Author Topic: Small Business Owners  (Read 7292 times)

JohnGalt

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Small Business Owners
« on: August 22, 2013, 09:14:14 AM »
I'm sure there are a number of small business owners on the forum. 

I'm curious if anyone got into it by buying an existing business rather than starting their own.

If you did, I'd like love to pick your brain...

What made you decide to do it?
What kind of business is it?
Did you have prior experience in that line of work?
Why that particular business?
Would you do it again?
Is it full time for you?
Did you quit your job to do it?  Before or after the purchase?
Did you finance or pay cash?
What kind of due diligence did you do?


Kira

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Re: Small Business Owners
« Reply #1 on: August 22, 2013, 10:16:55 AM »
I've bought two small web-based businesses in the past two years.. REALLY small (one was $1k, one was $4600) so I don't know if I'm exactly what you're looking for. I'm kind of a flipper. I started my first business from scratch and sold it a few years later, and am now working on starting another from scratch.

I did it because it's easier to buy an established business that already has customers than to come up with a new concept on your own and do it from the ground up. Both businesses were concepts I'd never heard of but immediately saw the appeal and the market that was already there. I already had some experience from running the first business, but when I started the first business, I was 21 and had no idea what I was doing. Depending on the business you can usually learn as you go.

All of these have been part time endeavors - though with the first one I did end up working until midnight most nights but I later learned to streamline my processes and hired some help.

My third business was financed by a friend but everything else I've paid cash for. If you are buying a relatively large business and need a loan, I have read that most banks are going to require a sizable down payment, so I would recommend you start with smaller ones and build your way up to something you can quit your job for.

Since mine were all web businesses, the due diligence mostly consisted of asking to see the Analytics reports, profit and loss statements, screenshots of the Paypal or credit card revenues, etc.

Mr.Macinstache

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Re: Small Business Owners
« Reply #2 on: August 22, 2013, 10:36:49 AM »
I'm sure there are a number of small business owners on the forum. 

I'm curious if anyone got into it by buying an existing business rather than starting their own.

If you did, I'd like love to pick your brain...

What made you decide to do it?
What kind of business is it?
Did you have prior experience in that line of work?
Why that particular business?
Would you do it again?
Is it full time for you?
Did you quit your job to do it?  Before or after the purchase?
Did you finance or pay cash?
What kind of due diligence did you do?

I decided to do it because I'm just not good at taking orders, or working under a boss.

Graphic design

Yes, BFA and 8yrs experience before I went freelance in 2006.

Because I love design and typography.

Yes I would do it again.

Yes it's full time.

I built up my business working nights before I quit my real job.

I paid cash for equipment needed... there wasn't really much investment needed.

Not much, I basically built it around my interests so I wouldn't get burnt out.

JohnGalt

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Re: Small Business Owners
« Reply #3 on: August 22, 2013, 12:25:58 PM »
Thanks for the responses Macinstache and Kira.

Not exactly what I was looking for but good insight.

I'm currently in a statistician/programming role that has me in front of a computer all day long but want to do something different that gets me away from the computer.

I have a sizeable downpayment to purchase a more capital intensive business.  For instance, I'm currently investigating a couple of dry cleaning plants for sale in the $400,000 - $500,000 price range.  Ideally it would be something like this that would allow me to hire people to do most of the "work" and possibly even someone to help (or fully eventually) manage it so that I could have time to continue doing some consulting work in my current field and just be flexible in general about how much/when I work. 

On the surface the numbers look pretty good (have not gotten access to their actual books yet) - but I have 0 experience with this particular industry. 

I've also been looking into RV parks, coin laundry, liquor stores, and convenience stores. 

Kira

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Re: Small Business Owners
« Reply #4 on: August 22, 2013, 01:23:58 PM »
Have you ever managed people before, or had experience doing taxes, bookkeeping, regulatory compliance, etc?

I would not recommend buying a dry cleaning business if you've never worked in the area before. If you're planning to let others do most of the work, you need to have an idea of how things work so that when shit happens and they come to you for advice, you have advice to give them. You also need to know how things should be running so you can recognize when they don't. And there are a lot of chemicals and OSHA restrictions involved in running a dry cleaner and I am sure there is a lot of liability there for screwing up.

So for those reasons I'd also be wary of the liquor store (lots of gov't regulations, difficult to manage d/t staffing issues, robbery, etc) and convenience stores.

The RV park actually sounds kind of interesting assuming you are willing to live on site. Are you referring to one such as near a national park where people come and hook up their RVs and pay a daily rate or do you mean more like a trailer park where people live there with not-very-mobile mobile homes? You could theoretically be doing your work and just pop up to take care of things as needed. Lots of customer interaction though and you might not end up getting all that much done on your consulting.

The coin laundry sounds like the best fit for you if you're new to business owning, especially if the place has newer machines or some other feature like front of machine display ads. You pretty much just need a person to un-jam machines and put signs up when one is broken. You should have a good amount of cash on hand to buy new machines (commercial machines are pretty expensive) and fix other problems, but I'm a big fan of businesses that only cause expenses when you have revenue coming in. With a coin laundry, you only run up the water and electric bills when somebody runs the washers, otherwise it's just rent, keeping the lights on, and a $10/hour attendant.

In general, when the business seller says "it's easy to manage!" it means it was easy for THEM because they already know all about it. Common problems that crop up are easy for them to solve because of their preexisting knowledge base, but for you it will take a long time to get up to that level with many businesses. Each time I have sold a business, I wrote up a 15 to 25 page document on how to run it, and those were very small web businesses. I can't imagine the kind of book you'd have to write on how to manage a dry cleaners.

smedleyb

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Re: Small Business Owners
« Reply #5 on: August 24, 2013, 09:48:10 PM »
Thanks for the responses Macinstache and Kira.

Not exactly what I was looking for but good insight.

I'm currently in a statistician/programming role that has me in front of a computer all day long but want to do something different that gets me away from the computer.

I have a sizeable downpayment to purchase a more capital intensive business.  For instance, I'm currently investigating a couple of dry cleaning plants for sale in the $400,000 - $500,000 price range.  Ideally it would be something like this that would allow me to hire people to do most of the "work" and possibly even someone to help (or fully eventually) manage it so that I could have time to continue doing some consulting work in my current field and just be flexible in general about how much/when I work. 

On the surface the numbers look pretty good (have not gotten access to their actual books yet) - but I have 0 experience with this particular industry. 

I've also been looking into RV parks, coin laundry, liquor stores, and convenience stores.

I've gone over the same list 1000 times in my head. 

Convenience stores -- labor intensive and low margins (save coffee, which is why there's a coffee shop on every corner).  Thinking drive-through convenience store, but not sure my market can support charging extra for the convenience (Walmart is king around here).

Liquor store -- decent mark up, good repeat business (lol!), but here in NY state, could be serious downside if grocery stores start selling wine , which they should.   

coin laundry -- On the fence about this one.  More renters the past 5 years is a nice tailwind, but I don't think the profit is there after expenses (rent, primarily).

RV parks?  Would love to hear any thoughts you got about this. 

Gotta add food/bar options to the list.  Great margins and very profitable if done right.  Big if, though.

What else?




huadpe

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Re: Small Business Owners
« Reply #6 on: August 25, 2013, 05:20:14 PM »
Another thing I'd look into would be a self storage place.  There isn't too much labour needed, and the rents can be pretty substantial, without the problem of the facility being habitable.

You'll have to be strict about keeping out people trying to live/cook meth in the units, as well as auctioning/removing contents of lockers in arrears, but the paperwork is probably much more manageable than owning a rental building for humans.

MeForNow

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Re: Small Business Owners
« Reply #7 on: August 27, 2013, 09:29:35 PM »
Re: coin laundry: I have never owned one but have read some ads for these and considered. I want to caution you that it is not as simple as it looks... Or at not least as simple as it looked to me.....
At one point I did a web search and found some kind of organization that's for laundry owners.... And it has a forum.  They also have some kinds of programs for people new to the industry.  Reading the forum and the issues that current owners of laundromats had was quite a learning experience. Quick education in the realities of the situation and how hard some of the financial side can be. And listening to materials that are designed for new owners considering going into the business certainly can't hurt

So anyway I would recommend looking for that website..... Maybe search on laundry owners or laundromat owners.   I think the organization may also include dry cleaners?

Re: websites: Kira, If you can add any more detail about the due diligence for buying a website I would so love to hear it. Spent a couple hours the other day looking at ads on flippa (website saes site). Some seem quite promising but I don't know if they actually make the money they say they make.  I would also be interested in anything else you care to share about the websites that you run... Such as were they already monetized when you bought them? Are they topics you already knew about?

Thanks.

Kira

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Re: Small Business Owners
« Reply #8 on: August 28, 2013, 08:17:31 AM »
Re: websites: Kira, If you can add any more detail about the due diligence for buying a website I would so love to hear it. Spent a couple hours the other day looking at ads on flippa (website saes site). Some seem quite promising but I don't know if they actually make the money they say they make.  I would also be interested in anything else you care to share about the websites that you run... Such as were they already monetized when you bought them? Are they topics you already knew about?

I love me some Flippa. I have so far bought two different websites there, polished them up a bit, and sold them as real business on BizBuySell for about 3x what I paid for them. I'm looking at one right now, and trying to convince my dad to go in as not-so-silent partner with me cause I spent all the money from selling the last one on my wedding. :) These were both already running and producing steady income from people who were likely to buy again (in these instances, families of prisoners and people who owned insect-eating lizards) and were both being sold by people who needed some quick cash.

I ask for Paypal or credit card processor statements, Google Analytics and Adwords reports, and profit and loss statements to see if they can back up their declarations about how much it makes. I have not had any prior experience with any of the subject areas but I also do avoid things that I don't know much about and it seems like it would be difficult to get up to the knowledge level of the average person buying your stuff. (ie - I passed on a darts site because I don't know shit about darts and have never been to a bar or played darts so it would take a LONG time and a lot of caring that I don't have to learn enough to answer anyone's questions.) I love fixing up the sites and finding diamonds in the rough, but I get bored kind of easily and so I am now looking at business exclusively with an eye to flipping them in six months.

Mostly I look for "wish I'd thought of that" type sites - where the appeal is pretty obvious even if the market share is small. You can always advertise but you can't usually improve the original idea. I look for steady, plausible cash flow - a lot of the listings on Flippa don't get their metrics right and the chart will show their "profit" as basically being revenue minus hosting. So unless they can reasonably prove that they get the money they get, with the overhead they claim, I am often very suspicious until proven otherwise.

But as in real estate, the maxim "you make your money when you buy" holds true, and if I am very skeptical about it and don't like the price, what is a new buyer going to think about it when I am trying to sell for 3x the amount?

Are you looking for any particular kind of business or just curious? If my dad doesn't want to take the plunge, I might be looking for a silent partner.. :)

MsSindy

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Re: Small Business Owners
« Reply #9 on: August 28, 2013, 08:40:04 AM »
Re: coin laundry: I have never owned one but have read some ads for these and considered. I want to caution you that it is not as simple as it looks... Or at not least as simple as it looked to me.....
At one point I did a web search and found some kind of organization that's for laundry owners.... And it has a forum.  They also have some kinds of programs for people new to the industry.  Reading the forum and the issues that current owners of laundromats had was quite a learning experience. Quick education in the realities of the situation and how hard some of the financial side can be. And listening to materials that are designed for new owners considering going into the business certainly can't hurt

So anyway I would recommend looking for that website..... Maybe search on laundry owners or laundromat owners.   I think the organization may also include dry cleaners?

This is exactly what I was going to suggest.  I looked into coin laundry figuring my DH can fix anything, and I'm good with customers, marketing, and business in general.  But as I explored more, I found out a lot about the ins/outs of actually running this type of business.  Things to think about is what happens when your $8/hour person doesn't show (hard to keep help), you're a target for theft and vandalism, customer geography is limited - what happens when new competition moves in - you still only have the same customer pool.  New rental units almost always have their own machines.  It's not a business you can grow, your customer pool is fixed.

MeForNow

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Re: Small Business Owners
« Reply #10 on: August 28, 2013, 11:47:51 PM »

Are you looking for any particular kind of business or just curious? If my dad doesn't want to take the plunge, I might be looking for a silent partner.. :)

Hi Kira,  thanks MUCH for your detailed answer. All fascinating. Really.  The part about fixing them up and then reselling? Wow.

What I was thinking of was kinda based on poking around there. .....and was along the lines of buying a site that nets a coupe thousand $ a month or more.  Which LOOKS like it could be bought for not that much money... But like I said I was unclear if this was for real.  (I looked for reviews on the web and found some interesting comments actually.)

There's quite a variety of stuff there, including lots of sites that are service or sales businesses where you need to ship products or provide consulting or know very complex subject matter etc.  I would be looking for something mostly or totally on the web, possibly with a topic I could write more about, or otherwise improve upon.... But not physical inventory. And certainly not consulting or jobs that require specialized knowledge and skills I don't have.

I can imagine possibly creating a website and selling it.

I can also imagine buying a site that is low profit, and improving the site and keeping it or selling it.  There's a website service I have used that is great for (slowly) building organic search traffic, and I can imagine converting an existing site over to this system and adding more content, and letting it grow.

My ideas about what to do and how change as I learn more.  Mostly till now I've thought about building sites from scratch on topics I know about.  (I have 2 sites, both pretty embarrassing, but enough experience to have some feeling this is possible.).

Flippa gave me some thoughts about buying and maintaining.  And what you've done sounds grand - you buy, fix, resell. It seems doable, given the right particulars. (I agree with your darts example.)

  I'm also thinking maybe building from scratch and hiring a writer to write content. This would, of course, be really tricky as then it depends on getting a great writer.........but with the right writer and good topics, it could be a reasonable way to go. Maybe in the future when I have a whole empire of sites LOL.

I guess I'd say that my working assumption is building my own sites from scratch and keeping them. But over time I think about other options, like building and selling, buying and keeping, buying improving and selling, etc.

I'd be happy to chat about any or all of this, if you want you can PM me with a phone number or Skype ID.....  As for the silent partner thing, depends on when and how much $.  Probably not right now, possibly in a couple of months, but even then low $.   

On flippa I think it is all auctions, right?  Some investment of effort to check out a site and talk to the owners for documentation, all the while not knowing final price or if someone else will "win" the auction.....

Kira

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Re: Small Business Owners
« Reply #11 on: August 29, 2013, 11:12:18 AM »
  I'm also thinking maybe building from scratch and hiring a writer to write content. This would, of course, be really tricky as then it depends on getting a great writer.........but with the right writer and good topics, it could be a reasonable way to go. Maybe in the future when I have a whole empire of sites LOL.

An extension of the old real estate trope that you make your money when you buy - I think if you can keep acquisition/startup costs low you'll always have a good ROI. You would need a good niche and useful info though. Always be thinking about how you are going to monetize.

I guess I'd say that my working assumption is building my own sites from scratch and keeping them. But over time I think about other options, like building and selling, buying and keeping, buying improving and selling, etc.

On flippa I think it is all auctions, right?  Some investment of effort to check out a site and talk to the owners for documentation, all the while not knowing final price or if someone else will "win" the auction.....

Actually most of them don't seem to go through the whole process. Only one of mine actually went all the way through the whole Flippa process. Everybody seems to just PM the seller and ask what their reserve is and then it gets done offline, especially for expensive sites. If you go through the whole process with Flippa, they charge a fee, like 5% or so, and all that gets you is a little thing next to your username that shows you've bought $x of sites, and no one cares about that if your money is green enough. I do like that the auction end time moves ahead so the final price has to be unchallenged for a while before the auction will end.. prevents sniping and other bad behaviors.

tomsang

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Re: Small Business Owners
« Reply #12 on: August 29, 2013, 05:16:32 PM »
I have been involved in a number of business start-ups, sales, purchases, etc. 

Rule #1- Don't buy a job.

Understand why the seller is truly geting out.  "Retiring, health reasons, family situation, etc" may or may not mean what they say.  Most businesses are very hard to make a good living at. Many small businesses are paying the owner close to minimum wage the first few years.

If the economy brought the company to their knees but it appears it is on the upswing, then you may be able to get into something that pays a return greater than average.

Some investments kick off great cashflow, great tax losses, and breakeven. These can be a good investment if you need tax losses now, you can deploy the cash, and it is not losing too much.  Think Warren Buffett.  The insurance side, give him huge cash to go invest in companies that need capital.

Regarding financing. The banks and SBA are providing amazing loans/rates to stimulate the economy.  Expect 20-25% down.

Find something that you truly are interested in. When things are hitting the fan, you want to atleast be able to say this is fun!

Good Luck! 

chasesfish

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Re: Small Business Owners
« Reply #13 on: September 02, 2013, 06:06:51 PM »
I have been involved in a number of business start-ups, sales, purchases, etc. 

Rule #1- Don't buy a job.

Understand why the seller is truly geting out.  "Retiring, health reasons, family situation, etc" may or may not mean what they say.  Most businesses are very hard to make a good living at. Many small businesses are paying the owner close to minimum wage the first few years.

If the economy brought the company to their knees but it appears it is on the upswing, then you may be able to get into something that pays a return greater than average.

Some investments kick off great cashflow, great tax losses, and breakeven. These can be a good investment if you need tax losses now, you can deploy the cash, and it is not losing too much.  Think Warren Buffett.  The insurance side, give him huge cash to go invest in companies that need capital.

Regarding financing. The banks and SBA are providing amazing loans/rates to stimulate the economy.  Expect 20-25% down.

Find something that you truly are interested in. When things are hitting the fan, you want to atleast be able to say this is fun!

Good Luck!

+1000.  I am a banker and see this all the time. I've seen many owner that would have been better off putting all their capital in cash in a brown bad and running a lawnmower over it.  It would have been less painful then slowly loosing their money over 5 years.


On a more serious note, I like the mini storage or other type of commercial real estate with the kind if capital you have.  Keep your job part time and manage the property.  Do it again and you have a real business.

smedleyb

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Re: Small Business Owners
« Reply #14 on: September 04, 2013, 10:35:04 AM »
+1000.  I am a banker and see this all the time. I've seen many owner that would have been better off putting all their capital in cash in a brown bad and running a lawnmower over it.  It would have been less painful then slowly loosing their money over 5 years.

lol!  A succinct image of good money chasing a bad business. 

Let me just add, most partners suck.  Period.

Kira

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Re: Small Business Owners
« Reply #15 on: September 04, 2013, 11:51:33 AM »
I have been involved in a number of business start-ups, sales, purchases, etc. 

Rule #1- Don't buy a job.


Yes, this is often what I tell people when they ask why I don't buy a bigger web business, or quit my job to buy more businesses and run them full time. If it needs my full time constant attention in order to continue making enough money for it to be feasible for me to quit my job, it doesn't seem to be much different than my full time job other than losing the stability of having my paycheck come from a billion-dollar organization!

JohnGalt

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Re: Small Business Owners
« Reply #16 on: September 04, 2013, 02:01:48 PM »
I have been involved in a number of business start-ups, sales, purchases, etc. 

Rule #1- Don't buy a job.


Yes, this is often what I tell people when they ask why I don't buy a bigger web business, or quit my job to buy more businesses and run them full time. If it needs my full time constant attention in order to continue making enough money for it to be feasible for me to quit my job, it doesn't seem to be much different than my full time job other than losing the stability of having my paycheck come from a billion-dollar organization!

But that's what I'm looking for... a job that allows me to also get a higher return on a portion of my investment funds.  I also think I kind of crave that instability.  I have no dependents, low expenses and want to take a risk by jumping into something new.  I like challenges and learning.  My current career, which has gone extremely well so far, has stopped being challenging or interesting to me. 

Kira

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Re: Small Business Owners
« Reply #17 on: September 04, 2013, 02:48:37 PM »
I have been involved in a number of business start-ups, sales, purchases, etc. 

Rule #1- Don't buy a job.


Yes, this is often what I tell people when they ask why I don't buy a bigger web business, or quit my job to buy more businesses and run them full time. If it needs my full time constant attention in order to continue making enough money for it to be feasible for me to quit my job, it doesn't seem to be much different than my full time job other than losing the stability of having my paycheck come from a billion-dollar organization!

But that's what I'm looking for... a job that allows me to also get a higher return on a portion of my investment funds.  I also think I kind of crave that instability.  I have no dependents, low expenses and want to take a risk by jumping into something new.  I like challenges and learning.  My current career, which has gone extremely well so far, has stopped being challenging or interesting to me.

Well, my first reaction is that maybe you should just train for a better paying job, if that's what you actually want to get out of this. That would be a good way to get higher return on your investment as well, by investing in yourself. And thinking that you might like to take something risky is very different than knowing that you don't mind risk.

However, I find it really unsettling and rather contrary to attaining FI that you think risking large gobs of money on a lose-your-shirt situation is super exciting and fun. If you want to go into business, start small and start in an area you know. Otherwise the run-the-cash-over-with-the-lawnmower scenario might be faster and net you the same outcome.

Think about a business versus a rental house. If you put 20% down on a rental house and the house's value declines 20%, it should still be a good investment (assuming you bought it under good metrics) and you're able to cover the mortgage by continuing to rent it. It's unlikely that the house's decline in value would cause it to bring in significantly less every month to the point that you would have to sell it for a loss. If you can keep it rented, even if you can't get the prices you used to, you should still be doing okay - zero cash flow or above. There's something of a floor in rent decline (ie I could probably rent any 3 bedroom shit hole around here for $600.)

But in a business, the floor on revenue is zero, and the amount of revenue it brings in basically determines the business's worth. So if the revenue declines precipitously, for whatever reason,  the business becomes worth less and less. You stated that you have a down payment saved - so you are intending to get a loan - so if you screw it up, and the business loses value, and you aren't bringing in enough money for you to live on, or enough to cover the loan, you won't be able to sell it for enough to pay off the loan. And then you get screwed.  You've lost not only your down payment but your livelihood, and are also saddled (most likely) with either a suit filed by the bank to recover that money, or a huge 1099 for the written-off debt. You might have to declare bankruptcy. (Trump has, several times. It's hard out there for a pimp.)

That is what risk in business means. It does not mean "I might lose a little money." It's very different than a risky stock going down. If you start with a big, expensive business that you know nothing about, you could lose everything outside of retirement funds and have your credit affected for a decade at minimum. I am almost kind of offended that you think this is fun and exciting. I am pretty sure you are offended by this post but I am offended by your la-di-dah attitude.

Now, don't get me wrong, there are lots of upsides. You could do very well with it and make more money. But if you're going into a scenario that you don't understand at all, the risk is much higher FOR YOU than it would be for someone who knew what they were doing. So a situation that might be sold as low-risk could very well be high-risk FOR YOU, and the odds of YOU losing your shirt might be much higher than if someone else was in the same situation. Where you really make money in business is where you are very aware of the risk and have the skills to deal with and mitigate that risk. Then you can get a better deal because it's not as risky FOR YOU, and you end up with a higher ROI than someone else who didn't have the skills you have. It's like insider trading - what you know increases the value to you, and lowers its risk, without increasing its price, thus creating a higher ROI for you than for someone else.

But I think you are not differentiating the meanings of "excitement" and "risk". A new adventure is exciting. Learning new skills and expanding your knowledge is exciting. Intentionally seeking out a risky situation, by putting thousands and thousands of dollars into a scenario that could potentially cause you to lose all of it, plus your sanity, free time, etc, should give you no small amount of pause. The propensity for losing your shirt shouldn't seem exciting and fun if you want to keep your money and not go bankrupt.

TL;DR: If you want to own a business, buy one in cash for less than $20k, or start it yourself, in an area you're familiar with, because learning new things is exciting but going bankrupt looking for adventure is dumb.

JohnGalt

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Re: Small Business Owners
« Reply #18 on: September 04, 2013, 03:15:13 PM »
I have been involved in a number of business start-ups, sales, purchases, etc. 

Rule #1- Don't buy a job.


Yes, this is often what I tell people when they ask why I don't buy a bigger web business, or quit my job to buy more businesses and run them full time. If it needs my full time constant attention in order to continue making enough money for it to be feasible for me to quit my job, it doesn't seem to be much different than my full time job other than losing the stability of having my paycheck come from a billion-dollar organization!

But that's what I'm looking for... a job that allows me to also get a higher return on a portion of my investment funds.  I also think I kind of crave that instability.  I have no dependents, low expenses and want to take a risk by jumping into something new.  I like challenges and learning.  My current career, which has gone extremely well so far, has stopped being challenging or interesting to me.

Well, my first reaction is that maybe you should just train for a better paying job, if that's what you actually want to get out of this. That would be a good way to get higher return on your investment as well, by investing in yourself. And thinking that you might like to take something risky is very different than knowing that you don't mind risk.

However, I find it really unsettling and rather contrary to attaining FI that you think risking large gobs of money on a lose-your-shirt situation is super exciting and fun. If you want to go into business, start small and start in an area you know. Otherwise the run-the-cash-over-with-the-lawnmower scenario might be faster and net you the same outcome.

Think about a business versus a rental house. If you put 20% down on a rental house and the house's value declines 20%, it should still be a good investment (assuming you bought it under good metrics) and you're able to cover the mortgage by continuing to rent it. It's unlikely that the house's decline in value would cause it to bring in significantly less every month to the point that you would have to sell it for a loss. If you can keep it rented, even if you can't get the prices you used to, you should still be doing okay - zero cash flow or above. There's something of a floor in rent decline (ie I could probably rent any 3 bedroom shit hole around here for $600.)

But in a business, the floor on revenue is zero, and the amount of revenue it brings in basically determines the business's worth. So if the revenue declines precipitously, for whatever reason,  the business becomes worth less and less. You stated that you have a down payment saved - so you are intending to get a loan - so if you screw it up, and the business loses value, and you aren't bringing in enough money for you to live on, or enough to cover the loan, you won't be able to sell it for enough to pay off the loan. And then you get screwed.  You've lost not only your down payment but your livelihood, and are also saddled (most likely) with either a suit filed by the bank to recover that money, or a huge 1099 for the written-off debt. You might have to declare bankruptcy. (Trump has, several times. It's hard out there for a pimp.)

That is what risk in business means. It does not mean "I might lose a little money." It's very different than a risky stock going down. If you start with a big, expensive business that you know nothing about, you could lose everything outside of retirement funds and have your credit affected for a decade at minimum. I am almost kind of offended that you think this is fun and exciting. I am pretty sure you are offended by this post but I am offended by your la-di-dah attitude.

Now, don't get me wrong, there are lots of upsides. You could do very well with it and make more money. But if you're going into a scenario that you don't understand at all, the risk is much higher FOR YOU than it would be for someone who knew what they were doing. So a situation that might be sold as low-risk could very well be high-risk FOR YOU, and the odds of YOU losing your shirt might be much higher than if someone else was in the same situation. Where you really make money in business is where you are very aware of the risk and have the skills to deal with and mitigate that risk. Then you can get a better deal because it's not as risky FOR YOU, and you end up with a higher ROI than someone else who didn't have the skills you have. It's like insider trading - what you know increases the value to you, and lowers its risk, without increasing its price, thus creating a higher ROI for you than for someone else.

But I think you are not differentiating the meanings of "excitement" and "risk". A new adventure is exciting. Learning new skills and expanding your knowledge is exciting. Intentionally seeking out a risky situation, by putting thousands and thousands of dollars into a scenario that could potentially cause you to lose all of it, plus your sanity, free time, etc, should give you no small amount of pause. The propensity for losing your shirt shouldn't seem exciting and fun if you want to keep your money and not go bankrupt.

TL;DR: If you want to own a business, buy one in cash for less than $20k, or start it yourself, in an area you're familiar with, because learning new things is exciting but going bankrupt looking for adventure is dumb.

I think poor wording gave you the wrong impression.  Don't get me wrong - I won't jump into something without lots of due diligence and a high degree of confidence that it will be successful.  This is not a "la-di-dah" attitude.   I am very well aware of the risks involved.  I was just trying to point out that the desire/need for the stability of a salaried position from a billion dollar company is not a barrier I face.


smedleyb

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Re: Small Business Owners
« Reply #19 on: September 07, 2013, 02:41:20 PM »
I think poor wording gave you the wrong impression.  Don't get me wrong - I won't jump into something without lots of due diligence and a high degree of confidence that it will be successful.  This is not a "la-di-dah" attitude.   I am very well aware of the risks involved.  I was just trying to point out that the desire/need for the stability of a salaried position from a billion dollar company is not a barrier I face.

Oh, you mean you're not gonna dump you entire stache into a business you know nothing about?  lol!

Talk about about patronizing and condescending crap...

kkbmustang

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Re: Small Business Owners
« Reply #20 on: September 08, 2013, 09:45:28 PM »
JohnGalt- I am self employed now after about a 15 year career working for others. I've never been happier and would be happy to chat with you about the transition if you are interested. May have contacts for others who bought stand alone businesses, as well. PM me if you want to talk.