should I buy the business?

[Lee Anne]

Hi, I am new here. I may never become a mustachian at this point, but I do what I can with what I have.  Here goes:
I am 54 years old. I have a 1997 car that needs approx. $3000.00 in work.(More than its book value). I use it miminally. I live centrally located so I bike alot. I pay $700.00 a month to rent this apt. I hardly ever turn on the water heater and use minimal air conditioning so my electric is $40.00 a month. I pay $22.00 for internet and $50.00 for cell phone. I have $2100.00 in savings and $5700.00 in credit card debt. I have been paying $500.00 a month on this debt for quite some time. $2000.00 of this debt is at 6.99 interest, the rest is at 0 percent till November.
I run a small gift shop. My salary is $22792.00 a year. The owner is selling the business.
She offered to sell it to me and to finance it for me. 22,000.00 for fixtures, mailing list, phone# etc. plus approx $13,000.00 in inventory at 5 percent. I would pay her $600.00 a month for 5 years. Her profit on the business is approximately $20,000 a year. If I purchased it I would make my salary plus her profit.
I would need to use my savings to pay security for lease, business license etc. It's a scary proposition to me.
If I don't purchase it, I need a job. I may be on unemployment. I may have to go through my savings to live. I may have to buy a car. I may have to increase my debt.
I would like some different perspectives. Thanks

[Self-employed-swami]

I might be a bit more cautious than you, but I would be looking for another job, not buying a business with such low profit margins.

[Hamster]

The margin is tight, and there is risk, but it really depends on what your other options/opportunities are. If you could get another job that would pay you more than you make now, that would be a simpler option, but it sounds like you aren't convinced that is possible.

Pros: You are in a tight situation, and this is potentially an opportunity to improve it considerably from where you are now. If you buy the business, and the numbers are accurate, you should see an immediate increase in income, opportunity to pay off your debt more quickly, and start saving ASAP for your retirement (Do you have any retirement savings in addition to that $2100?).

If  those numbers are accurate, you'd be earning an extra $13k per year (after debt service) based on an upfront cost of $2000 until the debt is paid off.

You already know the business if you've been running it.

If the owner is willing to take the risk of financing the sale knowing you have a tight financial situation, she must be fairly confident you can make it work to pay her back.

Cons: You are assuming the financial risk for the business. But, if it fails you declare bankruptcy. If your net worth is negative as you show, that may not be a bad option. Do you have other assets at risk?
You have to be the owner as well as the manager. Depending on your duties "running the business" now, that may not be much more work than you are doing currently.

If you already run the business, you should have a good sense of how accurate all those numbers are, and know what's involved.  Be sure the terms of the lease and the nature of the business make sense - how many years left on the lease, how much is the "rent" set to increase each year, are you going to be losing money for the first part of the year and only making it up in the holiday season, and can you afford to weather the lean months?

Good luck with a tough situation.

Looking down the road 10+ years, do you have other retirement savings? any idea what your social security situation will look like when you are eligible, etc?

[SunshineGirl]

Eh. Ask to see her tax returns.

I don't think you have enough savings, and I don't think it's a very profitable business, and it would be a time suck and a lot of stress for not that much money.

I would look for a better job.

[totoro]

Do you love the business? 

Have you analyzed the risks (ie. is it growing or shrinking/how long in business/existing lease terms/area outlook)?  Do you have a written business plan?

I would say you are buying a job and unless you are certain you are prepared for the stresses of ownership (ie. employees/rent increases/shoplifting/vandalism/market downturn/competition), it is not worth it.

As far as another job goes, have you looked to see if there is anything out there at a comparable salary?  I can really understand your worries about this. 

Where I live it is possible to find a position as a live-in companion.  You get room and board in exchange for assisting an elderly person to stay in their home (ie. a bit of cleaning, shopping, making meals, yardwork and driving with their car to appointments).  I wonder if this might be a possible option for you that would allow you to both work FT and reduce your expenses so you can pay off your debt and build some more savings?

This could allow you to possibly put your savings down on your 6.99% credit card debt and get rid of your car until you have saved more.

[cerberusss]

In the new situation, how many hours per week will you work? What will be your hourly wage?

[gooki]

And if you do decide to buy, negotiate the price down. Whatever are her options, let it fold and get $0?

[Lee Anne]

Thanks Everyone for taking your time to read and reply to my post. Alot of good information here.
Self Employed Swami...am I privy to additional  information that would persuade me to throw caution to the wind? No
Hamster...alot of good info. Alot of what I was thinking. It was this part of your post that gave me food for thought: "but it sounds like you aren't convinced that is possible."  As long as I don't relay that message to a prospective employer, I will make more. :) As for social security, I've been paying good money into it since I'm 16. Bad decisions got me here, including using retirement money to relocate. Thanks for the luck!
Sunshine girl, I can see the time suck and the stress.
Totoro I like the business, I don't love it. Buying a job! great answer...so true. Thanks for your suggestions.
cerberuss, I don't have an answer at this time.
Gooki, she'd rather let it fold.
I decided to not buy the business and I finally feel it's the best decison for me. I am confident my next position will pay more. As soon as I know where it is, I will look for less expensive housing, pay my debt, start saving for retirement.
I am proof you can begin the road to a mustachian life at any age with any financial situation.

[totoro]

Yes you can Lee Anne.  We are all on a time limited path.  Concentrate on joy if you can.  Things that bring you  and others joy often have a higher ROI than money can bring.

[nktokyo]

So you pay roughly $40K total for a business that will make roughly $40K per year.

That doesn't seem too bad. It does lock you into that income level but (assuming the business has legs) could become a semi-retirement income for you too if you hire somebody to work there in 10 years or so.

[frompa]

Lee Anne - Congratulations on making what seems a sane business decision.  And good luck on your job hunt.

[Eudo]

I don't know why someone would call it a low margin business. Not enough info was provided to tell us that. But the poster says the business is being sold for 35k and is making 20k in profit a year. If I could buy 10 of those for 350k and make 200k a year in passive income I'd do it in a heartbeat. I'm not advising the poster to do that though because it really hinges on the details. Is there more to this story? Are you going to work twice as hard now? If so, it's not really profit, it's a second job. Have you done due diligence so you know it really makes that much money and won't need more capital, etc.

[tooqk4u22]

I don't know why someone would call it a low margin business. Not enough info was provided to tell us that. But the poster says the business is being sold for 35k and is making 20k in profit a year. If I could buy 10 of those for 350k and make 200k a year in passive income I'd do it in a heartbeat. I'm not advising the poster to do that though because it really hinges on the details. Is there more to this story? Are you going to work twice as hard now? If so, it's not really profit, it's a second job. Have you done due diligence so you know it really makes that much money and won't need more capital, etc.

Exactly what I was thinking. If the numbers are good and the business and its trends are solid then I would be all over a $35K investment for a $20k cash return - look at the downside.  As long as you don't fuck it before two years then you are out nothing and still received the salary that you are already used to living on.

IMO if you know the numbers and believe you can run it then it sounds like a great opportunity.  Just don't elevate your lifestyle and use the profit to pay off the financing and your other debt ASAP.

[Eudo]

Hallmark claims that a typical gift store requires 100k in inventory. You've said that the 35k price includes 13k in inventory. If the truth is that it requires 100k in inventory to make 20k in profit (which sounds more reasonable) then you're not really buying the business for 35k. You're buying it for more like 122k, 35 of which is going to the current owner, and 87k of which is going to additional inventory. This is just a hypothetical, but the point is that you have to know and believe the numbers. That's what I mean by doing your due diligence.

[Lee Anne]

Yes you can Lee Anne.  We are all on a time limited path.  Concentrate on joy if you can.  Things that bring you  and others joy often have a higher ROI than money can bring.

YES Totoro I agree.

[Lee Anne]

Thank you everyone. I have made my decision.