Recently i have been very active with precious metals and collectible coins. Today, i feel i made trade where i made up for a bad buy by getting an asset that could double in a few days or weeks.
What i would like to know is: if i wanted to pursue this as a living, how much initial capital would be reasonable?
Only by myself, i think i can raise 20k or more. If i get investors, i think 50k is a reasonable amount. If i go deep into my contacts, i am confident 500k to 1 mil is possible. So, an amount i could easily raise would be around 100k.
It sounds like trading precious metals and coins is the business.
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What i would like to know is: if i wanted to pursue this as a living, how much initial capital would be reasonable?
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You normally plan for your new business’s operations and develop a financial model around that. You might predict your expenses required to ramp up and then put some serious research into your initial selling costs. Meanwhile you’ll want to get a handle on your overhead. When you put all those numbers into an organized financial model you can get a handle on how much money you’ll need.
Of course, it would be rash to assume your predictions are exactly correct and plow ahead with whatever number comes out of Excel, but since you’re talking about taking on investors and giving up equity in your business in exchange, you don`t want to over-estimate either.
It’s like building a runway for your new plane. You definitely don’t want to be trying to add on to the runway as the plane is taking off when you realize you’ve underbuilt - that would be disastrous. But runways are expensive, you don’t want to build a runway twice as long as the plane really needs either.
But all that is for a generic business. It sounds like what you’re doing is closer to trading / investing professionally. Is that right?
If you’ve been very active, then you can already answer this question better than we can.
How much did you already have invested? What was the return on that investment? Calculate a percentage return on investment.
Now, calculate your living expenses. Calculate your business operating expenses. Divide those by the percentage. That’s the amount of capital you need.
So, if you had $10,000 invested and now have 11,000, that’s a 10% return on investment. If you need $50k a year to cover living expense and $10k a year in business expenses, you need to cover $60k with the business. So 60k/10% = 600k.
In budgeting income and expense, make sure you check with your peer group (other investors in the same industry) to check that your numbers are realistic. If you really think you can double your money in a week, I can tell you right off the bat that you’re either looking at an unusual transaction or you’re wrong.
Gold is rough. Markups are usually 1% over spot, but it’s pretty easy to buy below spot if you have a store. If I go this route, I would expect a fairly good profit, low markup, and low volume. However, it’s not easy to have a steady stream of inventory coming in. Already in my area several dealers are having to buy at spot.
Silver I think is far easier. 10% over spot is fairly common, but it’s harder to buy at below spot. However, you can buy a lot of it for a lower initial investment. If I start with a smaller capitalization, I can get more stock, but it takes more work to get rid of it.
If I wanted to say make $1000 profit in a month, I could probably do it in 10-20 gold sales vs 100-500 silver sales.
If I understand you correctly, the $1000 / month you’ve identified is at best gross margin. The revenue you brought in less the cost of the metals you sold. I say “at best” because it’s possible you’re not factoring in costs that should properly accounted for as costs of good sold.
But it doesn’t really matter much at this stage whether a cost should properly be a cost of good sold or a selling & administrative cost, and you aren’t accounting for all your costs.
For instance, do you plan on having a store? If you have $700/month rent, $200 in utilities and $100/month insurance premium, the 10-20 gold sales vs 100-500 silver sales are no longer bringing in any profit - you’re now breaking even.
Getting a handle on your above the line financials is fine, but you need to think about your operating expenses too.
With both, you can think about how much volume you need to do to break even and to earn a profit that makes it worthwhile for you. From there you can think about whether that volume is really possible and if it is, how much cash you might need to get started.
Isn’t this sort of business heavily regulated by the SEC and other government agencies? I think you might want to consult an attorney before you ask others to invest in your business.
Nope, not the physical gold. If you are talking about IRA, EFT, or commodities traded gold, that’s different. Anyone can go to a pawn shop and sell their watch, for example.
Thanks for the advice all. I’m going to go with changing $500 into $1000 within a month. If I can’t do it with $500, there’s no reason to try $50k.
It sounds like you’re essentially day-trading, in gold/silver rather than stocks?
If so then just one question: If you can regularly change $500 in $1,000 in a month, why aren’t other people doing that already, and bidding prices down until there’s not much profit left?
I mean, do you really think you’re that much smarter or more skilled than all the Harvard MBAs, MIT graduates, hungry Russians, etc. who can also trade gold?
Sure, anyone can turn $500 into $1000 once in a while, even almost half the time – just bet $500 on red at the nearest casino. But it’s not a sustainable business.
At any rate, sure, take $500 and have fun with it. But day trading really isn’t much different from betting red or black; it’s basically luck whether you win or lose, and you’re paying the house either way.
Sounds like you need credit more than cash on hand, and you could work out a deal with your wealthy contacts. I assume you aren’t in danger of a total loss since the price of gold won’t drop to $0 overnight, so the risk would be something like gold dropping from $1300 to $1200 overnight and you only have to cover that difference yourself.
The #1 reason new businesses fail is because they run out of operating capital before they reach a stable operating level. It’s not a lot different from a casino: all other things being equal, the less money you go in with, the lower your odds of walking out with more. Operating a new business for a year can be red ink for ten out of twelve months; if you can’t ride out expected and unexpected expenses and, in your case, market fluctuations, you’ll likely go broke before you can achieve a self-sustaining clientele and reputation.
So part of your business plan needs to be an assessment of maximum costs each month, including some margin for market fluctuations, and making sure you have the capital to get through a reasonable startup period. If you go in with too little, it could all go down the drain even though you have potential for longer-term success.
