Question for Business Owners

[a_minimalist]

Some advice and wisdom would be greatly appreciated.

I've wanted to start my own business for the past 5 or 6 years. I decided to go to school to learn more about what I wanted to do and work a more serious position in the industry first. I had worked in retail since I was 18 but learning more about the product I wanted to create and sell seemed like a good decision at the time.

I went to a good school to learn about creating the product but soon dropped out because I was offered a good position while interning for a well known company. Unfortunately I was laid off in 2008, I'm sure you can figure out why. After being laid off I decided to go to an even better school which was about 3x as expensive as the first. I made the wrong assumption in thinking that I would make as much money or more after graduating. It was a good lesson to be learned.

I've had a hard time finding a job since graduating and I know that the only way I'm ever going to make real or serious money is by starting the business I've wanted to start. I strongly believe in myself and know I will succeed at this.

Here comes the problem and need for advice or answers. With barely any income right now and about 60k in student loans to be paid off I'm hesitant to go to a bank to ask for a loan. It seems unrealistic to expect a loan under my circumstances.

One of my solutions is to ask an awful lot of my parents. All of my student loans were cosigned by my mother. I could always transfer them all to be under her name completely, I think, while still paying them off. I could pay the minimum on the loans and start saving up some money. I can then ask my father for a loan to start a family business. With that capital I can then approach a bank with a solid business plan to see if I can get a business loan.

I'd prefer not to have to ask for help and I'm wondering what some others think of the situation and what I've come up with. Any suggestions would be greatly appreciated.

As for the amount to start the business. I'm hoping if I invest 35k of "my own" money I can secure a loan for about 100k. I'm sure I will have to adapt and adjust with that number although even more money would be better

 

[Meat-O-Rama]

You have to ask yourself what it will do to your parents if you completely fail. Will it ruin their retirement? Will it only be a small blip on their financial radar? They don't have the kind of time to recover from financial failures that you do.I'm not trying to be negative, but you have to hope for the best and plan for the worst.

I can't comment specifically on the viability of the bank loaning you any money, but it certainly seems like the odds are against it. Banks are still pretty tight with the lending these days.

Is there any way for you to start smaller and work your way towards that $100k goal? Can you start by selling services to save up some capital?

Also, have you looked at crowd funding like Kickstarter?

 

[WoodysGirl]

Personally, I'd attempt to get a job. It doesn't sound like your financially stable and it sounds like a lot of risk for others to take for you to pursue yoru dream.

Maybe become stable somewhat financially, and then pursue the business would be a better avenue.

 

[YosemiteSam]

Hint. Use other peoples money and very little if any of your own.

If your business has a good plan and an area of need. People will loan you money to start your business. Try the SBA. They have a lot of good information for both getting funding and actually starting a business.

To be honest, it sounds like you aren't anywhere near ready to start one. Educate yourself first on what it takes to create a business and how to get funding to start it.

 

[ShiningStar]

educate urself on the small business and the small business model some people dont realize the small business owner is on call aruond the clock and it takes small businesses 5 to 6 years to make a profit.

there is a lot to learn and a short amount of time to do it.

 

[Hostile]

Your best bet is to start out of your house or garage and let it grow. Put everything back into the business that you can, write off everything you can, and then worry about expansion after you have established a taxable income base from which to apply for a loan.

 

[a_minimalist]

You have to ask yourself what it will do to your parents if you completely fail. Will it ruin their retirement? Will it only be a small blip on their financial radar? They don't have the kind of time to recover from financial failures that you do.I'm not trying to be negative, but you have to hope for the best and plan for the worst.

I can't comment specifically on the viability of the bank loaning you any money, but it certainly seems like the odds are against it. Banks are still pretty tight with the lending these days.

Is there any way for you to start smaller and work your way towards that $100k goal? Can you start by selling services to save up some capital?

Also, have you looked at crowd funding like Kickstarter?

If I completely failed it wouldn't hurt their retirement plans. The most I would ask for is 25k to start which is still a lot of money. It would hurt simply because it's 25k but it wouldn't change anything as far as personal finances go. The reason I haven't asked my father yet is because he is so cheap and doesn't hand out money. He never has and I pretty much expect a no.

Starting smaller would be the most realistic option but I want to think bigger for now. As you said banks are tight when it comes to lending these days so starting smaller and showing I can produce enough revenue to sustain a business and pay back the loan will help. Thanks for reminding me to come back down to earth though.

I haven't given much thought toward crowd funding. I've only recently heard about it. Do you have experience or know someone who does?

I should also mention I've had wealthier friends offer to invest in me a while ago but I've always turned them down out of fear I'd have to give up too much control. Same with a wealthy businessman I became acquainted with at a popular bar for "finance people".

 

[a_minimalist]

Hint. Use other peoples money and very little if any of your own.

If your business has a good plan and an area of need. People will loan you money to start your business. Try the SBA. They have a lot of good information for both getting funding and actually starting a business.

To be honest, it sounds like you aren't anywhere near ready to start one. Educate yourself first on what it takes to create a business and how to get funding to start it.

My worry is an area of need is somewhat subjective. I think what I want to do is an area of need but I don't think anyone else will. Sometimes people need to be shown that sort of thing.

I have looked into SBA.gov a while ago. The closest thing I could find to fall under their requirements for a loan was a business that is considered "production." I wouldn't be producing the product at first. I'd have to pay someone to do it.

You sound like my father when you say use very little of your money. That's what he's said from the beginning. The only problem is giving up control of the company and banks aren't lending unless you are putting up a substantial amount of cash, and even then it's not guaranteed.

 

[a_minimalist]

educate urself on the small business and the small business model some people dont realize the small business owner is on call aruond the clock and it takes small businesses 5 to 6 years to make a profit.

there is a lot to learn and a short amount of time to do it.

I'm well aware of that. My grandfather owned a liquor store and a couple of barber shops as well as rented out part of his house so he acted as a landlord. My father saw first hand how hard and time consuming it is and reminds me all the time that it's a 24/7 job. It becomes your life.

I'm not afraid of doing what it takes to start my own business. it could take 10 years and 24 hours a day 7 days a week and i'd still want to. it's just a matter of how to do it now.

 

[a_minimalist]

Your best bet is to start out of your house or garage and let it grow. Put everything back into the business that you can, write off everything you can, and then worry about expansion after you have established a taxable income base from which to apply for a loan.

That's my only option. That's exactly what I would have to do. But, I'd have to do that after a loan I thought.

Right now I live with my parents. They are thinking about buying a house in AZ and if I can pay the taxes on this house here in NJ I think I can stay here. The housing market is horrible anyway and it's a bad time to sell. I'd convert certain parts of the house into a work area and write off what I could. The problem is that it takes some capital to start the business. Probably not as much as I stated earlier, but that amount is preferable but also probably unrealistic. I haven't taken it that far yet.

 

[a_minimalist]

Personally, I'd attempt to get a job. It doesn't sound like your financially stable and it sounds like a lot of risk for others to take for you to pursue yoru dream.

Maybe become stable somewhat financially, and then pursue the business would be a better avenue.

Problem is that I have attempted to get a job. All jobs pay substantially less than what I was making before. They are also located in NY and I live in NJ. After commute is factored into how much I make it's almost pointless. If I take this route I won't be financially stable for a very long time.

Also, I don't know what your definition of stable is. To everyone that is different.

 

[a_minimalist]

Also, thank you to everyone who has chimed in. It's already been a worthwhile post for me.

 

[Hostile]

That's my only option. That's exactly what I would have to do. But, I'd have to do that after a loan I thought.

Right now I live with my parents. They are thinking about buying a house in AZ and if I can pay the taxes on this house here in NJ I think I can stay here. The housing market is horrible anyway and it's a bad time to sell. I'd convert certain parts of the house into a work area and write off what I could. The problem is that it takes some capital to start the business. Probably not as much as I stated earlier, but that amount is preferable but also probably unrealistic. I haven't taken it that far yet.

One key, and I cannot stress this enough, limit your under the table transactions. Lots of people make the mistake of claiming taxes on a small portion of their income. Let's say for ease of math you are making 10k per month, but claiming taxes on 1/4th of that. A bank loan is based entirely upon your taxable income.

So while you are making 120k per year, the bank can only look at 30k of that.

Once you are ready to buy your business license buy it as an LLC, then under that LLC establish an S-Corp. Pay yourself a salary from that S-Corp.

If you have a wife or kids living in your home and they answer the phone for your business pay them a salary out of that S-Corp.

There is a reason for that. First of all you need to create an investment or retirement fund. 401Ks are still the best known methods. Well, you can only put 17k per year into your 401k. But your employer 9the S-Corp) can match funds up to 100%. Thus you could effectively put 34k per year into that fund.

Roth IRAs are great as well.

Get a good accountant that you trust, and grow the business. Too many people do just enough to stay afloat. If you are living from paycheck to paycheck as a business owner then you aren't doing a good enough job.

The economy is hard right now. Bank loans are tight. Right now if you look small businesses are dying. Big box stores and chain businesses are the only ones thriving unless a place is so established or so superior in quality that loyal customers will never go away.

Good luck. PM me if you have specific questions that you don't want public. I will do my best to answer them for you.

 

[xwalker]

General advice:
1. Keep your living expenses as low as possible.

2. You should immediately be doing something that is either earning income or gaining experience or both.

a. Avoid saying "I can't find a job". You might not be finding a job you like or in the industry that you like, but you should be able to find something. There are day-laborers that don't speak English and don't have much if any knowledge that stay employeed for at least $10 per hour. Here in Plano, TX the city runs a place were those guys stand in line and small construction/landspace business owners come by and hire them.

b. If you can do without income, then work for free at a business were you can be learning something. It might not even be in the industry you prefer, but if you work with a small business owner you can learn how he/she got started and financed their company.

c. Start a simple business that has immediate income. You could purchase some lawn equipment and hire some day-labor guys to start a lawn mowing company. You would probably have to have done this around March, before people had hired their lawn mowers for the Summer.

You could later show that you have successfully started and operated your own business. This 1st business would just be a step in the direction of starting the exact type of business that you ultimately want to own.

d. In any of the working senerios, be the 1st person there in the morning and the last to leave. Often, opportunity comes when you're least expecting it.

4. Practice putting a positive spin on what you've done up to this point. Example, Change:
"I wanted to create and sell seemed like a good decision at the time."
to
"I'm happy I made that decision"

As I said before, avoid saying "I can't find a job" etc..

"I went to a good school to learn about creating the product but soon dropped out because I was offered a good position while interning for a well known company. Unfortunately I was laid off in 2008, I'm sure you can figure out why. After being laid off I decided to go to an even better school which was about 3x as expensive as the first. I made the wrong assumption in thinking that I would make as much money or more after graduating. It was a good lesson to be learned."

Should be presented as something like:
You went to school, then you worked in the business to learn the industry, then you went to a really good school. Now you're focused on learning more about both the industry and starting your own business, etc..

I've had a hard time finding a job since graduating and I know that the only way I'm ever going to make real or serious money is by starting the business I've wanted to start.
Don't present with too much focus on "getting rich".

I strongly believe in myself and know I will succeed at this.
This comes across as pie-in-the-sky dreaming. This would be better as "I believe in myself and I will do anything to succeed at this".

In your own mind, don't forget the bad decisions or lay-off, etc.. This will help you evaluate risk/reward in the future and not just assume that things will work out.


5. Finance
Your 60K student loans might sound like a lot; however, the minimum monthly payment is probably not that bad. Banks/Lenders are most interesting in the monthly income vs debt and expenses.

Without some special program, you're probably not going to get a bank to loan you 100K just because you have 35K in cash. This is especially true if the 100K is not going into a tangible asset like a building. Banks want to see your ability to repay. Also, loans without collateral are very high risk.

Your best chance for a normal bank loan would be to have your parents apply as if they were starting a business. The reason for this is that they probably have a long steady employment history as well as a long credit history. However, even in this senerio, it would be difficult to get much with an unsecured loan.

Sometimes, businesses are started by getting Venture Capital; however, this is usually for a product that is unique and has high growth potential. It is often used for tech products that can be patented/copyrighted. Something like Facebook.

The government has special programs to help small businesses and startups with loans. They also provide some training for small businesses. You will have to have a lot of patience to weed through this process and paperwork.
http://www.sba.gov/


In summary, you have some things working in your favor:

1. Lack of financial/time commitments (i.e. No Wife/Kids, mortgage, etc..)

2. Education.

3. Youthful energy.

 

[Hostile]

Oh yeah, try to keep your unsecured debt limited to your college loans. Secured debt is a car, a home, or a business. Unsecured debt is a credit card, especially a store credit card.

Apply for as many credit cards as you can, but do not use them unless you can pay them off in one month. Every 6 months call them and ask for lower interest rates and raise your credit limits. They might not, but each time they do your credit rating is affected positively.

Never, ever close a credit card. That is a hit on your credit score. Keep it at a 0 balance. That is a credit boost.

The higher your credit rating the lower your interest rate.

Another option is to join the military and use that as work experience and then qualify for GI Bills and other quality subsidies that the Government rightly uses for our veterans.

 

[Cajuncowboy]

All the advice here is good but I have one question for you...

Have you done market research for your product or service and have you been able to determine your need/fulfillment potential?

 

[a_minimalist]

Once you are ready to buy your business license buy it as an LLC, then under that LLC establish an S-Corp. Pay yourself a salary from that S-Corp.

If you have a wife or kids living in your home and they answer the phone for your business pay them a salary out of that S-Corp.

There is a reason for that. First of all you need to create an investment or retirement fund. 401Ks are still the best known methods. Well, you can only put 17k per year into your 401k. But your employer 9the S-Corp) can match funds up to 100%. Thus you could effectively put 34k per year into that fund.

Roth IRAs are great as well.

Get a good accountant that you trust, and grow the business. Too many people do just enough to stay afloat. If you are living from paycheck to paycheck as a business owner then you aren't doing a good enough job.

The economy is hard right now. Bank loans are tight. Right now if you look small businesses are dying. Big box stores and chain businesses are the only ones thriving unless a place is so established or so superior in quality that loyal customers will never go away.

Good luck. PM me if you have specific questions that you don't want public. I will do my best to answer them for you.

Thanks a lot for this. I've already saved this in a word document and put it in my "business" folder. It's definitely something I know I'll face down the road so I really appreciate the advice and I'll definitely remember it and look to it in the future. I'll most likely be PM'ing you in the future as well simply because there is a lot I don't want public and you've been enormously helpful already.

I had money in a Roth IRA when I was younger but don't anymore. Contributions are limited to around 3-4k a year if I remember correctly, right? To be completely straightforward and it might sound silly, if things worked out well I'd probably want to continue dumping money back into the business and not even think about retirement for a while, which is probably being naive. That might be what you are referring to though, it probably is since you mentioned it earlier. I just don't really care about how much money I make and I've already planned on being broke for many years to come. As long as the business is growing that's all that matters to me. I've always had a strong passion to build a large company.

I already have a really good accountant that my family has used for a few years so that's good news I guess.

I had planned on registering the company as an LLC, but never considered an S-corp. Just so I know I am following you; that's not something I would do immediately after becoming an LLC though correct? That's down the road after more employees are hired right?

 

[a_minimalist]

Oh yeah, try to keep your unsecured debt limited to your college loans. Secured debt is a car, a home, or a business. Unsecured debt is a credit card, especially a store credit card.

Apply for as many credit cards as you can, but do not use them unless you can pay them off in one month. Every 6 months call them and ask for lower interest rates and raise your credit limits. They might not, but each time they do your credit rating is affected positively.

Never, ever close a credit card. That is a hit on your credit score. Keep it at a 0 balance. That is a credit boost.

The higher your credit rating the lower your interest rate.

Another option is to join the military and use that as work experience and then qualify for GI Bills and other quality subsidies that the Government rightly uses for our veterans.

This is something I am doing right now. I've had a credit card since I was 16. I've had a pretty good credit score but recently I have accumulated too much debt and I won't even think about going to get a loan until that's completely gone. My father has been talking to me about this since I was a kid.

You give really great advice, I really can't thank you enough.

 

[a_minimalist]

a. Avoid saying "I can't find a job". You might not be finding a job you like or in the industry that you like, but you should be able to find something. There are day-laborers that don't speak English and don't have much if any knowledge that stay employeed for at least $10 per hour. Here in Plano, TX the city runs a place were those guys stand in line and small construction/landspace business owners come by and hire them.

4. Practice putting a positive spin on what you've done up to this point. Example, Change:
"I wanted to create and sell seemed like a good decision at the time."
to
"I'm happy I made that decision"

You're absolutely right. I'm really glad you called me out on this. I used to be the complete opposite of this. Ever since being laid off a few years ago my attitude has been absolute crap and I took it way too personal. I've been trying to make the necessary changes but obviously I'm going to need to step it up because it's not enough.

I also might as well stop wasting my time and thinking so big and start thinking about securing a smaller loan and how to scale down my immediate effort into a start-up.

I appreciate the critique, thank you!

 

[a_minimalist]

All the advice here is good but I have one question for you...

Have you done market research for your product or service and have you been able to determine your need/fulfillment potential?

I have. It's a well developed industry though which makes entry harder. I know price points very very well though and I see an area that hasn't been tapped into yet as far as design goes. I have my own vision of how things should be and that IMO certain things should change and have become old and stale.