If you had $500,000+ saved and wanted to start a business of some sort, what would you choose? A few options we’re debating:
A - Place a Red Box or similar vending machine device at the local college campuses and dorms.
B - Expand brother-in-law’s metal recycling business to new cities.
C - Purchase machining equipment and begin producing AR-15 lowers and uppers, in cooperation with cousin’s gun dealership.
D - Open a small 24 hour cheap pizza/wings joint in the nearby college town, preferably next to the dorms and apartments. Only one other restaurant is open after 1 AM in the town of 20,000, so we’d have little or no competition.
No expertise to offer, but bear in mind that the economics of option C can be strongly influenced by changes (or lack thereof) in regulation, which may unpredictable and very quick-moving.
At the risk of sounding generic, do something you have exceptional ability at, like doing, and in a way that resists pressure from competition and market fluctuations. Unless you’re a master machinist, that rules out all of your options.
Trying to generically “go into business” doing “something” is a surefire recipe for making a small fortune… out of a large one.
A - franchising is a crapshoot. RedBox could be out of business tomorrow with the right breakthroughs in streaming.
B - have no way to judge this one.
C - if you’re a master machinist and gunsmith, good option. Preface with “only,” though. ETA - FM has an excellent point. Both metal recycling and anything to do with firearms are subject to wildly unpredictable forces.
D - there’s probably a reason there’s no competition. Don’t even consider it without a thorough and competent business survey.
I think the safest bet is to get a chain restaurant/business that has a built in reputation (Pizza Hut/McDonalds/KFC/etc.) that might not be “sexy”, but will stay in business and probably make some money. You rarely see places like that fold, even in smaller towns.
Most big-name franchises demand substantial assets from the franchisee - at one time, I was told Taco Bell will only consider franchise owners who can demonstrate a net worth of $1M or more.
The stores that stay in business in marginal locations are likely not franchises, but company stores operated flat or at a loss for branding and market reasons, like some large percentage of Starbucks’s.
I’d look at investing it in good, currently underpriced commercial RE, and plan to do basic maintenance and management around a day job. That’s a building block to millionaire acres if you don’t overextend.
A - Place a Red Box or similar vending machine device at the local college campuses and dorms. Well, Redbox isn’t a franchise; the company itself (a subsidiary of Coinstar) owns and places the boxes itself. A similar vending machine might work but you need the right merchandise.
B - Expand brother-in-law’s metal recycling business to new cities. I doubt there is a city in America without existing metal recycling businesses, but if the cousin already knows what he’s doing, it might work.
C - Purchase machining equipment and begin producing AR-15 lowers and uppers, in cooperation with cousin’s gun dealership. Are you a trained gunsmith? I’m assuming that some familiarity with gun manufacturing would be needed.
D - Open a small 24 hour cheap pizza/wings joint in the nearby college town, preferably next to the dorms and apartments. Only one other restaurant is open after 1 AM in the town of 20,000, so we’d have little or no competition. This could work, but presumably there are other restaurants in town, just not open that late. And I assume they know why; lack of business.
Edited to add, a friend’s brother got into the business of buying scrap gold. He’s apparently doing OK in this.
If you are lucky enough to have $500k fall into your lap, invest it wisely, and live on the income when it’s time to retire.
Don’t play Russian roulette with a fortune like that. Retail businesses are a bad idea in this economy - they are dominated by the big chains that can undercut you right into bankruptcy.
Even the biggest, best franchises are really structured to enrich the parent company, while the guy doing all the work and carrying all of the financial risks will make only a modest income comparative to the amount of work he puts in.
I’d advise against the video rental box. Video is a killer business (as evidenced by all the video stores that have closed). You have to constantly invest in new inventory, which you have to buy at its peak price and then watch drop like a stone in value (go into any video store you can still find open and you’ll see displays of two month old movies being sold at a fraction of what they cost the store). Technology keeps coming up with new alternatives to renting movies. And what rental market there is out there is filled by established chains like RedBox and Blockbuster.
Indeed. While I’m definitely not the type to start my own business, $500K would be exactly the wrong sum for me to start it with. Any less than that, and I would have something to gain if it were successful. Any more, and I’d have money that I could afford to lose and still have enough left over to retire comfortably if my other investments do well.
In addition to the issues you raised, the OP is talking about placing a box on/near a college campus. In other words targetting a population that is young, (generally) tech savvy, used to downloading/streaming media, and they probably have access to a pretty fast network through the dorm; that doesn’t sound like prime video rental box customers to me.
Odds are that if you take your half-million bucks and have a capital management firm invest it, you’ll make higher returns on it over time than if you opened a restaurant or did some other risky small business.
It’s like the difference between putting it in a savings account and making 2% annually or taking it to Vegas and hoping you win.
Yeah, the gun business is a non-starter. There’s tons of companies making AR-15 parts already. They’re doing quite well today, but if they don’t get totally banned, the market will dry up once the hysteria dies down.
I would keep the money and conservatively invest it in the markets until you have a clear opportunity. None of these are clear opportunities. As someone else said, if your goal is just to generically “go into business”, that’s a recipe for disaster. If you don’t know for certain that you want to pursue a particular business, don’t do it just because you feel like you have to do something with the money. You will make good returns in the markets.
In general, I’d look into buying a mature business from a person who wants to retire. There will be an established customer base and the existing owner may be willing to spend a few weeks or months training you. A family friend did this, buying a business that manufactures aluminum poles of the sort used for street lighting.
My friends and I are looking at starting up a distillery but we live in Colorado where the laws will allow for sale from the distillery to avoid wholesalers and the populous generally likes local boutique products. But even with that we are probably a year away from having a complete business plan and another year after that for permitting but our initial scoping is right around 400K so having 500K drop into our laps would probably get me to quit my day job and focus on starting the company primarily instead of tertiary.
Unless any of these options are in an industry you are already in and have considerable experience with, I would not do them.
If you have to do one of the four, I would do the BOL business:
Tell BOL that he will need a business plan (you can help him) that will sell the idea of expansion into other cities and that you can’t invest in the company (is this an equity position that you’ll be taking?) unless he has this plan and it makes sense.
Shop the plan to other potential investors, saying (to BOL) that you are going to put in $125-250k contingent on other investors also finding the plan attractive. If other, more savvy, investors want to put in a like amount, you likely have a winner.
Realize that if things go belly-up there will be a lot of bad blood between you and sis/BOL. If things go well, you may also have problems as BOL will possibly become upset because you “screwed” him out of a share of his company when he was “down.” Don’t think this can’t happen!
If the $500k represents the totality of your net worth, don’t plan on sinking all $500k into the business - do 1/4, 1/3 at most. Hell, you’re going to take a tax hit when you convert your assets to cash - have you calculated what this hit will be?
There’s more, but I don’t feel like writing a book.
Are you just trying to invest the $500K, or are you desperate to quit your current job? In either case, I don’t think starting a business is the right solution. I agree completely with JohnT as far as investing goes. If you just need to quit your job, you’re probably better off using some of the $500K for educating yourself or just living expenses while you do a better job search.
Starting a business is for people who feel strongly about what they want to do, have the industry experience to know how to make that kind of businesses succeed, and have the emotional ability to be able to shut things down if it doesn’t work. Frankly, since you’re suggesting things all over the place, I don’t think you have either of the first two at this point.
