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Steve
04-19-2009, 04:34 PM
There are a lot of people who are losing their jobs due to the current state of the economy and they are looking for businesses to get involved in. I had the opportunity to talk with such an entrepreneur and he was opening a tanning salon. When I asked him why that he said because he thought it would be easy.

As we got into the discussion a little bit it quickly bubbled up that this was not going to be a walk in the park. His previous job paid him over $90,000 a year. Along with that salary, he had acquire some pretty high expenses as well. Over $15,000 a year in property tax on his home. A $3,000+ a month mortgage and the list went on and on.

What could he do to help stop the bleeding? That is the question he asked me. It's a great question with a simple enough answer. Sell all that you don't need now. The tough part is, he is underwater with the house and if he sells it, he would lose any equity he had in it.

In an ideal world, we could all one day wake up and decide today was the day we are going to be our own bosses and quit our job. Then we could pick some kind of business to start and we would be up and running within a week and be making the same amount of money.

The reality of it is when you step out of your full time job and decide to open up a new business, you can expect to not make any profits for years, if ever! Most business that are started fail. Why? The simple answer is lack of capital but the larger answer is you just didn't give yourself enough time to pick up the pace and learn about your new business before you ran out of money to support it.

You can't start a new business and carry on expenses you acquired when you had a full time job. It's simply not going to work. To make your new life work, you are going to have to shed all the dead weight and only then might you have a chance.

If I were him and I wanted this new business to work, I'd sell everything and live in a tiny room in the back of my tanning salon for a year or so until it started producing a profit. Give your new business a chance to survive. Rid yourself of as many of your expenses as possible before you start.

What's your view on this?

turfmaster
04-19-2009, 05:48 PM
Steve,
I agree it is hard enough to start a new business even if you have the capitol and the knowledge of that business. But having all the debt that he has is just going to put a lot more pressure on him for the tanning salon to succeed My wife and I opened up a small retail specialty store back in 1999. We were buying a profitable business according to the CPA that looked the books over before we bought. The 1st year our best of 3 years in the business we broke even. Then in 2000 the economy started going south. We all know what happened in 2001 with the terrorist attacks. Luckily we both had full time jobs to carry us through that ugly time. Also our home and cars were payed for.
I can't imagine having all that debt that he has. :)

Steve
04-19-2009, 05:57 PM
Oh that is fantastic!

Can you tell us a little about what kind of store it was? What did it specialize in?

What made you want to do that and how were you able to manage it with a full time job?

turfmaster
04-19-2009, 08:41 PM
It was a little store inside a local mall. We sold little nick nacks, beanie babies,
collectible items, t-shirts, beads, greeting cards etc. It did about $300.000/year in sales. Friends of ours sold us the biz. They had it for about 5 years. My wife did the product ordering and book work and I did the delivering and stocking of product. We also had 6 part time employees running the cash registers and stock. I personally think there is luck involved with running a successful business as well. Had it not been for the recession and terrorist crap I think we would have survived. I worked full time as a Tool & Die Maker plus had 6 mowing accounts and my wife was a full time nurse so it was easy for us to walk away however we lost a lot of money. Retail can be tough. You have to put a lot of money up front for product and hope that it sells. A service type business such as lawn care or landscaping is much easier to start for sure. If you fail your investment is still worth something. Specialty retail the unsold product is worth pennies on the dollar. I know someone who was in the tanning salon biz and it is tough. You better have low rent and own 80% of your beds. Also have to up sell lotions and cremes etc. or forget it not enough money in it.

Steve
04-19-2009, 08:50 PM
That is amazing.

See the average person looking at this story is going to see $300,000 a year in business and they are going to lose their minds. They will quit their jobs on the spot to dive head first into something like that.

Can you talk to us a bit on why a business that takes in $300,000 in a year doesn't mean you are going to have $300,000 in your pocket at the end of the year.

What kinds of costs and expenses were involved? Especially since you ran it in a mall where it can cost a premium.

Also did you ever find out why your friends sold it?

turfmaster
04-19-2009, 09:40 PM
Well let's see. The rent was $4000.00/ month. Employees part time wages $4000.00/month. Insurance, workmans comp. $500.00/month. Taxes paid quarterly(I don't remember), accounting fees and pay roll service $200.00/month, advertising other supplies $250.00/month. These are costs just off the top my head I'm sure there's more. Now our basic mark up was 100%.
So if we averaged $20,000 in sales we spent $10,000 in product. add that to your monthly costs. In retail your sales in the 4th quarter equal what you sold in the first 3 quarters.
Our friends were expanding their business in other directions. Needless to say we are not friends anymore but are still cordial when we see them.
$300,000 sounds great but that's a gross number. I know a guy of a local landscape co. that grossed $400,000/ year and sold his business because his bottom line wasn't there. Way to much overhead in new trucks, equipment, building etc.

Steve
04-19-2009, 09:44 PM
That is fascinating!

It's neat you have cross trained in these different fields because you are more aware about how businesses operate than many others.

Would you ever open another retail location? If so what would you like to do or sell?

I can't imagine working full time and then trying to manage a store as well. That alone seems like a full time job in and of itself!

SuperiorPower
04-19-2009, 10:16 PM
What could he do to help stop the bleeding? That is the question he asked me. It's a great question with a simple enough answer. Sell all that you don't need now. The tough part is, he is underwater with the house and if he sells it, he would lose any equity he had in it.

Absolutely. You have to reduce your "liabilities". I have been experiencing some especially tough times this entire year since I have not been able to get ANY overtime since middle of January. As such, I avoided making myself a truck payment despite the fact I believed I needed the truck badly. So happens that had I purchased a truck I would not have been able to make the payments.....

What could he do to help stop the bleeding? That is the question he asked me. It's a great question with a simple enough answer. Sell all that you don't need now. The tough part is, he is underwater with the house and if he sells it, he would lose any equity he had in it.

Sell it now before you loose it all..... If he keeps it and his business does not make enough profit to support himself and the house, etc., he stands to loose everything: equity, house, and lots of money... That make sense?

If I were him and I wanted this new business to work, I'd sell everything and live in a tiny room in the back of my tanning salon for a year or so until it started producing a profit. Give your new business a chance to survive. Rid yourself of as many of your expenses as possible before you start.

What's your view on this?

I guess it all comes down to this: How bad do you want this business to succeed??

turfmaster
04-19-2009, 10:42 PM
It was definitely a strain on our 2 kids. Most of my friends and family consider me a workaholic but I always managed to be involved in their school and sports events when they were growing up. I will never go into retail again. At this stage of my life I still enjoy my lawn care business. Love the work and interaction with some of the customers.

Steve
04-19-2009, 11:15 PM
I know someone who was in the tanning salon biz and it is tough. You better have low rent and own 80% of your beds. Also have to up sell lotions and cremes etc. or forget it not enough money in it.

Do you ever talk to your friend about if they would like to experiment with any other businesses? Do you know why they chose the tanning salon versus other business ideas?

turfmaster
04-19-2009, 11:52 PM
They chose the tanning business because they were led to believe by someone that it is a lucrative low overhead easy business to run. They found out otherwise. They now run a liquor store and are thinking of getting out of that.
All the big supermarket stores are carrying beer and liquor at super low prices which is hurting them.

Steve
04-20-2009, 12:17 AM
They chose the tanning business because they were led to believe by someone that it is a lucrative low overhead easy business to run. They found out otherwise. They now run a liquor store and are thinking of getting out of that.
All the big supermarket stores are carrying beer and liquor at super low prices which is hurting them.

I find this fascinating. Another tanning salon I know of has had at least 5 different owners in a handful of years. I am guessing that some new business owners feel that if they invest money into a business, that will be a competitive advantage in and of itself.

Like maybe the money invested will be a barrier of entry to keep other competitors out but instead they find that there are others just like them who have done the same thing.

Do you think this is the case too? Do you ever offer them any advice on future business ideas?

turfmaster
04-20-2009, 08:45 AM
Definitely,
Look at Lawn care for example. Look at all the new LCO's out there this year. I do wish them luck but Steve you know as well as I do that 70% of these new businesses will fail for one reason or another. If the economy turns by next season there will be less competition and prices for services will return to where they should be. Remember most of these people mowing 1/2 acre lots for $15-20 dollars are going to realize they are working for free. They are desperate right now .These people have not learned how to calculate true operating costs.

As far as offering advice I tell people to really do their homework on the particular business venture that they are considering. Know your true costs and don't get blind sided by fluff numbers like $300.000k/ year.

Steve
04-20-2009, 03:12 PM
As far as offering advice I tell people to really do their homework on the particular business venture that they are considering. Know your true costs and don't get blind sided by fluff numbers like $300.000k/ year.

When your friends were looking to get into the different businesses they got into, did they come to you first and ask you to review their business plan or did they just want to go and experiment on their own?

If you could experiment with any other business, what would it be?

turfmaster
04-20-2009, 11:50 PM
When your friends were looking to get into the different businesses they got into, did they come to you first and ask you to review their business plan or did they just want to go and experiment on their own?

If you could experiment with any other business, what would it be?

These people were in business for themselves before me. If I could experiment with another business I think some kind of consulting may be the way to go. Seems like people or businesses are always willing to pay for information.

Steve
04-21-2009, 06:40 AM
If I could experiment with another business I think some kind of consulting may be the way to go. Seems like people or businesses are always willing to pay for information.

Well you are doing a great job here. Who knows maybe we will see you offering lawn care business consulting in the future!

turfmaster
04-21-2009, 08:48 AM
Thanks for the compliments. I really enjoy this site and forum. :)