Opinion needed on business idea

In My Humble Opinion
1

The short of it: Should I take 1/5th of my retirement savings of 90 grand and use it to start a business that has no guarantee of success at age 40?

The long story:

I am seeking opinions on whether or not the following idea is something I should act on given my current situation. Comments for or against are greatly appreciated.

I just turned 40. Male. Married with 1 kid. Bachelor in Business Management. Got fired from my job unexpectedly last month. Have exactly $95,529 in my 401K as of today. I am operating under the assumption that there will be no Social Security benefits available to me when I retire in 28 years because the SocSec system will collapse and run out of money soon.

I have 10,000 saved up for a rainy day fund and that is enough to take care of bills for the next 6 months. Here is what I am contemplating:

I have had an idea for a business for several years that I believe would be successful and would ultimately allow me to sell the business and the idea to a much larger company who is dominant in the industry the idea is built around.

I am debating whether or not to take exactly 20,000 dollars to start this business and see if it succeeds. I would receive $16,000 in real dollars since 1/5th goes right to taxes when drawing money from 401K accounts. I have done extensive research on this area of business and believe that I have enough knowledge to get started and test the idea out. In other words, it will take $15,000 to see if the idea would be successful, and there is a chance that if it is successful, I can recoup about 5,000 back of the 15,000 it’s going to take to prove the idea. Quite frankly, I don’t really care whether or not I recoup any money because I am prepared to lose this 15,000 as a cost of doing business, for proving the idea. If it is successful and I make back about 5,000, I would simply reinvest that in the business to start making my initial investment back and then eventually some profit.

My credit is not good enough to get a signature loan for 20,000. I don’t know anyone with enough capital who would loan me this money. I’m not connected with any rich people or “friends with money” that would loan me this money or back me financially for a cut of future profits. And I don’t own a home so no home equity loans. I’ve thought of every other way to get this money short of going on Shark Tank. So, it’s either my retirement money to fund this idea or it sits on the shelf.

Apropos of nothing… I believe things happen for a reason. I’m not much into organized religion but believe there are higher powers at work. So, when trying to find meaning into why I got fired, this keeps coming into my mind.

I truly think I have a good idea and believe I would be successful. Am I crazy? What do you say?

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Moderator Action

Welcome to the SDMB, StreetHockeyGuy.

The General Questions forum is for questions with factual answers. Questions seeking advice and opinions belong in our IMHO forum. I will move the thread there for you.

Moving thread from General Questions to In My Humble Opinion.

3

I don’t think the most important thing is whether or not you have a good idea (though that is important). The most important thing is whether or not you have the skills to take a good idea and turn it into a business. That’s a pretty hard thing to do. Your OP doesn’t really give us enough information for us to say whether or not you do. My advice? Find out the answer to that question for cheaper than 15k.

We can give more specific advice if you give us more specifics about your idea.

4

You did ask, so please don’t be offended by my opinions.

I wouldn’t do this because:

  • you recently lost a job, which is very disconcerting
  • if you think there will be no retirement benefits when you retire, then you need to securely provide for yourself
  • lots of people have ideas for businesses - but you need a business plan, market research and solid funding before you start a business
  • you don’t have a good credit record
  • you don’t own a home
  • there is no evidence that things happen for a reason

You’re not crazy, but I think you’re way too optimistic.

How about patenting your idea, then selling it to a company?

5

I agree that StreetHockeyGuy should not do what he’s proposing, especially since he has a wife and child. (My opinion might change if the wife is gainfully employed and they can live on her salary.)

6

It’s hard to say anything concrete without knowing more about the type of business you intend to open and what connections you have already made as far as employees, supplies and customers. Money is probably the least important thing when you’re opening a business - people and skills are much more important.

Of course, money is also important… but let’s say you sell widgets. You already have connections with five top widget-buyers, and an expert widget-designer is ready to sign on as soon as you finish incorporation. If you have all that, I’ll tell you that the money problem can be overcome. On the other hand, if you tell me that you have a billion dollars and read something about the widget industry on a blog yesterday… I’m thinking that at least your losses will be a good tax deduction.

From what I do know… many businesses take not months but years to return a decent salary to the founder. A six-month rainy day fund may not be sufficient.

Owning your own company is very different from working for someone else. Many people need the motivation and collaboration that comes from working with others and you might not get that in your own company. Sometimes people chalk it up to discipline or willpower, but I wouldn’t look down on anyone who says they simply need to get up every morning and go to an office full of other people. Even if your company will hire people, being the owner is a very different experience from being an employee, even if you were an executive before.

As for finding meaning in it all… that’s a very bad reason to start a business. Even if we take it as a given that a higher power has planned this all out for a purpose, let’s just say that higher powers have mysterious motives, and apparently like to teach people that working for themselves isn’t as rewarding as it might appear.

7

Small businesses often fail because the money runs out before the effort gains traction. Assuming it is a good idea, assuming it will find a market you can conceivably reach and exploit… will $20k see it there? Really? Does that cover your overhead, promotion, marketing and sales efforts as well as any fixed costs (equipment, inventory, etc.)? Are you prepared to dig in another $10k, $20k, $50k to keep a business growing even when larger-scale viability isn’t proven?
**
Write a business plan**, and be mean, vicious and hard-ass on yourself, your assets, your idea and your abilities. Then - unless it’s just solid gold and you can prove it (in the sense of meeting every question with a hard answer), seek a backer to put in some money now and that all-critical “continuation money” when you can see success but need funds to get there.

8

I admire anyone who is willing to take the chance and invest in themselves. There is a part of me that doesn’t like to go into the negativity usually associated with starting a new business but you really do have to look long and hard and be brutaly honest with yourself. If it was just 15,000 I would say not a life changer, but chances are the time spent developing the business and wages lost in the process will be much larger. There is also the temptation to chase the 15,000 with more money if that runs out. A lot of us have experienced that.

  I always did pretty well in my small businesses overall but never got out soon enough. The weak link was usually myself burning out after a few years and wanting to start something new. Knowing yourself is very important. Good luck and keep us posted.
9

I have started three businesses in my life. One broke even, one tanked (thanks, mortgage weasels) and one did well enough for me to sell it for quite a bit.

That makes me one of the better entrepreneurs in the world. A one-third success rate puts me way up there for successful business starts.

These days I’m a broker for a major investment firm. I know a bit about 401ks and retirement planning. Here are a few tips:

  1. Some form of Social Security will be around when you retire. People who say otherwise are trying to scare you for their own gain.

  2. Not all businesses are created equal. Some, even if they succeed, have such a low profit margin that it’s not worth starting them up no matter what.

  3. There are better people than those of us on the dope to help you make your decision.

To deal with #3 I want you to look up your local Small Business Administration office. They’ll be able to plug you into their local SCORE network. SCORE is a group of established and retired business people who have been starters and managers of successful businesses over the years. These folks want to help new businesses or they wouldn’t be a part of the network. I was one for a number of years.

Your local SBA director will be able to evaluate your idea, bring some others to review it - all with non-compete so they can’t steal it (and the vast majority won’t want to. They have their own fish to fry.) - and help you prepare a business plan.

If, at that point, you still want to go forward, you can then use their services to obtain either low interest rate or preferred small business loans or even plug you into local state-level business starter grants. It may be that where you want to locate your business falls inside a local business development region which may get you a federal or state guarantee.

They’ll also know about local angel investors who may throw money at you for a piece of the pie (if they think the idea’s good enough).

Note: I have used all of these and have received more than six figures in support overall with none of it being loans.

So, your ToDo list:

  1. Find your local Small Business Adminstration
  2. Make an appointment with the director the local office
  3. Outline what you want to do. What the business is, how it’ll impact the local community, jobs created and so forth.
  4. Ask about set-asides and incentive programs for small entrepreneurs.

Let me know how it goes! Good luck!

10

I’m going to go ahead and say “no” on the simple basis that you plan to fund this venture using money from your 401k account. So before this plan even gets off the ground, you are in the hole for all the taxes and early withdrawal penalties from drawing off your 401k.

Yeah, don’t listen to this advice. 90% of businesses fail because of cash flow issues. A rank amateur with a billion dollars in startup capital (depending on your business of course) is in a much better position that the greatest team in the world with no funding.

Yes and no. Many businesses take years to earn a profit. But you need to be thinking about how to cover your expenses right away - equipment, supplies, administrative costs, and of course salaries. And that also includes the owner’s salary, unless he plans on eating out of garbage cans and sleeping in his office.

If we are talking about a business on the order of $15 to $20k, my advice is you get a full-time job and then start working on the business in your spare time. I realize that there are some schools of thought that backing yourself into a corner will give you no choice but to succeed. But more realistically, your chances of success are a lot higher without the constant pressure of worrying about how you will actually live, while you are trying to start a business.

11

I don’t know about the viability of your business idea, but should you decide to go ahead, you should look into getting a business loan using your 401k as security.

The interest you pay on the loan is tax deductable, if you are successful you can repay the loan and never have to cash in your 401k. Only if it fails will you have to take the tax loss on your 401k.

12

Small businesses often fail because small businesses are not really a great way to make money. I’d put it in the same category as trying to make a living being a writer, inventor, musician, actor etc. In the grand scheme of things, the only area where a small businesses are usually competitive are areas that are too low profit for larger businesses to really be interested in. I would wait until the sting of losing your job wears off and then see how you feel. I would also do more research if I were you. I really believe a lot of people start businesses due to false attrubition errors that cause them to overemphasize personal qualities of others as a reason for business failure.

13

You have a degree in Business Management - you know what a business plan is.
Put one together, try a bank, SBA?, Vulture Capital. Pretty much that order - from most conservative lender to “anything with a pulse”, in descending order.
At what point do you get a nibble? At what point is someone ready to write a check?

Those opinions of your plan are worth something; the opinions of some people on a message board? Not so much.

Why so much cash and no equity? I screwed up big time - had I at least had the house paid off, I might have squeaked through. Hindsight is all it’s cracked up to be.

Odds of finding employment?

If nothing else:
Prepare a proper Business Plan. Even if you never show it to anybody, just preparing it will iron out your ideas and show any weaknesses.

14

Seconded. The Social Security system isn’t in the trouble that some people (mostly politicians) would like you to believe. I don’t want to derail the thread by getting into technical explanations, so I’ll just say it will still be paying out benefits in forty years.

Also, raiding your 401K is a very expensive way to get money, and the expense is up front. And since you’re worried about your eventual retirement, it seems like the last thing you’d want to do is take money out of your 401K. You should be putting money into your 401K, not taking it out.

15

I know that people don’t like to say what their idea is in a thread like this because they are afraid that someone will steal it, but you have to give us some idea of what the business is. Is it a product? Is it a service? Will it scale, and how (does scaling involve more manufacturing capacity, more people, more retail space, etc.)? Who are your customers? How will they find you? Will you need employees or office space or any other overhead to get it off the ground? What does your wife think about this idea?

16

Your gonna need to take a larger withdrawal than $20k to end up with $15k. In addition to the 20% tax hit, there is also a 10% penalty for withdrawals prior to retirement age. So to end up with $15k, so that’s an extra $1,500 coming out as well.

I say nothing ventured nothing gained. Large gains only come to those that are willing to take large risks. Go for it! But don’t do it blindly, do it smart. Some good advice up thread.

17

Agreed.
If you are worried about someone “stealing” your idea, then you probably don’t have a very good idea to start with; you are likely fooling yourself into believing that you do.

OP…if you have never worked in the industry in which you are considering opening a business, then you are likely to fail. If you don’t have a regular job to pay your bills until you get your business idea going, you are likely to fail. If you are using high interest funding (and a 401K withdrawal counts as “high interest”)you are going to fail. If you aren’t currently doing your business idea as a “side job” you are going to fail.

My two cents (for what it’s worth): Get a job, try your idea as a “side job” for a while and determine from there if it will work. Or…get a job in the business that you are starting and see for yourself if it really is a moneymaker. Who knows…maybe your future employer will be looking for a business partner and you’ll be in the right place at the right time.

18

Sadly large losses only come to those that are willing to take large risks. :smack:

19

Well, yes and no. Expecting to get rich quick through a small business is in the same category as trying to be a writer, inventor, actor, etc. Basically they all come from the same mentality that you can dabble in something for a few months, then reap a huge windfall without a whole lot of effort.

20

It is always a bad idea to start a business to create employment for yourself. Very typical, but very bad. For the headache, long hours, stress and possible financial ruin, you’re better off working for someone else.

Think of your money as a tool to be invested. You should be getting at least a 10% return on your money. Your salary is not included in that 10%.

If this is such a great idea, others will see it’s worth and invest in your company. Or at least borrow you money. If no one is willing to push money your way, you need to rethink it very seriously.

We Americans have this romanticized idea of what self employment really is. That’s why at 15 years, 75% have failed.

I’ve been self employed for over 15 years, and it’s tough. The wolf has never been at the door, but I have heard it howling down the street once or twice. I’m in the top 5% of my industry, but it’s still tough.

Cash is King. Never forget it. You may have the best product, best ideas, best employees, but if you don’t have any money, you are shit out of luck. Cash is King.