Entrepreneurship

Anything to do with the traditional world of get a degree, get a job as well as its alternatives
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thrifty++
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Entrepreneurship

Post by thrifty++ »

Lately I have been thinking a lot about entrepreneurship.

I think this is because:

- I have been meeting self employed people who are very wealthy. Much more so than employed high income professionals.
- I have been listening lots to Radical Personal Finance Podcasts and the topic comes up regularly with most wealthy people seeming to be self employed.
- I have been researching tax laws which overwhelmingly favour self employment while dumping the proportional lions share of tax on employees. Certainly where I live anyway.

I am starting to think that entrepreneurship might be the way forward to receive a substantial boost to the income side of the equation and a cut to the expenses side, at last insofar as taxation is concerned.

I also think those who are into extreme frugality are probably well positioned to be self employed with having such low expenses meaning less dependency on high regular income.

It also seems that self employment is not as risky as thought provided that you have a limited liability company and manage to avoid tieing your own personal assets as a guarantee on any financing.

It would be interesting to hear:

1. Who on here is self employed;
2. What type of business if you are comfortable to share
3. How the revenue compares with what you think would have happened if you stayed employed
4. How stressful it has been by comparison

distracted_at_work
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Re: Entrepreneurship

Post by distracted_at_work »

RE: 1. Not. Was weeks away from pulling the cord to starting my own company but I got a new job out of the blue.
2. Read my nano-brewery post. I ultimately decided it would be more fun as a hobby/business than something that needs to succeed for me to eat.
3. Would have made half or less for the first few years. Realistically never would have made my current salary. I was very upfront with the other start-ups around town and they all advised that I was making more than they ever would.
4. Astronomically more stressful. The risk is all on your own assets with personal guarantees for any loans. Work never ends. It is your new life.

Keep in mind, this is a Canadian perspective. I don't have the LLC structure that I so envy in the U.S.A. Our government is also currently maneuvering to screw over "tax-evading" small business owners creating zero incentive to take any risk. Hooray socialism. Yes I'm bitter. Other points:

-Less than 10% of small business' succeed. I think we are different having an ERE perspective on our personal expenses but still.
-It really would be 24/7. You need to be fully obsessed, in my opinion, in getting the business off the ground.
-Expenses balloon quick. Take your best estimate and add 25% for screw-ups.
-My successful small business owning friend advised me he couldn't do it without a partner. Cooking food for himself and maintaining any semblance of a clean life went out the window so he could work. All for less pay than he had as an engineer, now owning a bike/coffee shop.

Overall. I still want that life. I want the freedom and challenge of being an entrepreneur but I came to the conclusion to wait for FI and a few other life milestones before starting. I know you are a bit older so maybe you are there. I don't know.

thrifty++
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Re: Entrepreneurship

Post by thrifty++ »

distracted_at_work wrote:
Fri Nov 17, 2017 4:40 pm
Keep in mind, this is a Canadian perspective. I don't have the LLC structure that I so envy in the U.S.A. Our government is also currently maneuvering to screw over "tax-evading" small business owners creating zero incentive to take any risk. Hooray socialism. Yes I'm bitter. Other points:

Are you saying that there is no such thing as limited liability companies in Canada? That seems so odd and unwestern. Bear in mind I am not in USA or Canada so I dont understand North American jargon so I am wondering whether we are talking about the same thing. I dont know what LLC means but I am assuming it means Limited LIability Company. I thought that was a hallmark of doing business in the west that you could set up one and protect your personal assets. The absence of that rule baffles me.

distracted_at_work
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Re: Entrepreneurship

Post by distracted_at_work »

@thrifty++

It does indeed mean Limited Liability Company and those do not exist in Canada. We have three main forms of business structure,

1. Lone proprietor. You are the company and face all liability that the company does.
2. Partnership. See above but with a partner.
3. Corporation. Creating a separate entity.

Creating a corporation does keep me safe behind the "corporate veil" so to speak. I cannot personally be sued for the actions of my corporation except in extreme circumstances. However, for tax purposes it is much less favorable than what Americans have in the LLC. The LLC is something I would consider a perfect mix of the three structures I mentioned above.

Being a lone proprietor leaves me exposed to lawsuits. It also makes it more difficult to write-off business expenses. However, I likely do have tax bills that I can write-off my business expenses against as lone proprietor. A corporation's first year may have zero revenue.

This is kind of hard to explain as I'm neither a lawyer nor tax accountant but the result of my research was ... be lone proprietor until you face serious risk of a lawsuit through your business OR your gross revenue is greater than your old personal income. Then it is time to incorporate.

Out of curiosity, which country are you in? For some reason I thought you lived in Montreal.


In a total aside to the thread:

What I alluded to above was a current Liberal, the government party in power being "The Liberals", scandal going on in which they are increasing tax on small business owners to match the tax faced by employees of corporations. In effect, they are punishing those who generate wealth. Why take the risk in starting a small business when I can get a job for more money and pay the same percentage in tax?

Of course, the finance minister and prime minister used language like "cracking down on evil tax-evaders" when rolling out these changes. This caused a huge push-back from farmers, doctors, mechanics, contractors... you name it. The ethics watchdogs and journalists then went to work and discovered the two men had been sheltering family assets in foreign accounts! In addition, the finance minister still owned major positions in corporations of industry that he directly affected with policy! Total garbage. Moral of the story.. Justin Trudeau isn't as nice of a guy as the foreign media makes him out to be.

thrifty++
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Re: Entrepreneurship

Post by thrifty++ »

@distracted - Oh I see. So you are mainly referring to a tax structure issue then not so much an asset protection one. Sounds like you still have the liability shield a company entity provides. Phew I was worried that was not the case which baffled me.

I am in NZ.

distracted_at_work
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Re: Entrepreneurship

Post by distracted_at_work »

Yep. Sorry that was unclear. I was trying to highlight that there is a trade-off to make for that privilege though. Anyway that's a bit of a tangent :p

chenda
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Re: Entrepreneurship

Post by chenda »

This may not be what you had in mind but I do some occasional freelance work, offering design and planning services to people. Usually householders building extensions. Its very low scale and entirely through word of mouth or occasional referrals. Just earns some extra fun money, its not my main income source. Very little stress and I just turn down or refer on stuff I'm not interested in. I use professional indemnity insurance, its not worth having a ltd just more paperwork and no tax advantages. Although I'm assuming business legal structure is very similar in NZ as UK ?

simplex
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Re: Entrepreneurship

Post by simplex »

1. since about 2004 self employed
2. first consulting, then web based services
3. revenue is lower than what I would have earned in my "standard" career
4. low stress as compared to normal work. This is because I saved a large chunk and don't have to worry if business returns are not good in a year.

halfmoon
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Re: Entrepreneurship

Post by halfmoon »

I mentally differentiate between entrepreneurship and simple self-employment. I'm self-employed as an accountant and make considerably more per hour* than I would as an employee. That's limited, however, because I'm not willing to take the step forward into opening an office (I work from home) and hiring others.

It takes a long time to build a clientele, but if you're good at what you do, there comes a point when you have more referrals than one person can handle. The hardest part for me was keeping my workload and income at a relatively static level. Everyone advised me to hire people and endlessly expand, but I'm far too much of a control freak to do that...and it's critical for me to work from home. I finally gave up all of my smaller clients and kept only two large ones. "Firing" all of my smaller clients, many of whom had become sort of friends, was extremely difficult. I'm also prepared to retire if my remaining clients drop out of the picture for whatever reason.

Many years of observing my small business clients struggle taught me one thing: I would never start a business based on reselling inventory, or anything else requiring significant capital. Selling the content of your brain is infinitely preferable to me. None of my retail, restaurant or brewery clients ever made a profit unless they valued their own time at zero. Not one. It's like buying a mutual fund with a 5-10% front load and expecting the return to make that worthwhile. Whether they obtained business loans, put everything on credit cards (really) or pulled money from investments, their debt service/opportunity cost killed the profitability.

*Keep in mind that a salary and self-employment earnings aren't exactly comparable. I have to pay both halves of Social Security/Medicare taxes, I have no state disability coverage, no state/federal unemployment coverage, no 401(k) match, no employer-subsidized health insurance, etc. I provide my own phone and internet, my computer equipment and office supplies.

slowtraveler
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Re: Entrepreneurship

Post by slowtraveler »

1) Was.

2) Affiliate marketing, website design, various other things one would expect to be highly profitable in their head but have many hurdles in reality.

3) Not even 10%

4) Extremely. Long hours with next to no pay.
Last edited by slowtraveler on Sun Nov 08, 2020 11:23 am, edited 1 time in total.

halfmoon
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Re: Entrepreneurship

Post by halfmoon »

slowtraveler wrote:
Sun Nov 19, 2017 10:10 pm
I have to disagree that restaurants aren't profitable. I know many successful restaurant owners. They have little outside life though.
That's kind of my point. Just because a restaurant is busy doesn't mean it's accruing wealth for the owner, which I believe was the OP's goal. Often a person, couple or entire family will work long hours to keep a restaurant afloat. If all it's doing is keeping those people employed, that's no better than a salaried job...and very often worse in terms of accruing wealth.

jacob
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Re: Entrepreneurship

Post by jacob »

I think the distinction between entrepreneurship (building a business independent of oneself) and being self-employed is a good and important one.

Another point to consider is scaleability. For example, when I first started copy-editing (self-employed), I did the quick calculation and concluded that if I worked just as hard editing typos and fixing parenthesis spacing as I did on my physics career, I could make 100k+(*) which would be twice as much as a postdoctoral research salary :o :mrgreen: However, that kind of editing work tends to cause maximum brain damage (it's mentally exhausting and doing it for more than a few hours straight would leave me zonked) AND without adding even more journals (IIRC, I was covering four different journals), there wouldn't actually be enough work in the queue available to scale up to that level of throughput.

(*) In physics, only full professors at tier 1 or 2 universities reach those heights at age 50+ or so on average.

Now lets consider making ad-revenue on the interwebs. I think a Dupont-like analysis goes something like this:
$/month = (views/month) * ($/view) * penetration factor (0--100%). The ERE website covers such a niche subject and has covered it for so long (almost 10 years) that penetration is near 100%. IOW, it doesn't get much bigger than it is. When I try to make it bigger via outreach (lower Wheaton levels), I get the wrong people in the door. Looking in terms of stock-flow analysis, the inflow (new people) ~ outflow (old people losing interest) => delta stock ~ 0 at this point---and it's been quite amazing just how stable this is; the ERE forum, for example, has been about the size it is now for years and years. Furthermore, since it's ERE, $/view is very low. ERE simply can't be monetized with affiliate credit card offers, product placement, ... to the degree that most other financially oriented websites who are closer to mainstream consumerism can. It might surprise some people to know that in terms of ads, this website only makes about $200/month currently. OTOH, the website is more like a business than self-employment in the sense that it could be sold and run fine on its own.

Overhead and/or ROA (return on assets). Business analysts can do their own figures, but the level of expenses in both of the above are extremely low compared to the money that comes in. Especially initially, my business expenses in the early years were under $250/year or so. This is the complete opposite compared to brick and mortar enterprises that typically have big upfront costs and related debt-carrying costs that are priced to render most well-understood enterprises "economically priced"(*).

(*) Which is another way of saying that the market is efficient. Like with the restaurant (a well understood business) example above, where the owners don't make more than they would insofar they were cutting up meat and frying onions for a salary elsewhere.

slowtraveler
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Re: Entrepreneurship

Post by slowtraveler »

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Last edited by slowtraveler on Sun Nov 08, 2020 11:25 am, edited 1 time in total.

tradfgh
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Re: Entrepreneurship

Post by tradfgh »

I am looking into starting a company before January. My first company will probably be duplex, single family home + AUD, or duplex + aud.
I wouldn't really consider it entrepeneurship or running a small business, I think incorporating it, will allow me to deduct more expenses, help me shelter some profits via 401k/IRA (I am long term unemployed).

I will be able to depreciate the building over 27.5 years I think, and keep track of my expenses/income.

Your required to work for 750 hours in Real estate, before you cunt it as active income, but real estate is a hobby, and I spend 1-2 hours looking at homes/units online everyday.

There are also completely separate lending "rules/sources", with business ownership, since my income is about 10k-15k on the books, I am ineligible for any type of income based mortgage, but since I am looking at 1-4 units (5-8 is separate, and 8+) they should judge me by the property (vacancy rates + cash flow) and my assets instead of income.

In around 2008, 2010 or 2012 the government decided to start offering subsidized rates to 4+ unit buildings, and the cap rates have been dropping since (prices increased), due to the government offering fannie mae, non-recourse loans to RE companies.

So for me... I think my first business will end up being a 80k cash investment into a duplex, SFR + rental unit, or triplex, and continue living with my dad; until I can no longer stand living with him (great dad, but... I really want to live by my self!)

tradfgh
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Re: Entrepreneurship

Post by tradfgh »

Im moving to the Seattle Area with my dad. The prices about 1 hour away from Seattle in every direction make a duplex or triplex about 300k-400k, yeah I know Seattle has done really well, but it is a decent city with a growing population / income, with very different taxes than California.

I look at a lot of foreclosed/REO properties, and every other foreclosed home is a tear down there due to bad roofs.

I have created spoof rentals before, like taking pictures from a listing, and then pretending to rent it out on craigslist, to gauge the market/property (1000 miles away). I only asked what their jobs were, income and just plain asked them what their credit score was... and it seemed pretty easy to know who I would trust with my property more (50 year old woman with government hump head job for the past 17 years or 3 young 20s-30s year olds, one on SSDI, one unemployed and the other being a tow trucker)...

Pretty easy choice in my opinion.

SavingWithBabies
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Re: Entrepreneurship

Post by SavingWithBabies »

I hesitated to reply because I'm still working on it:

1. Who on here is self employed;

I recently incorporated my side business with my partner, opened up the business checking and put in the backlog of checks from our first customer. This business is currently grossing 5% of my gross salary from my day job and I have a partner. So we have a long way to go to being self-employed.

2. What type of business if you are comfortable to share

An online software-as-a-service (SaaS) product aimed at a specific school system. There are other competitors also aiming for this niche however we truly are aligned with the niche as we developed our product for it (the others claim they do but it's clear they didn't in some ways -- we have a demo from a school that is using one of our competitors products in a couple of weeks as they aren't happy with the existing solution).

3. How the revenue compares with what you think would have happened if you stayed employed

Still to be determined of course. I estimate we need roughly 40-50 schools at normal prices (our first school got a deal but they also took a chance on us and we built a lot of our software with them using it early stage -- so it worked out for both sides). At 40-50 schools, I would make what I make at my day job. I'm happy if that is as far as we get. Our product would work for schools out of our core niche and we are also working on something for a completely unrelated niche (for the same product, a specific reporting requirement in one area) that would give us another good niche market.

Lots of niche! What I'm really trying to say by that though is that we don't expect to be selling to USA public school systems as doing so is difficult/expensive and we strongly suspect they have more complex requirements. Our niche has some complex requirements but they don't overlap with what a public school system would need.

But to get back to the question -- I just want to replace my day job. I hope to become FI within 5 years via the day job and be able to step over to doing the side business full time. So even if it only made say 2/3 of my day job, I would be ecstatic.

4. How stressful it has been by comparison

The biggest stress for me is putting in a lot of time/effort up front. I decided to cut my partner in at a high (near equal) ownership percentage because I wanted both of us to be in it together even though I put in a lot of time (like 6+ months full time) into it up front and I'm a professional in the area I'm helping the startup with while he is not (he has to learn sales/support/etc). So getting him aligned and motivated and relying on him is a bit worrisome. However, I spent a long time thinking about all of this and I think the more safe routes have more demotivating impacts than the way we are going so I am optimistic. We'll see how it goes. I do have a lot of trust with my business partner as I've known him all my life. But I've heard plenty of horror stories. I am happy with the risk though and if it doesn't work out, I'll go onto the next business idea but probably solo.

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jennypenny
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Re: Entrepreneurship

Post by jennypenny »

Some stats and Neil Howe's take on current start up numbers ... https://www.youtube.com/watch?v=MN8ExaG2SNI

I was really surprised. Aren't we in a 'gig' economy now?

George the original one
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Re: Entrepreneurship

Post by George the original one »

If you're saddled with student loan debt, I suspect you're not going to as interested in taking a chance to create a start-up. And don't forget that credit card debt is no longer dismissed in bankruptcy... we used to hear about "maxed-out the credit cards to start the business" and that's just not feasible any more.

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