Career Advise needed

[socalrob]

Business loan. Thats funny.

When I started my surveying company 20 years ago I went to a bank & inquired about a business loan / line of credit. Afterall, my sister the dentist got a "practice" loan from a bank to buy out an older dentist.

Turns out I was about 5 years too late, even practice loans for doctors/lawyers were rare.

Banker told me to come back in 5 years or so when I had a track record. I stupidly told him I wouldn't need a loan in 5 years.

Turns out as you ramp up a business, you always have a lag between costs of creating your product verses when you get $$ back in the bank for your product. The faster you grow, the worse the lag. In commerical land surveying, working often for developers, who like to use others $$, 90 days is a common payment turn around from invoicing. So if I hire a new employee, I am basically fronting all costs for 90 days out of pocket.

Put another way, the $$ in accounts receivables is really like a forced savings account, & man does it hurt to build it up.

Thats probably the pain Iowabeakster is feeling. Took about 8 years for me to get to a reasonable steady state I could depend on. Another problem is being either cash flush or broke. Seldom seems to be in the middle. & when you factor in taxes, which may need to be paid on income spent last year & you have bad cash flow at the moment & it seems your whole life is one quarterly payment crunch to the next (I consider this the I'd rather be broke rich than broke poor scenario), often a Republican is born out of a formerly socially liberal individual. Most of the extra $$ made in a good year is sucked away by taxes, & then quarterly estimated tax payments rise even if you are now having a worse year.

Turns out, I find, that the bigger the company the more essential it is to have a bigger & bigger line of credit to act as a shock absorber for the cash flow crunch.

Another way to look at it, at the first of each & every month I am looking at a big hole, and at the first of the year I am looking at a bigger hole. Never easy to do. Also gives you a totally twisted view on money, as its ceases to matter much whether or not you go out to dinner or eat in & save a few bucks. I can't even comprehend how YJ does it with a much bigger business. And to tell the truth, I don't begrudge a CEO of a corp with 30,000 employees his 50-100mil/year, that stress would be off the charts for me.

After about 10 years in business I went back & got a line of credit. Which they gladly gave.

Ric, if you are clearing 20K per year on your income property, then you must have equity you can tap. Real estate equity is the cheapest loan you can get. Also, a common tack is to borrow against investment real estate just to the point of breaking even with costs, mortgage & taxes. That way you get a big chunk of TAX FREE CASH, instead of paying income tax on the $20K/year. I would think that $20K per year would equal loan servicing for about $380K. Can you live on that & build a house on that until its sold & you get your $$ back?

Life is full of risks, but that makes it fun. I've had inquiries made by an engineering company to buy us out, but I don't think I could ever work for someone else. So in a sense, I'm just as trapped as a wage slave, albeit with a totally twisted sense of what a dollar is.

[yjleesvrr]

Rob - yeah, it wasn't easy the first 14 months I started my company. I went 8 months without income, spent $14k of my own money, and once the revenue was starting to flow during the fourth month I wound up assuming nearly $80k in debt to purchase computers and pay for business travel to visit client sites knowing that I was going to get the money back to get out of debt. I hired five people and was paying them before I got to the point I was able to start drawing an income. I personally made only $27k the first year in business.

I worked with the U.S. Small Business Administration office in Richmond, VA to help secure a line of credit with Bank of America during the 2nd year I was in business. That's been key for my business as it is not unusual for us to incur tens of thousands of dollars in expenses in purchasing materials to service our DoD customers. We get paid for these expenses, but it's nice having a line of credit to absorb the costs rather than paying out of the corporate account.

Oh, I forgot to mention that my company is a S-corp. That means tax-wise it helps to whittle down your bank account at the end of the year to reduce tax liability. Doing this while having enough to pay for beginning of the year expenses is a serious challenge. Add to this the fact that business activity slows down during the holidays and you're talking about having to make sure January gets off to a bang. Fortunately for me, we've had customers who have unleashed a torrent of work every January that has helped minimize the pain of turning the calendar.

Being an entrepreneur is not for the faint of heart. As I said before, ability to take risks is vital if you want to grow a business.

[Ric]

Ric....... Is there anyway you can negotiate a severance package from your employer? ........... Aim high. Ask for three years' salary, extension of medical benefits for one year, etc.

I can certainly ask or make an offer in writing with all the things you suggest.

One important point. My company offered an early buyout six months ago which included 15 months pay. Rumor is another one is coming. So, I feel I must stick it out at least a few more months to see how things develop at work. It's going to take me that long to have all my ducks properly in a row before leaving anyway.

Before I do leave I will certainly send an offer/request for severance.

[Ric]

How is one suppose to start a new business without some working capital ? It's what small business loans are for isn't it ?

You have to personally back the small business loan. As such, you need to have a healthy credit rating to get one. Make sure you know where you stand credit-wise (goes without saying, I know).

Ric, if you are clearing 20K per year on your income property, then you must have equity you can tap. Real estate equity is the cheapest loan you can get. Also, a common tack is to borrow against investment real estate just to the point of breaking even with costs, mortgage & taxes. That way you get a big chunk of TAX FREE CASH, instead of paying income tax on the $20K/year. I would think that $20K per year would equal loan servicing for about $380K. Can you live on that & build a house on that until its sold & you get your $$ back?

It sure is nice to hear someone else talk about this stuff !!!
Alright business advisors.....do your stuff 7 tell me what ya think.

Here's where I stand:

1. I have my daughters private school paid for through HS. Thats out of the way.

2. I have no debt payments except my home which is 1,300/mo

3. I have enough cash to live on, including insurance for my daugther and I, for roughly 12 months (~50k). I can build two houses in 12 months.

4. My office bldg is paid for and is worth 400,000.

5. I have a small lot next to the office bldg paid for which I could sell for maybe 60k ~ 90k (?).

6. I have never missed a payment. My credit is first rate.

7. to start a home construction project I need to own the property and the bank will give me the builders loan. Which you have to start paying back as you draw from it. I can service that with the office bilding income of 1,600/mo. You can build a home in six months.

8. I have a brother with 30 yrs experience and a ready list of subcontractors.

9. I've build several houses myself and have done most of the sub jobs myself....I have the knowledge, experience, and the license.

10. as I stated above the home building market here is always booming.

I think all that puts me on a pretty a good foundation. I don't know how it's ever going to get any better unless I won the lottery.

I'm thinking of:

1. selling the lot next to my office bldg for capital to buy a lot to build on, that money would always be turned back over into another lot.

2. If need be, borrow against the office bldg for any additonal funds needed to buy a lot to build on (some in this area sell for 90k !), and any other initial working capital, it would probably be very little, no where near any amount the office bldg income couldn't easily handle in addition to handling the builders loan payment as sited above.

After leaving the company I work for I can focus on my own business. So,

3. In parralle with starting a home construction project I plan to quickly focus attention on my office bldg as it is only half rented. If I can get the other half rented that would be another ~1,600/mo income.

4. I plan to sub out a few of the home construction jobs to myself for added income. I think that can amount to ~ 10 ~ 15k in six months time.

5. Builders fee in this area is generally between 12.5 ~ 15%. I plan to start with something on the order of 3,200 sq ft at approx $100/sq ft.. That should earn a minimum of 40k.

[RBrider]

Ric

If I were you, I'd rearrange the order of some of your tasks or goals you've laid out.

First, when you sell the surplus commercial lot, in order to purchase the residential lot, be sure to do a 1031 exchange, in order to avoid paying capital gains tax on sale of commercial lot.

Also, you own the office facility now. Why not make it a top priority to get the second office up and rented right now.
After all, your goal is positive cash flow with minimun risk.

Have you talked to your brother about current sq ft cost for new home const? $100 per sq ft sounds low to me.

I bet you could do quite well if you started doing small home repairs & remodeling. Usually if the new home market is booming, then the existing home repair/remodeling market is being negelected. Ask your brother, see what he says.

The old saying, you gotta learn to crawl, before you can walk, comes to mind.

One last thing that Rob touched on is taxes. Hire a good qualified bookkeeper to keep you outta trouble.

Uncle Sam & the state are your partners in everything you do. They demand to be paid in a timely manner, yet that's usually the first place new businesses fall behind.

I'm 61 now, I've been self employed just about my entire working life. I like being self employed, but it ain't for everyone.

Good Luck.
RB

[yjleesvrr]

Ric - I know little about your trade, but it sounds like you're in a good position to start. You obviously put thought into it before posting on the board, so that's good. You seem to have access to start-up capital. Once you get started, make sure you manage cashflow wisely and do financial projections that are realistic. Growth is great, but growth in and of itself can pose challenges as well, such as cashflow and quality of service/product. How you manage these things will determine how smooth you operate. It's not rocket science, but it requires a fair measure of conscientiousness and keeping on top of things.

[iowabeakster]

i just read this, and was thinking about you.

pretty generic, but may give you some things to think about.

http://finance.yahoo.com/expert/article ... ters/24050

Yeah Socal defintely pointed to my problem. Growing the business costs money. Can't make more money without growing the business. Damn chickens and eggs.



I liked this response to the article.

What she's saying is work part time elsewhere while starting a new enterprise; don't invade your savings and don't use credit. I guess the answer is a money tree. Anybody have one?

[Ric]

Ric

First, when you sell the surplus commercial lot, in order to purchase the residential lot, be sure to do a 1031 exchange, in order to avoid paying capital gains tax on sale of commercial lot.

10-4 on that one. One of my tasks right now is to brush up on the tax laws that will apply to me and my business. My brothers bookkeeper is also a tax guy. I plan to use him.

Also, you own the office facility now. Why not make it a top priority to get the second office up and rented right now.
After all, your goal is positive cash flow with minimun risk.

You are correct. Getting the remaining three offices rented would double my income from the office bldg, making it 3,200/mo. Also, in my office bldg business I have a repair/upgrade account with 4k bucks in it to paint the exterior and interior (most of the exterior is brick). I plan to sub myself out for this work to keep the money in my business. Looks like a few long weekends ahead !

You’re right about my goal, but that goal also includes getting out of the corporate job I’m in. But I’ve decided to slow down a bit to wait a few months and see if the company I work for is going to offer a buyout. So in the mean time I will work on my business plan and start that office bldg work immediately after this present cold spell.

In other words, I'll wait to quit my present job until I've rented the other three suits and have the commercial lot sold. Although I might not get the three suits rented right away, and the lot simply may not sell, I’ll at least have that work completed and out of the way with the office bldg upgrade account converted into capital for the new home building business.

Have you talked to your brother about current sq ft cost for new home const? $100 per sq ft sounds low to me.

My area is an upper income affluent bedroom community. But remember it is in Alabama where costs are generally a bit lower than the rest of the country. Square foot cost for nicely trimmed out home ranges from 100 to 120. If you live in California or say Michigan, you wouldn’t believe what 120/sq ft will buy you here. Ten years ago I built my house which is modestly trimmed out for 70/sq ft !

I bet you could do quite well if you started doing small home repairs & remodeling. Usually if the new home market is booming, then the existing home repair/remodeling market is being negelected. Ask your brother, see what he says.

I hear ya but, I’m afraid of getting bogged down in a remodeling job. I have asked my brother. He advises I stick with a spec house to start out so I won’t have to deal with the possibility of an aggravating customer. I will however take a remodeling job if the customer seems reasonable enough and the job fairly straight forward. In the end I will take what I can get for extra work of course.

The old saying, you gotta learn to crawl, before you can walk, comes to mind.

LOL….well…I did complete three large homes about ten years ago. And I’ve wired houses, painted, framing, trim, plumbing, cabinetry, flooring, sheetrock, landscaping, and a lot of odds & ends. So I’m not too green.

One last thing that Rob touched on is taxes. Hire a good qualified bookkeeper to keep you outta trouble.

I’m a perfectionist, which can get you into trouble. I tend to figure everything out myself. On this however I don’t plan to be stupid. I may be hiring my brothers bookkeeper.

Good Luck.
RB

I can’t tell you guys how much I appreciate your examination and recommendations. I’ve really exposed my financial realities here, but so what ! I think it’s a great valuable exercise.

[Ric]

i just read this, and was thinking about you.

pretty generic, but may give you some things to think about.

http://finance.yahoo.com/expert/article ... ters/24050

Interesting read. And I’ve read Suze before. I find her to be seriously no-nonsense. And definitely not a risk taker. So, to take her seriously on my business planning…..I’ll try and address her points honestly.

* Figure out replacement cost –

1. I’ve already tallied up my expenses and plan to fine tune it by getting firm quotes on such things as insurance before I take-off.

2. I have at least six months cash on hand and another 1,600/mo office bldg income which I might be able to double by getting three more office suits rented, which I really need to do before leaving the company I work for. That plan is in the works.

3. Yes I will be discontinuing input into my 401k. I have 200k in it now and I don’t plan on borrowing any of it. Frankly, after seeing what can happen to a 401k between 1999 and 2002, I’m a little learly of putting any more into it. I’d rather try making money hand-over-fist in the home building business and in the future making some investments into safer dividend yielding stocks.

* Don’t access retirement savings –

Answered in #3 above. And, the only other retirement I have is from 22 years at the same company where I did purchase a supplemental retirement. But, this company has already screwed us out of half our expected retirement. Hence another reason for running from them before they rape me again.

* Keep the home Equity Tap Turned off –

Done.

* Don’t Rely on Credit –

1. I’ve never had credit card debt that I didn’t pay off within three months. Never. Only a fool finances a business with a credit card, in my opinion. My credit cards right now have a zero balance and I plan for them to stay that way.

2. I plan to liquidate one business asset, a commercial lot, to convert it to another business asset, a lot to build on, which will be money coming back when the spec house is sold, hopefully with a bit of decent profit margin. However, if I can't get the commerical lot sold by the time I'm ready to leave work, I will leverage the office building which should only take about 25% of it's worth.

3. The only real business loan will be a builder’s loan to construct the spec house. That’s the nature of the business. You wouldn’t want to use your own money to do that anyway.

* The Responsible Route – 12 months living expenses – take an extra job

1. Well, I do have six months easy. But in addition I also have 1600/mo coming in now with a good chance of increasing that significantly, hopefully before leaving the company I work for.

2. I plan to take plenty of extra jobs in the form of doing plenty of sub work myself.

[kantuckid]

And along comes more free advise-I'm a retired "Career Counselor", 63 and have had 4/5 careers total. I suggest that you try /consider all the options , with building being just one. It may seem attractive but you don't need me or the others (who are offering good advice-with the exception of the factory worker idea-it's a no fit for your background and you would be even more unhappy than the present mess) to think this through, just make sure you look in all directions. I have 3 sons that are engineers-all of their own choosing I might say and they don't exactly do the field they school trained for. One is a military pilot from aerospace eng., another has gone on to PHD from Chemical eng., and the other is currently making the switch form Navy Nuclear eng. to civilian job-he's civil in school. He uses a headhunter group and has many opportunities(all paying twice the max I made in education!)No , it's not about the money, if you have enough, but thats BS that everybody gets to love their job. You walk through once and it's short as already said so while a nice thought i challenge you to do that if you choose to live in a VERY poor place. Those giving advise from CA have a perspective that could benefit from the realities of living in one of the ten poorest counties in the USA.It is beautiful here and POOR and I have had jobs that were what we called "sucking hind tit" on the farm in KS where I grew up. If you start a job search it is good to remember that you will face young screeners that are fairly wet behind the ears if not just downright ignorant in some cases and others that , while older, they may be intimidated by your education and/or experience. They may be afraid that you will get their job, in fact! Patience is possible, partly because you have a job and hopefully @ your age you can just be that way! Explore all the angles and be willing to work for less if the tradeoff is worth your mental health-only you(and your family) can answer to that-Good Luck and OH, I forgot to say , that I was in the same exact setting @ 58 and it was tough and the story ended very nicely-if this snow would just go away I can hop on my bike or go fishing!

[Ric]

Just an update on things I've speculated on above....

I talked with HR, asking if they thought another buyout offer was coming. Of course no one really knows but, they seemed honest in saying there was no sign of one in the next 12 months.

Going back through my income and expenses, I in fact have a solid 12 months of cash on hand to take care of all my present expenses and buying insuance for my duaghter and myself. I can and will cut back in several places which would help squeek out another month or two.

I have three sub-contracdting jobs lined up which I can start right away. I can do them by myself in two month time or less and they will bring in two months worth of expenses.

I see no reason not to leverage my 400k office bldg for a mere 60 to 80k to purchase a building lot to start the home construction process.

Hence, I really see no reason to stick around the corporation I'm with any longer.

[yjleesvrr]

That's very exciting Ric. Go for it!

[RBrider]

Ric

Sounds like a plan. Good luck with your endeavors.

One more thing to check out. (This comes under the heading of "learned the hard way")

If you're gonna get a loan on the commercial property, or any other kind of loan, get it while you're still employeed by your company.
It's very difficult to qualify for a loan, or credit as a newly established self employeed person. The banks love to see a nice sready source of income for repaying their loans.

If you're going to do it, do it now while it'll be easier for you.

Again, best of luck with everything.
RB

[Ric]

10-4 RBrider. I intend to take a week of my vacation time to take care of such things before handing in my notice.

I greatly appreciate the advise....

See what a smart business man I am already...I've figured out a way to get free advise !!!

[socalrob]

When I quit my last employer & started by survey company I gathered up 4 gold card applications (this was about 1988) & sent them all off on the same day. I ended up with about 20K in credit, which, it turns out, was enough (with about another 20K in credit from a survey instrument dealer).

& yes, I did it proir to quiting my job.

[Ric]

DONE.

As of last Tuesday I'm out of the corporate world and on my own.

I have 15k more than I previously estimated (the power of prayer !).

My brother is working a deal with me to work in partnership with him; I hope to start a spec house by the end of this months.

In the mean time I've created an LLC for my office bldg rental and I've drawn up new rental agreements.

Have one quote on medical insuance for daughter & me at $350/mo. Not bad, less than I had estimated. Going to another broker today to get another estimate.

Done a lot of reading on setting up accounting books for my home, office rental businesss, and home building business. Keeping everything seperate. Not finished yet. Have the home accounting books setup with a budget. Working on the office rental one.

Going today to make measurements to estimate the two painting jobs of inside & outside my office bldg so I can sub that to myself. Maybe start painting next week. Need to get those last three office suites rented fast.

Plan on studing small business tax stuff. Does anyone have any recommendations on books to read ? Anyone read books by Attorney Stephen Fishman.

One thing for sure...a great burden was lifted off me when I woke up Wednesday morning knowing that my days work and my future is now in MY hands.

ThX guys for your advise & support.

[socalrob]

Ric,

My advice on tax stuff is to get a really good CPA tax guy. You are going to have one complicated return & a good tax guy can save you much more than their fee.

I've been told that H&R Block type outfit, and the books you buy, will tell you how the IRS wants/thinks it should be done, which is not neccesarily how case law says it can be done. Anyway, would you read a book on how to set your broken leg? No, and neither should you being doing your own taxes, or even tax stratagy, unless maybe, you have a single employer & limited/no deductions & make maybe $50K or less.

My CPA lives for taxes (he gets excited talking about them). Thats who you want. He also has taken the IRS promotional exams, & the IRS considers him a higher level tax expert.

You should ask around, people like your brother, other successful / professional types. Ask any accountant what their audit rate (how many of their clients get audited) & their success rate is. The IRS will target clients of a CPA known to lose. A CPA that wins will generally generate less audits.

BTW, there is a big difference between personal deductions & business deductions now that we have a high AMT - Alternative Minimum Tax. I lose alot of deductions from the personal side of things because the AMT erases them. Business expenses that reduce your business income before it becomes profit/personal income don't seem to me to be affected by the AMT, ie, for me at least, personal deductions are not worth pursuing, but if they are business expenses they are important. Such are things that could affect paying yourself for work you do on your own building, which becomes personal income.

Also check out seeing if you qualify to being a "real estate professional" in the eyes of the IRS. Very specific definition, and if you are a real estate professional you can deduct passive real estate loses against personal income. This can be huge. Also, if I was going to buy land / build houses in a hot market I think I might pursue a real estate license, you may save yourself some commisions & it may have tax advantages.

Of course remember that I'm in California, a high tax state if you make solid income. I think between state & fed I'm at about 47 percent. Not good. A state with low / no state income tax reduces the importance of tax strategy.

Edit - Oops - forgot - get Quickbooks for a great / easy accounting program.

As in all life - ignore this advice unless you consult your CPA!

[Ric]

Socalrob...

I hear ya. And I very much understand.

I'll shop around and see what the cost are. Maybe I can find a CPA as enthusiastic as yours. Nevertheless, I would still want to study up on the subject as much as I can. I guess it's the Engineer in me.

Also, at the start of this enterprise it would seem prudent to limit my expenses by doing as much of the work myself as possible. I don't want to kill myself, some folks do try and do too much.

If I can trim a spec house out myself, why pay a sub to do it, at least during the first year or so when getting started. Same with a CPA. If I can handle keeping the books myself, at least until I see some revenue coming, maybe six months, then take what I got to a CPA....etc...etc.....

[socalrob]

Ric,

I didn't mean don't do all the work yourself, just consider how you get paid for it. Is it in extra profit from the house sale / commerical building profit, (both due to decreased expenses as you did "free" work) or do you pay yourself "payroll" through a business and then have that business bill your other business.

Makes the head spin, but I have a feeling that it can make a difference.

BTW, my wife Tracie & I still do our own "books" for our business, but we don't do our own taxes. I also agree with studing up on taxes, when I first went to my CPA I was working for the county but had a side business going that I was depreciating equipment & a vehicle for & claiming investment tax credits. My CPA was amazed I was doing this all on my own, but he also pointed out that the IRS expects you, once your return reaches a certain level of complexity, to have a CPA, & if you don't, that can trigger audit flags.

Tax issues can become a major life interest. When your income fluctuates up & down from year to year, & your business expenses do, you can go into tax season not knowing if you are owing or getting $$ back (I always just roll any return into next year). Quarterly payments are a bear.

[pat10004]

Hey Ric,
I have a completely differenet option for you that I wanted to throw out there...A little backgroud on myself.. I am 21 in my 4th year of college for biomedical engineering. I got married 2 years ago and have a 1 year old daughter. When my wife and I first got married we had to figure out how in the world we were going to put me through college. So my wife had some experience as a cook and got as a dinning hall manager at an assisted living facility. Long story short her boss was an extremely difficult and moody femaile. So she wanted to find somthing else to do. In the mean time her mother, my mother in law, stated up a multi level marketing buisness. I know alot of you on this forum probuably have a bad taste in your mouth about how some companies have gone about selling their products and label them as pyramid schemes, however if you think about it logically it is a fairly American way to do buisness. YOU get paid for how hard YOU work! And everyone has the some oportunity to make big money. Anyway, my wifes second year in the buisness she mad 80 grand and her mother (was her third year) made 150. My wife is on track to make 150 this year and who knows what her mother will make. We were lucky to run into one of the most reputable companies in this sort of buisness. They are called Arbonne International. They sell swiss formulated health and wellness products such as anti aging skin care, vitamins, and weight loss stuff. They are not an organic product but are extremely focused on makeing as safe but effective product. There big thing is not using mineral oil in their products which has been liking to skin cancer. The great think about this buisness is that there was no initial investment (or minimal at $29). Now I am never going to have to go to work as an engineer. I will get get into real estate to try to shelter some of her income. Hopefully you would be open minded about this and if you want you could give my wife a call and she would talk to you about it. PM me if you have any questeions.

PS They also give us $800 per month to make a payment on any white mercedes! Sweet!
Thanks,
Pat