Business owner General advice

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Pizzaguy
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Joined: Wed Jan 19, 2022 7:27 am

Business owner General advice

Post by Pizzaguy »

Summary - Just looking for ideas/opinions.

Back story: I have worked for a national pizza chain since college, and I finally opened my first store November 22, 2021 :D . We took out an SBA loan of $650k to accomplish this. We own the land and building as well. For building a new store the Franchisor gave a $150k incentive which will be paid back as a break in royalties and advertising until $150k is recouped. This is why income will be very high year one.

Demographic Information

Age: Both 30
Kids: 0 but planning on 2/3 within the next 5 years.
Location: Alabama
Taxes: MFJ Business is an S corp
Businesses: Real Estate company which "owns" the land and building. Pizza company pays real estate company rent. Real estate company pays back loan, rent payment is the loan payment ~$4,650 a month.

Current Jobs:
Me: I own one Pizza franchise. (One location) Salary - $50k The Business should bring in ~ $300k - $400K this year, after year one it will fall too ~ $150K - $250k because the incentive will be recouped.
Wife: Part time sales associate. ~ $20k a year. (She also works with me at the store, we have not added her to payroll yet.)

Debts
$650k business loan over 20 years 6.5% rate (Can only pay back 25% of loan for the first 3 years without paying penalty.

$50k Student loan debt between us both. (I am about to pay this all off at once). (We had ~50k left over from loan and we have made about $50k since opening). Paying this off will still leave 50k+ in the business.

Mortgage - $625 a month bought the house for $104,000 5 years ago, owe $89,000.

Looking for ideas/advice

I am opening a vanguard account, but I am opening a taxable account instead of doing a tax deferred plan. My reasoning behind this is I am a risk taker (hence opening a business). There may be opportunities and I would like the ability to access my cash. (Opportunities could be opening more stores... buying rental properties etc...

We are about to move into a rental for a year or two until we can buy/build a home we will be in long term. In the meantime, we plan on renting our current house.

I plan on paying the max amount towards the business loan each year for the first 3 years. Year one 167k year two 120k year 3 100k.

Questions

Am I making some huge mistake not creating a tax deferred plan through the business?

Is there some better place to park my money than a taxable vanguard account?

I plan on putting most of my money in some sort of 3 fund portfolio. Probably with an asset allocation of 90/10.

Any other ideas that some of you may have please let me know. Would love to hear lots of different options.

Thanks for reading!
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MP123
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Re: Business owner General advice

Post by MP123 »

Pizzaguy wrote: Wed Jan 19, 2022 8:02 am Am I making some huge mistake not creating a tax deferred plan through the business?
Probably. But you'd need to consider whether you'd have to make contributions for your employees as well.

Good idea to keep some powder dry in taxable for opportunites that come up, but deferring taxes on a portion of your income would be a good idea. You're likely in the highest bracket for now.

A simple three fund is popular around here, 90/10 doesn't sound unreasonable at your age.
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Lee_WSP
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Re: Business owner General advice

Post by Lee_WSP »

It's going to cost you more to run the plan, but it's also a draw for your employees. I think you should do it.

You might be surprised how few low wage and mid wage employees even bother taking advantage of the match.
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Sandtrap
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Re: Business owner General advice

Post by Sandtrap »

What are your thoughts on waiting at least 3-5 Years, building up substantial savings and working capital, reducing your leverage by paying down that debt, and also purchasing your home?
Thereby always operating from firm footing?
Another store would cost you another $650k?

Have worked with various franchises, including pizza, for many years.
PM me as you wish.
j🌺
Last edited by Sandtrap on Wed Jan 19, 2022 8:17 pm, edited 1 time in total.
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gardener7
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Re: Business owner General advice

Post by gardener7 »

I have been a biz owner for 14 years.
Don't underestimate cash flow. Biz owners have a lot more risk/reward than most employees. Cutting cash too close has aged me. Maybe push off retirement for a year or two and build up a rainy day fund.
I started with a Simple IRA though Vanguard. Fees were low and it worked great for about five years. Eventually we moved to a full 401k to have higher contribution limits. Very happy with it.
If I had very few employees and high income I would definitely look at a SEP.
Topic Author
Pizzaguy
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Re: Business owner General advice

Post by Pizzaguy »

MP123 wrote: Wed Jan 19, 2022 5:27 pm
Pizzaguy wrote: Wed Jan 19, 2022 8:02 am Am I making some huge mistake not creating a tax deferred plan through the business?
Probably. But you'd need to consider whether you'd have to make contributions for your employees as well.

Good idea to keep some powder dry in taxable for opportunites that come up, but deferring taxes on a portion of your income would be a good idea. You're likely in the highest bracket for now.

A simple three fund is popular around here, 90/10 doesn't sound unreasonable at your age.
Thanks! I will probably set up something small for a tax deferred account. It could be an expense to the business if I do it right I think. For some reason though the idea of not being able to access my money does not sit well with me.
Topic Author
Pizzaguy
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Re: Business owner General advice

Post by Pizzaguy »

gardener7 wrote: Wed Jan 19, 2022 8:11 pm I have been a biz owner for 14 years.
Don't underestimate cash flow. Biz owners have a lot more risk/reward than most employees. Cutting cash too close has aged me. Maybe push off retirement for a year or two and build up a rainy day fund.
I started with a Simple IRA though Vanguard. Fees were low and it worked great for about five years. Eventually we moved to a full 401k to have higher contribution limits. Very happy with it.
If I had very few employees and high income I would definitely look at a SEP.
New to all of this. I’ve spent the last 8 years saving all my cash to use to open this business. I’ll do some research on SEP’s.
Topic Author
Pizzaguy
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Re: Business owner General advice

Post by Pizzaguy »

Sandtrap wrote: Wed Jan 19, 2022 7:37 pm What are your thoughts on waiting at least 3-5 Years, building up substantial savings and working capital, reducing your leverage by paying down that debt, and also purchasing your home?
Thereby always operating from firm footing?
Another store would cost you another $650k?

Have worked with various franchises, including pizza, for many years.
PM me as you wish.
j🌺
The $650k was for a ground up build. If I wanted to buy an existing store I could probably get in for less if the right deal came along. Definitely plan on paying down the business loan as aggressively as possible for the first 3 years. I can only pay up to 25% of the balance for the first 3 years. I very well could see myself with just one store and if that is the case my goal will be to pay off mortgage and business loan.
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Sandtrap
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Re: Business owner General advice

Post by Sandtrap »

Pizzaguy wrote: Wed Jan 19, 2022 8:43 pm
Sandtrap wrote: Wed Jan 19, 2022 7:37 pm What are your thoughts on waiting at least 3-5 Years, building up substantial savings and working capital, reducing your leverage by paying down that debt, and also purchasing your home?
Thereby always operating from firm footing?
Another store would cost you another $650k?

Have worked with various franchises, including pizza, for many years.
PM me as you wish.
j🌺
The $650k was for a ground up build. If I wanted to buy an existing store I could probably get in for less if the right deal came along. Definitely plan on paying down the business loan as aggressively as possible for the first 3 years. I can only pay up to 25% of the balance for the first 3 years. I very well could see myself with just one store and if that is the case my goal will be to pay off mortgage and business loan.
Congratulations on a sound conservative plan. Maximize net monthly profit minimize debt. Have a business mind and courage.

Have you read “Millionaire Next Door”?
You are on your way!!
J🌺
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Lee_WSP
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Re: Business owner General advice

Post by Lee_WSP »

Pizzaguy wrote: Wed Jan 19, 2022 8:35 pm
gardener7 wrote: Wed Jan 19, 2022 8:11 pm I have been a biz owner for 14 years.
Don't underestimate cash flow. Biz owners have a lot more risk/reward than most employees. Cutting cash too close has aged me. Maybe push off retirement for a year or two and build up a rainy day fund.
I started with a Simple IRA though Vanguard. Fees were low and it worked great for about five years. Eventually we moved to a full 401k to have higher contribution limits. Very happy with it.
If I had very few employees and high income I would definitely look at a SEP.
New to all of this. I’ve spent the last 8 years saving all my cash to use to open this business. I’ll do some research on SEP’s.
An sep requires you match everyone at the same percentage. Don't do it unless you want to give everyone a 25% raise.

Go with a simple IRA.
poker27
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Re: Business owner General advice

Post by poker27 »

The continued tax savings for a deferral will add up, worth the effort to dig into it.

I’m more so interested in this business…. Is the 150-250k figure revenue or profit?
rossington
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Re: Business owner General advice

Post by rossington »

Just my 2 cents here but you've only had the business for @ 2 months, how can you possibly have more than a clue how much you are actually are going to take in?

It doesn't seem like you have enough cash flow.

With all that debt in addition to All of your business expenses : rent, inventory, insurances, payroll, taxes, utilities, advertising, franchise fees, accounting, etc. you may be getting ahead of yourself.

I would give it at least a couple of years and see where the bank account stands then.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
Topic Author
Pizzaguy
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Re: Business owner General advice

Post by Pizzaguy »

poker27 wrote: Wed Jan 19, 2022 10:29 pm The continued tax savings for a deferral will add up, worth the effort to dig into it.

I’m more so interested in this business…. Is the 150-250k figure revenue or profit?
Profit after everything is paid including the bank loan. Will be close to 1.5 mil in revenue
Topic Author
Pizzaguy
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Re: Business owner General advice

Post by Pizzaguy »

rossington wrote: Wed Jan 19, 2022 11:37 pm Just my 2 cents here but you've only had the business for @ 2 months, how can you possibly have more than a clue how much you are actually are going to take in?

It doesn't seem like you have enough cash flow.

With all that debt in addition to All of your business expenses : rent, inventory, insurances, payroll, taxes, utilities, advertising, franchise fees, accounting, etc. you may be getting ahead of yourself.

I would give it at least a couple of years and see where the bank account stands then.
Believe me I do have some concerns for the future but this is a big national chain and sales are surprisingly consistent. I have ran stores for the past 8 years. As long as the management is good (in my case I have one store to worry about so I can make sure of that) I have never dropped sales, my sales have only ever gone up. This is a very proven model and expenses/sales are for the most part very predictable.

Believe me, I do worry about the unknowns but if these stores are operating right, I have only ever seen stable/positive sales. Now I have seen stores go from 30k a week in sales to 17k but that is because of poor management. I won't let that happen :wink:
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Sandtrap
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Re: Business owner General advice

Post by Sandtrap »

Pizzaguy wrote: Thu Jan 20, 2022 7:03 am
rossington wrote: Wed Jan 19, 2022 11:37 pm Just my 2 cents here but you've only had the business for @ 2 months, how can you possibly have more than a clue how much you are actually are going to take in?

It doesn't seem like you have enough cash flow.

With all that debt in addition to All of your business expenses : rent, inventory, insurances, payroll, taxes, utilities, advertising, franchise fees, accounting, etc. you may be getting ahead of yourself.

I would give it at least a couple of years and see where the bank account stands then.
Believe me I do have some concerns for the future but this is a big national chain and sales are surprisingly consistent. I have ran stores for the past 8 years. As long as the management is good (in my case I have one store to worry about so I can make sure of that) I have never dropped sales, my sales have only ever gone up. This is a very proven model and expenses/sales are for the most part very predictable.
You are correct that "management" is the key to the lst store, and especially subsequent stores where the owner is not present. When opening the 2nd and 3rd stores, it might feel as if one has 3 full time jobs, many have said.
From what I have seen (so is different for everyone everywhere) working with about 21 various fanchisees, is that there is a natural business cycle for a new business and also how a business like that (and others) grows in stages (1-3-5 years).

A new business grows well as long as the owner is present to keep up momentum, and because the area is not yet saturated (many customers are new). The owner is the life and heart beat of the business, and face and personality that people return to more than the pizza. (at lst).

As you know, most businesses, especially sole ownership and solely run, fail in the lst year, then between 1-3 years in that cycle.
You obviously are a great owner and store manager.
Keep up the good work as you pay off debt and build up a healthy floor of assets and working capital to expand as you wish (cautiously) in the future.

Note: resist the franchise sales incentives for new stores. Expand on your own time schedule.
Note: consider buying a bigger building on your next purchase so you can lease out additional spaces to other businesses. This gives you stability and starts to diversify your assets and income stream. Choose businesses that are supportive (client stream) of your own business.

j
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Topic Author
Pizzaguy
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Re: Business owner General advice

Post by Pizzaguy »

Sandtrap wrote: Thu Jan 20, 2022 7:14 am
Pizzaguy wrote: Thu Jan 20, 2022 7:03 am
rossington wrote: Wed Jan 19, 2022 11:37 pm Just my 2 cents here but you've only had the business for @ 2 months, how can you possibly have more than a clue how much you are actually are going to take in?

It doesn't seem like you have enough cash flow.

With all that debt in addition to All of your business expenses : rent, inventory, insurances, payroll, taxes, utilities, advertising, franchise fees, accounting, etc. you may be getting ahead of yourself.

I would give it at least a couple of years and see where the bank account stands then.
Believe me I do have some concerns for the future but this is a big national chain and sales are surprisingly consistent. I have ran stores for the past 8 years. As long as the management is good (in my case I have one store to worry about so I can make sure of that) I have never dropped sales, my sales have only ever gone up. This is a very proven model and expenses/sales are for the most part very predictable.
You are correct that "management" is the key to the lst store, and especially subsequent stores where the owner is not present. When opening the 2nd and 3rd stores, it might feel as if one has 3 full time jobs, many have said.
From what I have seen (so is different for everyone everywhere) working with about 21 various fanchisees, is that there is a natural business cycle for a new business and also how a business like that (and others) grows in stages (1-3-5 years).

A new business grows well as long as the owner is present to keep up momentum, and because the area is not yet saturated (many customers are new). The owner is the life and heart beat of the business, and face and personality that people return to more than the pizza. (at lst).

As you know, most businesses, especially sole ownership and solely run, fail in the lst year, then between 1-3 years in that cycle.
You obviously are a great owner and store manager.
Keep up the good work as you pay off debt and build up a healthy floor of assets and working capital to expand as you wish (cautiously) in the future.

Note: resist the franchise sales incentives for new stores. Expand on your own time schedule.
Note: consider buying a bigger building on your next purchase so you can lease out additional spaces to other businesses. This gives you stability and starts to diversify your assets and income stream. Choose businesses that are supportive (client stream) of your own business.

j
Thanks J! I am definitely weary of growth because I have seen quality drop in this business in almost every franchisee who has expanded. It is really the main reason I am looking into investing/real estate etc... I know I'm not there yet but I am always looking for the "next challenge".

If you don't mind me asking, you said you worked with franchisees. Are you a CPA?
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Sandtrap
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Re: Business owner General advice

Post by Sandtrap »

Pizzaguy wrote: Thu Jan 20, 2022 7:33 am
Sandtrap wrote: Thu Jan 20, 2022 7:14 am
Pizzaguy wrote: Thu Jan 20, 2022 7:03 am
rossington wrote: Wed Jan 19, 2022 11:37 pm Just my 2 cents here but you've only had the business for @ 2 months, how can you possibly have more than a clue how much you are actually are going to take in?

It doesn't seem like you have enough cash flow.

With all that debt in addition to All of your business expenses : rent, inventory, insurances, payroll, taxes, utilities, advertising, franchise fees, accounting, etc. you may be getting ahead of yourself.

I would give it at least a couple of years and see where the bank account stands then.
Believe me I do have some concerns for the future but this is a big national chain and sales are surprisingly consistent. I have ran stores for the past 8 years. As long as the management is good (in my case I have one store to worry about so I can make sure of that) I have never dropped sales, my sales have only ever gone up. This is a very proven model and expenses/sales are for the most part very predictable.
You are correct that "management" is the key to the lst store, and especially subsequent stores where the owner is not present. When opening the 2nd and 3rd stores, it might feel as if one has 3 full time jobs, many have said.
From what I have seen (so is different for everyone everywhere) working with about 21 various fanchisees, is that there is a natural business cycle for a new business and also how a business like that (and others) grows in stages (1-3-5 years).

A new business grows well as long as the owner is present to keep up momentum, and because the area is not yet saturated (many customers are new). The owner is the life and heart beat of the business, and face and personality that people return to more than the pizza. (at lst).

As you know, most businesses, especially sole ownership and solely run, fail in the lst year, then between 1-3 years in that cycle.
You obviously are a great owner and store manager.
Keep up the good work as you pay off debt and build up a healthy floor of assets and working capital to expand as you wish (cautiously) in the future.

Note: resist the franchise sales incentives for new stores. Expand on your own time schedule.
Note: consider buying a bigger building on your next purchase so you can lease out additional spaces to other businesses. This gives you stability and starts to diversify your assets and income stream. Choose businesses that are supportive (client stream) of your own business.

j
Thanks J! I am definitely weary of growth because I have seen quality drop in this business in almost every franchisee who has expanded. It is really the main reason I am looking into investing/real estate etc... I know I'm not there yet but I am always looking for the "next challenge".

If you don't mind me asking, you said you worked with franchisees. Are you a CPA?
Yes. You're correct. I have seen this as well, often. Eventually, the profits from the anchor store go to support the 2nd store and beyond.

Businessman, R/E developer, commercial builder G.C., property mgt co.
thankfully retired.
j :D
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aristotelian
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Re: Business owner General advice

Post by aristotelian »

Whether or not you decide to do an employer plan for the business, you can do Roth IRA for yourself and spouse (using backdoor method if your income is too high to qualify for direct contributions).

What does it mean that spouse is sales associate but not on payroll? The max you can contribute individually pretax is $20.5k which would save you about $5-7k in taxes depending on your tax bracket. I believe you could double that if she is also an employee. With 401k, you do not need to offer an employer match if you don't want to, but if you do it has to go to all employees. You would just need to weight the admin costs of the program against that tax savings.
Last edited by aristotelian on Thu Jan 20, 2022 7:52 am, edited 1 time in total.
poker27
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Re: Business owner General advice

Post by poker27 »

Pizzaguy wrote: Thu Jan 20, 2022 7:00 am
poker27 wrote: Wed Jan 19, 2022 10:29 pm The continued tax savings for a deferral will add up, worth the effort to dig into it.

I’m more so interested in this business…. Is the 150-250k figure revenue or profit?
Profit after everything is paid including the bank loan. Will be close to 1.5 mil in revenue
Is there a catch? Idk anything about casual restaurants, but this seems like an amazing deal. Where can I sign up? :sharebeer
Topic Author
Pizzaguy
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Re: Business owner General advice

Post by Pizzaguy »

poker27 wrote: Thu Jan 20, 2022 7:51 am
Pizzaguy wrote: Thu Jan 20, 2022 7:00 am
poker27 wrote: Wed Jan 19, 2022 10:29 pm The continued tax savings for a deferral will add up, worth the effort to dig into it.

I’m more so interested in this business…. Is the 150-250k figure revenue or profit?
Profit after everything is paid including the bank loan. Will be close to 1.5 mil in revenue
Is there a catch? Idk anything about casual restaurants, but this seems like an amazing deal. Where can I sign up? :sharebeer
10% profit margins are pretty common especially for single store owners. I could probably squeeze 15-20% if I wanted too. I don’t know about other chains. But I would assume if in a decent location and run right 10% shouldn’t be too hard.
Again, this is a big chain QSR.
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Pizzaguy
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Re: Business owner General advice

Post by Pizzaguy »

aristotelian wrote: Thu Jan 20, 2022 7:50 am Whether or not you decide to do an employer plan for the business, you can do Roth IRA for yourself and spouse (using backdoor method if your income is too high to qualify for direct contributions).

What does it mean that spouse is sales associate but not on payroll? The max you can contribute individually pretax is $20.5k which would save you about $5-7k in taxes depending on your tax bracket. I believe you could double that if she is also an employee. With 401k, you do not need to offer an employer match if you don't want to, but if you do it has to go to all employees. You would just need to weight the admin costs of the program against that tax savings.
Sorry for the confusion she has another job currently as a sales associate. She dropped her hours to part time when we opened.

She has been working at the store with me just not getting paid.

We were unsure how much/how long she would be working with me at the start. But she enjoys it and I enjoy having her there.
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Re: Business owner General advice

Post by aristotelian »

Pizzaguy wrote: Thu Jan 20, 2022 8:05 am
aristotelian wrote: Thu Jan 20, 2022 7:50 am Whether or not you decide to do an employer plan for the business, you can do Roth IRA for yourself and spouse (using backdoor method if your income is too high to qualify for direct contributions).

What does it mean that spouse is sales associate but not on payroll? The max you can contribute individually pretax is $20.5k which would save you about $5-7k in taxes depending on your tax bracket. I believe you could double that if she is also an employee. With 401k, you do not need to offer an employer match if you don't want to, but if you do it has to go to all employees. You would just need to weight the admin costs of the program against that tax savings.
Sorry for the confusion she has another job currently as a sales associate. She dropped her hours to part time when we opened.

She has been working at the store with me just not getting paid.

We were unsure how much/how long she would be working with me at the start. But she enjoys it and I enjoy having her there.
If you do a 401k you should certainly pay her and contribute her salary up to $20.5k to her account!
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Re: Business owner General advice

Post by abuss368 »

Pizzaguy wrote: Wed Jan 19, 2022 8:02 am Summary - Just looking for ideas/opinions.

Back story: I have worked for a national pizza chain since college, and I finally opened my first store November 22, 2021 :D . We took out an SBA loan of $650k to accomplish this. We own the land and building as well. For building a new store the Franchisor gave a $150k incentive which will be paid back as a break in royalties and advertising until $150k is recouped. This is why income will be very high year one.

Demographic Information

Age: Both 30
Kids: 0 but planning on 2/3 within the next 5 years.
Location: Alabama
Taxes: MFJ Business is an S corp
Businesses: Real Estate company which "owns" the land and building. Pizza company pays real estate company rent. Real estate company pays back loan, rent payment is the loan payment ~$4,650 a month.

Current Jobs:
Me: I own one Pizza franchise. (One location) Salary - $50k The Business should bring in ~ $300k - $400K this year, after year one it will fall too ~ $150K - $250k because the incentive will be recouped.
Wife: Part time sales associate. ~ $20k a year. (She also works with me at the store, we have not added her to payroll yet.)

Debts
$650k business loan over 20 years 6.5% rate (Can only pay back 25% of loan for the first 3 years without paying penalty.

$50k Student loan debt between us both. (I am about to pay this all off at once). (We had ~50k left over from loan and we have made about $50k since opening). Paying this off will still leave 50k+ in the business.

Mortgage - $625 a month bought the house for $104,000 5 years ago, owe $89,000.

Looking for ideas/advice

I am opening a vanguard account, but I am opening a taxable account instead of doing a tax deferred plan. My reasoning behind this is I am a risk taker (hence opening a business). There may be opportunities and I would like the ability to access my cash. (Opportunities could be opening more stores... buying rental properties etc...

We are about to move into a rental for a year or two until we can buy/build a home we will be in long term. In the meantime, we plan on renting our current house.

I plan on paying the max amount towards the business loan each year for the first 3 years. Year one 167k year two 120k year 3 100k.

Questions

Am I making some huge mistake not creating a tax deferred plan through the business?

Is there some better place to park my money than a taxable vanguard account?

I plan on putting most of my money in some sort of 3 fund portfolio. Probably with an asset allocation of 90/10.

Any other ideas that some of you may have please let me know. Would love to hear lots of different options.

Thanks for reading!
Welcome to the forum!

* I would focus on deleveraging and building equity as quickly and efficiently as possible.

* SBA loans. I believe these loans require putting up your primary residence as collateral correct? If so, that is incentive enough to pay the loan down and possibly refinance in a few years in an effort to remove the home as collateral.

* I would consider hiring Vanguard Personal Advisor Service (PAS) to manage your portfolio. You have many questions and a learning curve ahead. In my opinion you should consider focusing all your attention and energies on building the business and not on learning investing right now. Learn investing over time while partnering with a qualified low cost advisor (who is not compensated with commissions). Vanguard does just that.

Best.
Tony
John C. Bogle: “Simplicity is the master key to financial success."
LFS1234
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Re: Business owner General advice

Post by LFS1234 »

gardener7 wrote: Wed Jan 19, 2022 8:11 pm I have been a biz owner for 14 years.
Don't underestimate cash flow. Biz owners have a lot more risk/reward than most employees. Cutting cash too close has aged me.
+1

This deserves to be emphasized. There always needs to be a "plan B" not only to be prepared for business-specific setbacks, but also for systemic risks.

Every few decades, parts of the financial system just freeze up. Credit lines, including well-secured home equity lines and credit cards, are summarily cancelled. Money is nowhere to be found. This can happen suddenly, and when it does, you don't want to be the one without a chair when the music stops. You can expect this to occur at least a couple of times during your working life. But you can't predict when.

So to the OP: Don't cut it too close on cash, and don't get into a situation where you can't survive the non-renewal of a loan.

It sounds like you are getting into a good business and are well-prepared for what you're doing. There are lots of opportunities ahead. Just never get into a situation where you can be "multiplied by zero".

Best of luck!
Topic Author
Pizzaguy
Posts: 13
Joined: Wed Jan 19, 2022 7:27 am

Re: Business owner General advice

Post by Pizzaguy »

LFS1234 wrote: Fri Jan 21, 2022 3:13 am
gardener7 wrote: Wed Jan 19, 2022 8:11 pm I have been a biz owner for 14 years.
Don't underestimate cash flow. Biz owners have a lot more risk/reward than most employees. Cutting cash too close has aged me.
+1

This deserves to be emphasized. There always needs to be a "plan B" not only to be prepared for business-specific setbacks, but also for systemic risks.

Every few decades, parts of the financial system just freeze up. Credit lines, including well-secured home equity lines and credit cards, are summarily cancelled. Money is nowhere to be found. This can happen suddenly, and when it does, you don't want to be the one without a chair when the music stops. You can expect this to occur at least a couple of times during your working life. But you can't predict when.

So to the OP: Don't cut it too close on cash, and don't get into a situation where you can't survive the non-renewal of a loan.

It sounds like you are getting into a good business and are well-prepared for what you're doing. There are lots of opportunities ahead. Just never get into a situation where you can be "multiplied by zero".

Best of luck!
Thank y’all! The number I think of for cash on hand in the business is 50k. This would cover loan payments for a year. ( loan payments will go down each year as I pay down the loan).

I can also impact one of my biggest cost (labor) by how much I’m willing to work. With one store this is not an issue as I don’t see myself stepping back anytime soon.

Is there a formula or rule of thumb for how much y’all would recommend keeping in free cash? I realize this is very specific to each business but is there some broad or general formula you all have used?
smitcat
Posts: 13300
Joined: Mon Nov 07, 2016 9:51 am

Re: Business owner General advice

Post by smitcat »

Pizzaguy wrote: Thu Jan 20, 2022 8:01 am
poker27 wrote: Thu Jan 20, 2022 7:51 am
Pizzaguy wrote: Thu Jan 20, 2022 7:00 am
poker27 wrote: Wed Jan 19, 2022 10:29 pm The continued tax savings for a deferral will add up, worth the effort to dig into it.

I’m more so interested in this business…. Is the 150-250k figure revenue or profit?
Profit after everything is paid including the bank loan. Will be close to 1.5 mil in revenue
Is there a catch? Idk anything about casual restaurants, but this seems like an amazing deal. Where can I sign up? :sharebeer
10% profit margins are pretty common especially for single store owners. I could probably squeeze 15-20% if I wanted too. I don’t know about other chains. But I would assume if in a decent location and run right 10% shouldn’t be too hard.
Again, this is a big chain QSR.
One of the advantages of Franchise ownership is the ability to ask and mine data across the system of all stores. This can typically occur in a number of ways including but not limited to:
- working with the online data that is available to owners
- working with your assigned franchise rep
- working with your formal or informal local area owner's group
- identifying/collecting and working with an owners group you form on your own
Most of the questions you are asking would be best handled with one or more of the above methods from data already available in your exact field and collected by sucess rate and area specific.
Some franchise chains can see typical profit numbers from 10-25% dependent upon the business and area of operation but its best to keep in mind they can also be both negative and higher.
Hope for great things in your future.
ZWorkLess
Posts: 425
Joined: Thu May 04, 2017 8:13 pm

Re: Business owner General advice

Post by ZWorkLess »

First, a warning. We are business owners and we also started out with huge business acquisition debt. Right around the same ballpark as you (a bit higher) but 14 years ago. So, it was a lot. We were paying it down on about a 10 year schedule for half of it and about a 20 year schedule for the other (RE) half. We didn't realize until our first tax season that all that debt pay down counts as income to you. So, if you pay down 150k in debt the first year, that entire 150k of principal pay down is added to your regular income. So, it may FEEL like you're earning 100k, but actually, per the IRS, you're earning 250k. Meaning your tax bill will be large and your deductions (child credit, student loan payment, etc) disappear for the most part. Meaning your actual tax bill will be a lot, lot higher than you are used to. Be sure you talk this issue through with your CPA and plan for it. Our first few tax seasons were really gut wrenching and included lots of juggling of credit cards to pay the bill and at least once, we went on an IRS payment plan and a state payment plan, too.

Second, set up a SIMPLE IRA, but not yet. This year, bank your extra cash (in a bank, under the mattress, or in a taxable account, just don't spend it) until you see your tax bill for your first full year of ownership. Once you are sure you understand your taxes AND you understand your cash flow as an owner (which you should be the end of a year or two), THEN open a SIMPLE IRA. That's the easiest and cheapest way to start saving for retirement as a small business owner, IME. Call Vanguard (or Fidelity or whoever you like), & they'll walk you through it.

Trust me on banking your excess cash right now. Personally, I'd also avoid paying off those student loans for another year or so. Let the cash accumulate until you are certain you understand your tax bills and how your cash flow will go for the next few years of early ownership.
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