I barely get five hours of sleep a day so I cant increase my working hours and take up another job. We still need income, given considerable medical expenses, so how is this idea? Given that I am in a PhD program the banks will loan me about $50,000. I start a small business with this amount and employ a manager to take care of it. Do whatever it takes to keep the manager happy and maybe even split profits with him or her. Doable? Any suggestions or ideas? Just want a way for my family to survive while I work toward my degree.
Most businesses would be thrilled to be able to put 10% to the bottom line, after expenses.
If you succeeded in doing so you would net $5,000. Splitting that with your manager would net you $2,500.
In the real world most businesses lose money the first few years due to startup expenses and starting from zero market share.
Also, most businesses cost far more than $50,000 to start. I own a retail store and needed a half million dollars to get started.
While I'm a big fan of small businesses, this is not the way to do it. You would be 100% leveraged, would not be hands on with the business, would rely on a stranger to safeguard your investment, and you'd almost certainly be undercapitalized.
I don't recommend it.
What about a small franchises?
Once you pay the franchise fee out of that $50k you'll have even less money to start a business with.
Its very stressful to start and run a business. You have to write a business plan, for the bank, and there are a million details to take care of.
Starting a business is an all hands on deck full time job. It's not something you do on the side while you're getting a PhD and dealing with healthcare issues.
I don't know how much you need per year to support your family and other obligations but even if it were just $20k that's a 40% return on investment. If there were a way to do that then everyone would be doing it.
You should borrow the money, create a budget with a burn rate that will get you through the rest of the program, and just live off of the money.
Look it simply is not possible to do anything with that money to make it magically support you.
Though a PhD is a dream you might have I have to say that you have to seriously consider dropping it and getting a full time job. Unfortunately it is a luxury you cannot afford especially with your commitments and your financial position.
I will also say avoid debt at all costs. I don't think it will do you any good.
You make some really great points Chelle! I was pondering a way to get around the valid points you made and came across this often-quoted sentence - "you will earn upward of $100,000, which is the average income of a hot dog vendor". Many internet sites have observed this is their average income. It costs $5,000 to start a hot dog stand and I could easily get a loan for that. I could focus on my PhD, getting 5 hours of sleep each night and taking care of my family's medical needs while appointing some other student as a manager of that hot dog stand on my campus. And I could split the profits with him or her. Is this a totally crazy idea and am I just being completely foolish?
That's certainly an interesting idea. It's a labor intensive business that uses lots of sweat equity and doesn't require much capital.
You'll have to:
Buy a cart
Get a business license
Deal with health inspectors
Pay a self employment tax
Incorporate as a subchapter S
File corporate taxes
Pay estimated quarterly income tax
Pay monthly sales tax
Pay for workman's compensation insurance each month
Pay for liability insurance each month
Pay federal withholding taxes every pay period
Pay state withholding taxes once per month
Pay federal unemployment taxes each quarter
Pay state unemployment taxes each quarter
Buy supplies as needed
Handle customer complaints
Hire and fire as needed
That's just a partial list, while I'm parked at a rest area.
Businesses succeed despite government not because of it. You'll stay plenty busy just keeping the government happy.
Short answer - it will require more time than you think.
As far as small businesses go, a hotdog cart really isn't a bad idea. (Although I think college kids would buy more tacos than hotdogs.)
The only thing wrong with your idea is the time investment that you think you won't have to make.
A few more things to consider:
Your employee/manager should not be a business partner. In every partnership there's one person who does more work than the other and it eventually creates acrimony-- and you can't fire a bad business partner. If you go into business it needs to be a sole proprietorship.
You might be thinking that you can have your employee/manager be an independent contractor and avoid lots of insurance and compliance expenses. You'll find that the Labor Dept and the IRS don't embrace the idea of independent contractors nearly as much as small business owners do, however. My ex-brother-in-law owns a number of espresso coffee carts at a number of convention centers and he tried that, at first. After the IRS and Dept. of Labor had their say he ended up having to officially make them employees. And he got to spend lots of time on the phone and in person with people he would rather not have spent time with.
You'll need more than one employee. Picking up supplies at CostCo, getting everything prepared each morning, putting everything in cold storage at night, and working through the day will be more than one person can handle. Plus, he or she will get sick, from time to time, request time off, get the "Budweiser Flu" after a big night out, etc. You'll definitely need at least two employees.
That $100,000 is most likely gross profit. After taxes and expenses it's probably more like $30,000. There's a reason that there aren't hotdog carts lined up and down every street.
If the cart fails, financially, it will only affect you. If it's successful, your employee/manager will very likely buy a cart of their own and set up a few feet away. My ex-brother-in-law was forever training his future competition. The employees at this more successful locations would invariably buy coffee carts of their own, eventually. It's a cut-throat world out there.
Being a cash business, you'd potentially be a ripe target for skimming. It's hard to find truly honest people.
You'll have to learn how to do some rudimentary bookkeeping. Find a CPA, ask if he or she uses Quickbooks, Peachtree, or some other similar software package-- and then buy it and learn it. Your CPA can help you set up your chart of accounts so that you can track income and expenses and be ready, come tax time.
The idea of selling hotdogs out of a cart, on a wing and a prayer, sounds very inviting-- but those days are long gone.
If you decide to go this route I'd be happy to answer any questions you have-- I've owned my business for 20 years and have seen just about everything-- but go into it with your eyes open.
Despite all of the headaches and hoops that you have to jump through, it's still a lot of fun to own a small business. So I'm not discouraging you-- I'm just letting you know that you're going to have to give up those last 5 hours of sleep.
Great points by Chelle and others! Valuable thread for anyone considering starting their business.