I had a fun exchange with an e-mailer late last week. I say e-mailer rather than reader for reasons that will become clear but perhaps I’ve gained/earned a new reader through the process.
It seems that a young couple was presented with a potentially fantastic business opportunity. One that required instant cash, which in turn was something this couple did not have on hand. Of course this scenario raises red flags in my sometimes skeptical mind but the couple was doing exactly the right thing – seeking the seasoned advice of others.
And at least one of the voices sought out by this couple was none other than Dave Ramsey. Good choice! However, in a hasty Google search they ended up with me, Dave Ozment. Still a good choice I say, but lacking in authoritative firepower to say the least.
At this point allow me to pause to say that I take very serious the notion that I am not Ramsey and that I am in no way trying to position myself as his clone, proxy, or equal. I love his work and espouse his message and I want to share my Ramsey-esque story but I hope to do so with a differentiating clarity.
Some may notice that I expanded my pen name to include my last name to assist in this effort. I’ve shared at least 2 previous posts in an attempt at communicating my transparency and approach.
Nonetheless, this individual’s eager quest for advice landed in my lap and I did my best to both clarify where their inquiry landed, as well as, try my hand at providing quality counsel.
Below are the dominant emails in this exchange largely intact – names are changed for obvious reasons. Give them a read and share your thoughts and reactions. What additional or differing advice would you recommend?
The Original Inquiry:
My husband and I took your class a few years back and are very glad we did. An opportunity has come up suddenly to buy a small business from a close friend who is moving. The business is worth $145,000. and he is selling to us for $45,000. He has offered to stay business partners (50/50) until we have paid off the 23,000. My husband and I are both thirty years old, with three children and making the bare minimum. Of course I am scared to take this risk as we basically live pay check to pay check as it is. My main question to you is how you suggest we try obtaining this loan. Should we get a personal loan, take out a second mortgage (home worth 215,000 we owe 149,000) or using credit cards? PLEASE, PLEASE DONT DISREGARD THIS! I need to hear your honest opinion. I can answer any and all questions you may need before deciding. This business has averaged a profit of 110,000 (after all expences paid) in the last two years. Thank you Dave for your time and most of all your concern. Sincerely
Thanks for your message! HOWEVER, I want to be VERY CLEAR… I am NOT Dave Ramsey! You mentioned having attended a class… so I think you mean to write to Dave Ramsey.
My name is Dave Ozment… I am a HUGE Ramsey fan – so much so that I named my blog in honor of his work.
I encourage you to check out my ABOUT page to learn more about who I am… and some of my early articles explain about my situation and experience and perspective on such matters.
It is very important to me that you know who I am and who I am not before answering your question.
I will give you MY thoughts on the matter…. in fact, it seems that I recall Ramsey answering a similar question once and I really enjoyed his answer. I believe I’ll have facets of his thought process in MY answer…. but I am not a professional planner, lawyer, talk show host, or the like… I’m an average guy with an opinion… again, more details on me are available on my site. www.DoYouDaveRamsey.com
Dave Ramsey is available at www.DaveRamsey.com
If I were you, I’d start by asking/answering a few questions for myself.
- Is this business something I really want to do? If not, why bother?
- Do I want to be a business owner? With 3 kids do I have (or want to take) the time to be a business owner?
- Is this a service I can provide or a knowledge product I have to learn – or do I know it already?
- Will I do it full time or part time – this is huge as you’re already barely getting by so if there’s any hiccup in salary you’re in a mess
- How much money does the business generate? – Net revs and Gross revs
- What was your friend’s income from the business?
- Is this business in a growing or shrinking market and industry
- Why is your friend offering it at such a deal… is this a true blessing from God via this friend or does something under the rug stink?
- Why would I want more debt when I’m already struggling? I’ll help with this one – you don’t!
- What other debts to I have – this is important! Is my mortgage my last debt or am I covered up with it?
- How large is my existing Emergency Fund?
- Could you replace your income by simply running the business for your friend? This would allow you to see the inner workings of the business, learn the business, and understand how you’d fit as the real owner. You’re friend would still draw off the profits…. this could be win/win for the first year
Those are big questions so spend some time in thoughtful research and discussion and prayer.
If, you still feel good about this… revisit the last bullet from above. Offer it as step one to your friend.
Consider as step 2 offering to pay your friend a set % of the profits for a period of time. This is done in exchange for ownership NOT as a Partnership. NO PARTNERSHIPS!! For example, I’ll pay you 10% of our profits for 8 years up to a total of $55,000. Once 8 years or $55k in payments have been made the business if yours free and clear.
Look for something creative like this to facilitate the transition. But DO NOT borrow 23k against a credit card or your house, quit your job just to jump into a partnership position on a sinking ship or a situation that does not spin off an acceptable replacement income.
I think Shirley Q. Liquor said it best when she said “99 cent is not a bargain if you do not have 99 cent”.
Don’t jump just because this is a “deal”. It could be a blessing but it could be a curse too. But in any event, I don’t think you should take on new debt to do this.
I hope this helps…. again, I am NOT Dave Ramsey…. I AM Dave Ozment – a huge Ramsey fan. However, we’d both agree that debt is not your answer and that there are many more questions to consider.
Again, check out my website and who I am and if then – and only then – you’d like to discuss further with me, I’d be happy to trade additional emails with you. If not, I respect that too.
If you want Dave Ramsey…. the email address he advises on his radio show is DaveOnAir@DaveRamsey.com
Good Luck and God Bless!
Wow, Thank you so much for your time, and I’m sorry to bother you for being Dave Ramsey. That’s sort of funny though, since you’re a huge fan of his, and actually seem give a rip about other folks. (a rarity) It was nice to meet you and again thank you heaps and bounds for your much needed and much appreciated advice! =)
So what do you think? What additional or different advice would you offer in this situation? I welcome your wisdom and insights!
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