Independence or stability?
July 27, 2005 4:04 PM   Subscribe

What's the best way to finance a small business? Or should I, at this junction?

I'm looking at the possibilities of financing a business. I have a pretty clear idea of the business concept, and a fair idea of the business potential. However, my debt-to-investments ratio is just about 1:1, and both numbers are not terribly high. The business wouldn't, in and of itself, cost a whole lot to start up but I'd have to support myself and my family (wife, with an upcoming child) while it got going. The debts I have will be paid off within 1 year. The opportunity I see in the business could be taken over by someone else within that timeframe.

What questions should I be asking myself in order to gauge my financial ability to start this business? Or, with a child coming up, should I just stay at my current job (which is fairly stable, if not possessing any expansion capability whatsoever) until debts are paid off and kid is born?
posted by Kickstart70 to Work & Money (10 answers total)
If the amount you need is small enough, you could apply for a credit card with no interest for a year.
posted by leapingsheep at 4:54 PM on July 27, 2005

The time to start a business is when you can afford to without jeapordizing the livelihoods of those dependent on you. I.e. when you're fresh out of college and aren't married yet, or when you've saved up enough of a nest egg to not put them at risk.

I would reccomend paying off your debts and saving at least six months worth of income before you start, either way. (It took me 9 months to get mine to the point where I was able to take a salary, and at that the salary only covers my expenses.) Don't put your house on the line for a bank loan or otherwise sign personal guarantees unless you know for a fact that you can cover them and it won't trickle down onto your wife and kids and possibly cause you to lose your home or have to move in with your parents or something else rediculous like some of my friends did. If my business goes, I can couch surf for a few months until I get a new job...

Otherwise, try to find a way to play with other people's money while you keep your chestnuts out of the big part of the fire. ;) i.e. if you have a relative that's willing to put up money, or can otherwise find an angel investor.

Don't gamble with wives and kids in the picture.
posted by SpecialK at 5:09 PM on July 27, 2005

If you're in the U.S., keep in mind that it might be hard to get on a new health-insurance plan (or at least ensure that labor & delivery will be covered) when your wife is pregnant. If you're planning on quitting your job and getting COBRA-type coverage, be sure to verify (in writing!) that the birth will be covered. And then there's the baby's health coverage to figure out, too. Good luck!
posted by lisa g at 5:20 PM on July 27, 2005

I would suggest moonlighting with your new business until it could carry you full time.
posted by crewshell at 6:02 PM on July 27, 2005

I agree with crewshell. If you don't have sufficient savings, the best way to plunge into entrepreneurship is to work yourself to the bone to get it started. If you have what it takes, you'll be able to do it.
posted by trevyn at 6:30 PM on July 27, 2005

I think you meant juncture.
posted by zadcat at 8:48 PM on July 27, 2005

If you're thinking of starting a small business, there are a lot of other things to consider as well as financing. Your profile doesn't say where you live, so I can't offer specific links, but the federal government, most states, and many cities offer free assistance to small business owners and those thinking of starting a small business, often through a college or university center. Financing is one thing they could advise you on.
posted by WestCoaster at 8:57 PM on July 27, 2005

Start With Nothing.
posted by RikiTikiTavi at 9:52 PM on July 27, 2005

It's a great time to be an entrepreneur

Startups should avoid venture capital [case in point]

The opportunity I see in the business could be taken over by someone else within that timeframe.

This is a classic error. Business ideas, by themselves, are worth next to nothing. Execution is critical. Joel (of on Software fame) built Fog Creek into a very profitable business in a segment that was already well occupied (bug tracking software).

It isn't absolutely crazy to do this, but you'll want to have a contingency plan in place should -- for example -- your wife lose her job. While you're working for yourself, continue to network such that a job won't be far at hand if you run into trouble, as many startups do. Figure out in advance when that point will be -- when you're down to N savings, and you can't go any more into the hole, and be ready to make that hard decision in advance -- one baby, for the sake of another.
posted by dhartung at 11:24 PM on July 27, 2005

Thank you all for answering. I'm not sure what we'll end up doing, but certainly I'm a little more careful about it after reading your responses.

Best thing I can do now is get as much done (including learning) as I can before the potential start of the business and hope that someone else doesn't swoop in before I'm in a position to start it.
posted by Kickstart70 at 11:44 AM on July 28, 2005

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