increased complexity and management burden of owning a portfolio of companies, but many entrepreneurs find that the rewards are worth it.