http://tinyurl.com/cpz8ghp
I'm not sure how I feel about the article. I feel badly for the people involved. I also think it's a mistake to count on selling your business for your retirement funding. They must be fairly smart people to run successful businesses. Didn't they ever consider that they might not be able to sell it?
I know some people here want to start their own business. Do people really invest *all* of their money in their business?
"The Economy Stole My Retirement"
Wondering whether the mentioned businessowner started their business in another frame of mind that was appropriate for their time and that´s maybe not longer appropriate for the current situation. Or they tied up more and more money over time into the business as investment and it didn´t turn out as planned?
The businesses that I start are things I do in my sparetime because I don´t see them flying at once - and they are things that can be done in spare-time. I´m not so sure about other ventures like the ones Paul Graham (Y Combinator) writes about.
The businesses that I start are things I do in my sparetime because I don´t see them flying at once - and they are things that can be done in spare-time. I´m not so sure about other ventures like the ones Paul Graham (Y Combinator) writes about.
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secretwealth
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I only skimmed the article, but I think investing all of your money is a necessity in a highly competitive field where growth is slow and margins are razor-thin--how else can you compete on cost? I feel bad for a small-business owner who expected their business model to be their retirement.
I'm a sole proprietor, and I've thought about how to springboard that into a business. If I were to do it (which I won't--my work doesn't really translate into a business with employees), I'd definitely invest all of my money if only because I would have a real difficulty getting credit otherwise.
I'm a sole proprietor, and I've thought about how to springboard that into a business. If I were to do it (which I won't--my work doesn't really translate into a business with employees), I'd definitely invest all of my money if only because I would have a real difficulty getting credit otherwise.
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Christopherjart
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I finished the article and I'd say it is a mix of bad timing and being self employed. If the businesses really can be sold then they could just as easily hire managers to do what they do or at least let them work part time. The fact that they feel that they have to work long hours suggests that their businesses don't make enough profit to hire a manager or managers to get things done.
We don't really know if all of their money was invested in those businesses or not. Perhaps it wasn't at first, but to avoid closing or making difficult spending cuts, other savings were put in to their businesses later. In any case, they need more liquidity or at least they think they do.
I know that many people think that starting their own business is less risky than investing in established businesses or bonds or they imagine that their businesses will be very successful in only a few years. Perhaps they read too many Rich Dad books.
We don't really know if all of their money was invested in those businesses or not. Perhaps it wasn't at first, but to avoid closing or making difficult spending cuts, other savings were put in to their businesses later. In any case, they need more liquidity or at least they think they do.
I know that many people think that starting their own business is less risky than investing in established businesses or bonds or they imagine that their businesses will be very successful in only a few years. Perhaps they read too many Rich Dad books.
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Spartan_Warrior
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I feel sorry for them, but only in a "1st world problems" sense. From what I understand, the one woman could sell for the insultingly low profit of $250,000, plus social security income. Considering that's the amount I plan to retire on at half her age, it's hard for me to truly sympathize. The anthropomorphized boogey man "the economy" didn't "steal" your retirement. Your consumer driven values keep you working in order to fund them. That's your choice, lady.
The bigger issue is, I would never tie up a majority of my wealth in a single asset, whatever it may be. Honestly, didn't we learn this from the housing crash? It kinda goes with the territory that when you invest your money in an asset there's a risk you'll be selling it at a lower price than you paid based on the market for said asset at the time of sale. That's why true diversification is so important.
The bigger issue is, I would never tie up a majority of my wealth in a single asset, whatever it may be. Honestly, didn't we learn this from the housing crash? It kinda goes with the territory that when you invest your money in an asset there's a risk you'll be selling it at a lower price than you paid based on the market for said asset at the time of sale. That's why true diversification is so important.
@ jennypenny Thanks - an interesting read! I think Marlene hit the nail on the head when she described what most ERE's think about when they think about self-employment - a part time gig with potential to bring in some money, but not really something to do for 12-14 hours.
One of the risks for an entrepreneur is being caught in a self-employment trap where he/she works just to get a (usually low) salary but cannot disengage from the business without paying someone to do his/her job ... but people remain in these situations because they cannot disengage.
It is something for all business owners to ponder and to know when to sell
Magnus
One of the risks for an entrepreneur is being caught in a self-employment trap where he/she works just to get a (usually low) salary but cannot disengage from the business without paying someone to do his/her job ... but people remain in these situations because they cannot disengage.
It is something for all business owners to ponder and to know when to sell
Magnus
Unreasonable expectations.
If they cannot hire someone to manage the business and allow a twenty rather than a sixty hour workweek, then they themselves are the most valuable asset of the business. Selling a business where the the most valuable asset is not included is possible but requires a significant discount.
If they cannot hire someone to manage the business and allow a twenty rather than a sixty hour workweek, then they themselves are the most valuable asset of the business. Selling a business where the the most valuable asset is not included is possible but requires a significant discount.
Both of them said they based the desired sale price of their business off of how much they think they need for retirement. The value of their business has nothing to do with how much money they wish they had.. HA!!
Kind of like saying I want to sell my car to fund my bike and occasional airfare transportation forever. I need $50k to fund the travel forever, so that's what I'll ask for my car. And then I'll get mad at the person who offers me $5k since that's what my car is actually worth (what someone else is willing to pay for it)
Kind of like saying I want to sell my car to fund my bike and occasional airfare transportation forever. I need $50k to fund the travel forever, so that's what I'll ask for my car. And then I'll get mad at the person who offers me $5k since that's what my car is actually worth (what someone else is willing to pay for it)
GPMagnus -- good point. If the business was self-sufficient, the owner could retire and live off the profits. Because the owner can't retire, we have to conclude that his active participation is necessary for the business to be profitable.
But then why would anyone else want to buy that business, knowing the current owner won't be around to keep it running? A potential investor will look at the physical assets, contracts, and goodwill... and likely value the company far less than one that basically runs itself.
>Do people really invest *all* of their money in their business?
I don't know, do people really invest all of their money in a single stock? It's a bet that can pay off big, or sink you.
But then why would anyone else want to buy that business, knowing the current owner won't be around to keep it running? A potential investor will look at the physical assets, contracts, and goodwill... and likely value the company far less than one that basically runs itself.
>Do people really invest *all* of their money in their business?
I don't know, do people really invest all of their money in a single stock? It's a bet that can pay off big, or sink you.
It's human nature to overvalue what we own, especially if its not liquid and can't readily be sold. And if we have invested ourselves in it.
The problem with businesses is that people don't want to sell them when they are doing well. That's the time to do it.
So I feel bad for them, but no more so than someone who bought a house and is now underwater.
The problem with businesses is that people don't want to sell them when they are doing well. That's the time to do it.
So I feel bad for them, but no more so than someone who bought a house and is now underwater.
My buddy is a commercial contractor and developer. A couple of years ago I questioned him about buying a chain restaurant that he had built a few of (Beef o Brady's). He had a concrete knowledge of what it took to make one work as he started in the restaurant industry years ago and was currently constructing the physical structure for others. He explained it as risking a decent sum of money to buy yourself a job. He estimated that with very long hours and if business was "good", one could clear 100k.
At that time a proprietor needed to risk about 200k of their own money to get started. Of course there was additional debt service and royalties to pay through the years as hopefully the place grew. His point was that someone like me would have to play a very active role to make it work. If you paid enough to hire a manager that you could trust long term, there would be little profit to offset substantial risk. All the while you would be dependent on folks walking through your door willing to buy overpriced pub food and marked up drinks. To me, this sounded more like an unstable headache. He verified my fear that the hardest part may be maintaining the revolving door staffing issues that are common in the industry.
I think that many of these people are stuck in a situation like this. Possible buyers can sift through the data and see that they would essentially be buying a job with substantial risk.
At that time a proprietor needed to risk about 200k of their own money to get started. Of course there was additional debt service and royalties to pay through the years as hopefully the place grew. His point was that someone like me would have to play a very active role to make it work. If you paid enough to hire a manager that you could trust long term, there would be little profit to offset substantial risk. All the while you would be dependent on folks walking through your door willing to buy overpriced pub food and marked up drinks. To me, this sounded more like an unstable headache. He verified my fear that the hardest part may be maintaining the revolving door staffing issues that are common in the industry.
I think that many of these people are stuck in a situation like this. Possible buyers can sift through the data and see that they would essentially be buying a job with substantial risk.