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How much of my networth should I use to buy a business?

My networth is around 350K with 270 in 401 and rest in cash. I will quit my full time job to run the business.

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Answers (3)
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The BAF Group LLC
MD

Cash Reserves are normally estimated to be equal to three (3) to six (6) months of Operating Expenses. I understand your concern about the risks for your 401k, but every financial planner would suggest you do not put all of your Capital in any one place, be it a business, a bank, Real Estate, etc.

Aug 5, 2015
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Agreed that 401K is my egg nest but with the way world politics are playing I am not sure if I will have any of this fund when I retire.
So lets say I have 325K liquid cash. What should I look for in terms of price of buiness? How much cash reserve cushion shall I keep etc. Thanks for your input.

Aug 5, 2015
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The BAF Group LLC
MD

That is a value judgement - but I would never use my 401k, although that seems to be what people are doing with frequency, today. You need to make certain you have sufficient Capital, after your down payment. The vast majority of businesses that fail, do so because they have insufficient Capital reserves with which to run the business they buy or start. Even mature businesses with ready Cash Flow do not always run in the black, on a month to month basis. This is a critical concern!

Aug 5, 2015

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