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Can I afford the kind of business that I am looking for?

I have 200k in a 401k, another 50k in Home Equity and stock holdings. I am 50 years old and CAN NOT afford to make a mistake on this. I am in Real Estate and have barely scratched out a living the past couple of years and it's only gettng worse. My wife hates her job and we want a business that could provide us 100k/year cash flow. Are we out of our minds? After reading the posts regarding bogus cash flow, I am very disheartened. This is America, there has to be a small business out there that would allow us to make a decent living. Please tell me I'm right!

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Answers (7)
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You can borrow $50,000 or 50% against your 401k, depending on whichever is smaller. That will give you around $100k to invest. I'm sure if you were to partner with somebody you can definitely find something. Starting a Jimmy Johns franchise costs about $300k-$400k and you can borrow most of that money. The average cash flow from one of those is around $250k, so you could easily meet your target income with some money to spare. The important thing is that you do your homework and research your market.

Sep 7, 2009
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Darren and John, Thank you both for your responses. I will continue to look and try to mitigate the risk as much as possible. Unfortunately, it can not be totally avoided. I would like to hear from some folks regarding the financing options I've mentioned. I know you can use a 401k as long as you don't take an actual withdrawal. Is this a wise way to go?

Sep 7, 2009
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I believe it is entirely possible to afford a business that provides what you're asking. I spoke with a bank recently about a company that's for sale locally- and they would lend around 600k on a business which leaves my personal contribution at $150k. The company makes $350k a year and if you factor financing into it, the total yearly cash flow would be around 150K.

This is also an absentee business, so it would be completely passive. If I'm able to find something like that- so can you.

That said-as Jack mentioned, there is always risk. Do not put yourself into a position where your well-meaning intentions can end up hurting yourself and your family. If you cannot afford to lose it all, put it in a much safer place or invest only an amount you are comfortable losing.

Sep 6, 2009
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It's out there, keep looking. I learned to ask this question when looking at a business (either to a broker or an owner): "Is the cash flow listed a figure the owner is making NOW or is it a figure based on future potential?" ask it at the beginning before you go any further (I am at the point that I ask it before i agree to sign an NDA.) To me, my beef with false cash flows is that it wastes my time.
The busines i bought was accurate as far as cash flow but a lot of it wasn't provable. I went to the place at least a dozen times and was able to prove it by just watching the amount of customers in the place and knew cogs vs the menu prices. We had a thirty day close so I checked the receipts daily and even worked a day there before the official signing.
My only regret is that I didn't buty a biz in beach/coastal community. i couldn't wait so i bought a biz pittsburgh (where i live) Do you like pittsburgh, lol.

Sep 6, 2009
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Jack was not calling you an idiot - he was trying to spare you some serious pain. Deep down you have confidence and are sure you will not fail. I have been there. Well sometimes it doesn't matter how smart you are - your business just fails. Especially if you haven't been in business before.

I have been, and to some extent still am in, Jack's shoes. Be extremely careful about betting your retirement. Find some business that requires little capital that you can start for $5-$8k and grind it out. That way you can walk away without too much pain.

If you are determined to bet the rent then DO NOT BUY ANY KIND OF STARTUP BUSINESS. This includes franchises. Most startups fail. Yours probably will. In addition most startups lose money for months or years. Instead, purchase an existing business in something very safe and recession resistant that is making good money (steady cash flow) and that is not dependent on a key employee or the personality / talent of the owner.

Sep 6, 2009
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WOW Jack, I'm not a total IDIOT. I do understand that there are risks involved. But I did leave a high paying corporate career to go into Real Estate so I guess my first statement could be debated. I'm just looking for that business that will bring me a little happiness and a decent ROI. I still believe that it has to be out there.

Sep 6, 2009
Jack Morehouse
Financial Cornerstone.

Music Maakr.....I can only answer this as a business owner....not a business seller. I have bought and sold five businesses over the last 20 years....and my advice is simple.

If you CAN NOT afford to make a mistake.....DON'T BUY A BUSINESS. This is ALWAYS a risk when you buy a business and many times you are very, very dependant upon employees who know more than you do....sometimes for a year or more, depending on how techincal a business is, how fast a learner you are, how well you are trained by a previous owner and how much your employees are willing to help you. It is a pretty tough to go to work everyday and be held over a barrel by employees.

I have had four successful businesses, however the fifth one was a disaster. I was pretty confident going into the business, particulary after making substantial money in the first four. However, as I said, there is ALWAYS a risk....I was stung pretty well by a number of factors and lost a almost a third of what I earned over 20 years in one year. Hence, my advice, if you CAN NOT afford to lose....don't do it. The most basic premise of a business is that there is risk involved. GOOD LUCK!!

Sep 6, 2009

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