Advice for a business newbie......

[Guitarmaan]

Hi, I'm looking for any advice or opinions on a complete beginner going into small business :)

I'll be honest, and admit my wife and I have zero business knowledge or experience. The best thing we have to offer is hard work and determination, plus some savings to finance a venture.

We have considered buying a landromat business, because perhaps it's more recession proof than some other small business (ie cup cake shops etc). Would a laundromat business be a good place to start for novices?

And any advice on financing? Do people use their own savings to buy a business, or get a bank loan instean to protect their own money? I've a lot fo research to do, but we are serious and this. So anything we can learn from you guys is going to be helpful and appreciated!

thanks

[Fulcrum]

The best advice that I can give is that you must lay out a financial plan. Considering that you are looking at a laundromat that is currently operating and producing a cash flow (positive or negative is yet to be determined) is a good place to start.

First, you must determine how much you have available to use as a down payment. 30-50% cash out of pocket (not borrowed) is not unusual to see. Often there is less when the seller is willing to carry some, or all, of the financing. Just ensure that the down payment is high enough so that the loan payment does not use up all the available cash - after paying yourself and/or your wife a reasonable salary.

Second, get a lawyer and accountant involved early on in the process.

Third, get the financials and maintenance records from the laundromat you are considering to purchase. Study and learn the financials so that you can see where the money being generated is both coming from and being spent. The maintenance records will give you an idea if you might be looking at washer/dryer repairs or replacements in the early going after taking over.

Fourth, get a copy of the current lease. This is not needed early on during your due diligence, but can be a deal breaker if there is a short (less than 2 years remaining) remainder on it, if there are clauses allowing for large CAM (common area maintenance) charges or special assessments, and if it is even transferable. It will also define what your obligations are to the landlord.

Fifth, look at the location. You need to be close to residential areas - primarily rental apartments and rental housing. At the same time look at what barriers there are to someone else setting up a laundromat in the same geographic and demographic area you will be operating from. Also find out why the seller is selling and why now given the current "repressed" economy.

Before looking at financing, remember that there are only 4 ways this "deal" can go through:
1) Seller's price and seller's terms
2) Seller's price and your terms
3) Your price and seller's terms
4) Your price and your terms

Odds are that there will be very little bank or primary lender financing available so don't be scared to ask for seller financing.

I'm sure that there is more that can be added, but that should give you something to think about for a little while.

Any other questions, feel free to ask.

Brad Miedema
Fulcrum Saw & Tool

[Guitarmaan]

That's great food for thought Brad, thank you.

And just the fact you didn't immediately say "if you're new to all this, don't even think about it" is encouraging in itself.

I guess the financing is the unclearest area to me. If you had enough to buy a business using your savings, is it better to put your own money in and avoid interest payments, or should you hold back from chucking in your own money due to risk?

[Harold Mansfield]

And just the fact you didn't immediately say "if you're new to all this, don't even think about it" is encouraging in itself.

I guess the financing is the unclearest area to me. If you had enough to buy a business using your savings, is it better to put your own money in and avoid interest payments, or should you hold back from chucking in your own money due to risk?

Everybody is new at first. Risk is part of it. Does it matter much if you fail and loose your own money or fail and still owe a loan? It's doubtful that you will get a loan that totally absolves you if you file bankruptcy. Most banks want collateral on a new business loan anyway.

Once you accept that it's a risk either way and then resolve that failure is not an option and go into it realistically, it's easier to take the leap.

Personally, I financed my own start up. As did most of my clients and everyone else that I know that has a small business. To me, you take it very seriously when it's your own money and you spend it wisely.

Starting a business with loan payments hanging over your head, especially when you have other operating expenses such as rent, utilities, maintenance and maybe even employees is just one more thing weighing you down.

If I had to make payments on a loan when I started, I would have been out of business in 3 months and working a job to pay back the loan.

[Fulcrum]

And just the fact you didn't immediately say "if you're new to all this, don't even think about it" is encouraging in itself.


Everyone has to start somewhere.

As for financing, it really turns into a judgement call - the less cash you put down, the more you pay over the course of the next 60 months, but you have some seed/emergency money in the bank.

I'm a firm believer in the high positive cash flow/minimum use of debt model of business. In general, income taxes would be higher, but when times get tough (and it will happen) that $2,000 (random number) loan payment isn't going out of my account. Prudent use of debt and knowing how and when to pay it off can make or break you early on.

[IADS]

I would suggest that you form an LLC, rather then being a sole proprietorship. Don't use your social security number, get a TIN from the IRS. This will help with shielding you from liability. It's not a fool proof answer, but I know from experience that it could save your credit just in case something goes wrong. That is my advice to you, and good luck with whatever endeavor in which you get involved.

[Business magnate]

And any advice on financing? Do people use their own savings to buy a business, or get a bank loan instean to protect their own money?

It depends... If, for example, you have $40,000 of saving and you need $10,000 to start a business, then use savings. (Although banks normally make loans only to businesses with operating histories. So don't expect a bank to help finance your new business.) Try reading this (http://www.myownbusiness.org/s8/) for starters.

Be very, very careful, make many calculations before founding a business. (in fact make calculations before any spending.)


I'll be honest, and admit my wife and I have zero business knowledge or experience.

There is nothing you can't learn if you have will and determination.

[Gabe]

Here's a decent book on starting a new business: School for Startups: The Breakthrough Course for Guaranteeing Small Business Success in 90 Days or Less: Jim Beach, Chris Hanks, David Beasley: 9780071753937: Amazon.com: Books (http://www.amazon.com/School-Startups-Breakthrough-Guaranteeing-Business/dp/0071753931)

I'd opt for a low-cost, bootsrtap-able business. If they're low cost you can try out a bunch of different ideas with little capital. Chances are your first couple of ideas won't workout or you'll decide you want to try something else.

[DavidDeke]

Hey Guitarrmaan, It's great to know your interested in starting your own business. I owned and was partnered in 7 businesses, since 1988. There's nothing like the freedom of owning an enterprise. My advice is to find a small business course, talk to a SCORE (small business administration SBA.org) agent in your area, they give free advice and guide you through it.

Also, your in a position to start fresh, which means, you should go after something you love to do. Don't do what others tell you, like buying a restaurant without any food service experience, etc. You can check out Passion To Profits .info which shows you how to go after your dreams.

As far as finances are concerned, banks are not going to listen to you without a business plan or experience. The SBA will help you set up a business plan and 'guarantee" the loan, if it's a feasible business, but banks still have the final say. I started using credit cards for my office supplies, and inventory.

Finally, be determined to WIN. You'll have ups and downs, so you have to be ready for anything, on the fly.

Hope this helps.

[Vickychen]

Wow, thank you for your suggestion. These detailed information are very useful for starting up the business.

[Zman]

I agree with DavidDeke. Check out SBA. They can be a huge asset when first starting out. Also, you can create an LLC through a local attorney for about $600 to $700 or you can create it through LegalZoom.com for about $300. I've done several through LegalZoom and it is pretty simple. Good luck... and don't listen to all your "friends" who will tell you that you are crazy.... chances are they will be working for someone else at a job they hate for the rest of their lives. Follow your dreams and learn as you go.

[edrogers]

some really good advice here, i'm in similar situation and will use the advice.

[Guitarmaan]

Thanks for the guidance offered here. It's fascinating to read. I'll look into the SBA.

Looking around we noticed a laundromat with the lease up for renewal in Oct 2013. The lease length is stated as 3 years.

If things weren't working out, and we were struggling to sell it, I guess we could be saddled with a long expensive lease? That is a potential danger I hadn't considered before.

[vangogh]

There's always going to be some risk in business. It's part of the game. The more you risk the more you can potentially gain too. That's not to say you should just take any risk, but do know that to succeed you usually have to risk something.

A 3 year lease can be scary when you're just starting out. It could also make you work a little harder to make sure the business survives. Ask yourself if it's a good price. Is it in a good location? Does the place do business now? Don't only look at the length of the lease. Consider other things about it to help make your decision.

[Harold Mansfield]

It's not the same thing, but I've worked with a lot of new bar owners. And as I'm sure everyone starting a business does, they imagine what it will be like once the doors are open. Unfortunately their imagination only lets them assume the good times...people sitting around having fun, gambling, eating and so on.

Rarely do they prepare themselves mentally for slow shifts and times of the year, bad weather, repairs, employee problems, slip and fall law suits, health department inspections, negotiating with vendors, security, hookers, drugs and all of the other things that come with running a bar...no matter how "exclusive" it is.

By the end of my bar career, I had been so used to firing people that I had the steps down to a science. Getting documentation, proof (saving video if any), witnesses, taking their employee access cards and passes, getting them to sign the infraction ( which they will do if they need their last pay check), and escorting them off of the premises so that they can't talk to other employees, and so on.

And I've worked for other managers that didn't know how to do any of that, one even resulted in a sexual harassment lawsuit. Not knowing how or not preparing to handle that one situation caused the company months of unnecessary grief.

The point is, plan for things that go wrong too. Have a contingency plan for the hiccups that every business goes through, so that you aren't caught off guard and make rash decisions, or no decisions when smart leadership is needed.

[vangogh]

Unfortunately their imagination only lets them assume the good times


things that go wrong too. Have a contingency plan for the hiccups that every business goes through, so that you aren't caught off guard and make rash decisions, or no decisions when smart leadership is needed.

So true. Can't say I was any different. It's easy to imagine all the good things and ignore the bad when you start your first business. I guess in some ways I was prepared for the bad, since I knew I had no clue about a lot of things. I was confident in my ability to do the work, but I was lost with the business and marketing sides of things.

It's definitely important to be prepared. You're exactly right that you want to make rash decisions or no decision when the hiccups happens. Those are usually when you need to make the best decisions.