Author Topic: Spending Money to Save Money  (Read 902 times)

LateStart

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Spending Money to Save Money
« on: September 16, 2018, 02:17:38 PM »
Hi folks,

I have a dilemma that's been paralyzing me.  We recently started a business (a winery), and are bootstrapping our way up slowly, currently approaching cash flow break even, though not yet profitable.  Currently we are making do with our commercial warehouse space as is, but we have approved plans for a facility build out that will make it more functional and add a retail tasting room that will boost our profitability significantly.  This alone is looking to set us back about 80k, which we have ready to go. 

The dilemma is as follows.  We have the option, as part of the tenant improvement, to demise out a legally habitable live/work unit in the space for ourselves.  If we moved into said unit, we'd save about 21k per year as a household on our separate apartment rent & utilities.  We're also a bit bohemian and highly attracted to the more creative living arrangement and being able to quickly pop in our business and work on things without having to commute.  The incremental cost to add the work live is going to be at least 50k.  Moving in would also allow my partner to quit her job and focus on selling product 100% of her time, whereas currently we're both still working day jobs.

Part of my hesitation is FOMO on buying a house.  We're basically blowing a down payment on the full build out.  The market locally is stupid expensive, we wouldn't buy anyway, and we already pay below market rent.  But I'm anticipating a correction as interest rates rise above 5% over the next year, SALT deduction eliminations set in, wages continue to stagnate vs rents, flippers get burned, and REIT's dump SFRs en masse when California brings back rent control for SFRs after the repeal of Costa Hawkins (a girl can dream).  I want to have cash to buy a house in 2-3 years.

Anyway, that's the scenario.  Would you build the work/live, or keep renting your apartment and save the 50-60k?











lhamo

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Re: Spending Money to Save Money
« Reply #1 on: September 16, 2018, 02:31:15 PM »
What does "as part of the tenant improvement" mean -- are you leasing this property?  If so, then no -- I would not pay 50k to improve someone else's property, at least not at this stage in the development of your business.  Too high a chance that things do not go as planned and you lose the lease -- and paying for improvements just gives them more incentive to kick you out the minute you are late on a payment.

If you own the property then maybe -- would you potentially be able to lease that unit out if you decided not to live in it yourselves, and what would the rent be? 

Sounds like an awful lot of money to sink into a new business, though.  Do you have experience in the wine industry?  If not, then seems very risky overall.  Might be better to hang on to your good rent deal until the business has a few years of successful returns.

LateStart

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Re: Spending Money to Save Money
« Reply #2 on: September 16, 2018, 02:42:47 PM »
It is leased, yes.  Before commencing with the build out, the landlord has agreed to sign a new long term lease (10 years).  Our lease agreement also allows for subleasing if we had to fold. 

chasesfish

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Re: Spending Money to Save Money
« Reply #3 on: September 16, 2018, 02:46:00 PM »
You have to know the ROI on a tasting room to decide.  I don't see how a winery can be profitable without one.

Its retail, you better be ready to cater to customers

beekayworld

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Re: Spending Money to Save Money
« Reply #4 on: October 05, 2018, 08:53:33 AM »
The part about your partner quitting her job and selling product full time worries me a bit.

How long have you two been together? Are you Registered Domestic Partners? Are you both covered under your insurance so that she will still have coverage if she quits her job?

You will not only be living on less because you will no longer have her income, but what if the two of you break up? Are you co-owners of the business?  A relationship break-up may result in a business split-up.

Regarding selling product, aren't the wine tastings held on weekends? Or are you referring to her visiting restaurants and retail stores on weekdays to get them to carry your wine? 

Does the winery have weekday foot traffic (like in a touristy area) or is it more remote, a destination?  If it's located where passers-by regularly see shuttered doors then I can kind of understand wanting it open during SOME daytime hours, but I wouldn't think may customers think of sampling wine before afternoon at the earliest.
« Last Edit: October 05, 2018, 08:56:20 AM by beekayworld »