Adventures with lyrical - buying a business

Lyrical said:

You can"t work on your business, if you are working in it.

Click to expand...

I get this, I really do, but adding an employee would be adding complexity and cost which may not add revenue aside from making my life easier.

Lyrical said:

Simply put, how can you expand your hustle? This is when you take all of that book learning and put it to use. You have a lot of brainpower, you just need to focus it all into how you can make more cash. If you"ve go to do something all day, at least you can wok on lining your pockets.

Click to expand...

Unfortunately becoming a bigger cattle operation means getting your hands on more land, which is nearly impossible to do these days. Land doesn"t come up for sale or lease often, and when it does it tends to go to friends and neighbors or to rich people who want a recreational place and are willing to pay many times what you could pay if the place needed to pay for itself. Some of the people in the neighborhood are getting older and don"t have kids that want to come back and work the ranch so it"s possible that there could be some opportunities for expansion down the road but I don"t know how some of them would look at me as a prospective lessee due to my relatively small amount of experience.

It"s kind of sad but it"s likely the best way for this place to generate cash would be to sell it and invest the money. That"s not an option though, I am the 5th generation on this ranch and selling it would be like losing a family member.

Another issue that I have is that a lot of the book learning I have is regarding ways to design electronic circuits and while I think that learning to think like an engineer has been extremely helpful in this job, I don"t know much about business and I don"t have any formal education in agriculture either. It might be possible for me to take a class or two at the junior college, but I have my doubts about the quality of those classes. I guess I haven"t looked into online classes from one of the universities. I"m not interested in earning a degree, but there might be certain classes, particularly on marketing, that could be worthwhile.

When I first started 4 years ago I had to do literally everything the hard way and call my neighbors several times a week to ask questions. While I"m still far from an expert, it"s finally getting to the point now that I am getting a handle on the diverse things to know about the business so the next step is to try to streamline things and get to the point where I don"t have to kill myself to stay even and maybe even make a few bucks. I have made a few upgrades, adding pipelines and solar wells to improve the efficiency of pastures and bought some equipment that will help me get more done in the time I have and I hope that will pay some dividends and there is more to do along those lines.

I"m not really trying to build an empire, and I don"t want to stop doing ranch work and be a full time manager. I have known a couple guys that have done this with tons of debt but the only ones that have really gotten rich are the ones that got their hands on land near a city and got it zoned for development, which is kind of the antithesis of being a rancher. On top of that agriculture always has two huge variables which are the weather and the markets which makes it very scary to go into debt when your annual paycheck can vary fairly drastically based on those two things that are largely out of your control.

I do have some debt from having to buy out my aunt"s share of the ranch but many of my neighbors wind up having to borrow money for almost all of their expenses during the year and pay it off with the calf check when it comes in and I have been able to avoid that which saves me a lot of interest. Because of the value of the land, bankers are happy to give you plenty of rope to hang yourself with since they know that they will get paid if you run the place into the ground and wind up having to sell.

I don"t know if anyone is really interested in reading this stuff, but it"s kind of useful to type it out so say so if you would like me to stop shitting up your thread.

Is there a product similar to crop insurance that allows you to smooth out earnings?

I am just a hair below 500 cattle at the moment, and yes I think if I could find a lease to run 100ish more cattle on that would make the numbers work out a lot better. Financially the place is really pretty solid right now thanks to very good cattle prices the last couple years but if prices were to go back to say, 2009 levels I would be hurting. I will be looking for a lease but buying more land is just not practical unless you can afford to lose a lot of money on it for the 20 years or so it will take to pay it off because the cattle just aren"t profitable to make the mortgage payment at current land prices.

For right now I can get part time help from several places. My Mom helps out a lot during the summer (she is a school teacher) but she is 60 so who knows how long that will last. We also have a couple that lives in one of the houses on the ranch and rather than charging them rent we let them stay there and they help me out from time to time. It is a pretty good setup although not quite the same as a hired man as I am not really their boss and there isn"t a set number of hours that they work for their rent. Some months they put in quite a few hours on the weekends and some they don"t do much of anything but there"s not a huge demand for a rental house that"s 50 miles from town and I really rely on them during certain parts of the year so that deal works out pretty well for me. In addition to this, my brother and a few other family members come down to help me out sometimes and there are several city people that enjoy coming out and "playing cowboy" during big jobs like branding and weaning. They aren"t the best help sometimes, but the more times they do it the better they get. I can see though, that 10 years down the road when I am 45 and my Mom is 70 and who knows what will be going on with our renters, I may have no choice but to have someone working for me full time.

With regard to insurance, there is a fairly new product for insuring pasture land based on rainfall. It"s very expensive though, and the payoff is suspect. This year was the dryest year we have had since 2004 and I bought insurance for March, April, and May at the rate of about $5000 and they wrote me a check for $300. My neighbors that I have talked to are similarly unhappy with it and we may drop it next year.

Regular crop insurance does help out though as I try to raise all my own hay. The hay crop was pretty shitty this year but my insurance payment was about $1000 short of what I had to spend buying hay for this winter so I was very satisfied with that purchase. We also have about 400 acres of dryland grain fields but I decided this year to phase that out in favor of growing more hay. The grain only turned a profit in 1 out of the last 4 years and it takes pretty ideal weather conditions to make a decent crop on my fairly low quality soil. The hay is much less labor intensive and on bad years it will keep me from having to buy feed and give me some to sell on good years.

Erronius said:

Farming/ranching is, imho, different than most other occupations. It"s a motherfucker just trying to stay ahead of what I think of as"decay creep"- things like fencing going to shit, keeping land cleared (we have some acreage we haven"t grazed in many years and it"s already overgrown with cedar and hedgeapple), keeping outbuilding together, equipment running...etc etc etc.

Click to expand...

Maintenance is a huge part of how I spend my time. We have ~50-60 miles of barbed wire fence to fix, some of which is probably 100 years old, 25ish water tanks with wells, spring boxes, windmills, solar panels, electric pumps, pipelines, etc., a dozen pieces of farm equipment that is all 20 years old, pickup trucks, ATVs, 3 houses, half a dozen sets of corrals, 8 or 10 assorted trailers, etc. I always say that if I had a guy that did all my regular work I could keep busy full time just fixing stuff. It seems like there is always something that has a flat tire or needs an oil change. I have had to learn plumbing, electrical, mechanicing, welding, etc. since moving back but I am lucky to be pretty handy at that sort of thing and that"s where my engineering background has really helped me I feel along with a fair amount of help from my awesome neighbors.

The aforementioned aunt is the only one taking a chunk out that is not contributing. She and her husband lived on the ranch when I was a kid and her husband worked here for 18 years so they were given some pretty significant shares. This was a perfectly fine situation until the two of them got divorced and now the husband is working on "her" ranch and so it all blew up, he was out of a job and a home, and she wanted out and her shares bought out.

It was initially about $400K which turned out to pretty much be a financial disaster for the ranch and an emotional disaster for the family as she and my Mom have 2 other sisters that had agreed to forgo their part of the inheritance in the interest of keeping the ranch intact and her getting that chunk of money and possibly forcing the sale of the ranch in the process did NOT go over well with them. I could write a fucking book about what a disaster that was.

We have the financial side of that under control now due to the sister forgiving roughly $70,000 of the original amount and my Mom dumping my Dad"s $100,000 life insurance policy into it after he died. We financed the rest of that as a ~$200K note with the bank which isn"t the greatest considering the fact that it"s a major expense that provides no benefit to the ranch but at least it"s under control and I"m not financially involved with any insane family members anymore. The sisters still don"t talk to each other but that"s not my problem.

The only remaining interests now are my Mother and Grandmother. Grandma gets a small pension and lives in a house owned by the ranch in town. I don"t begrudge her this at all as she spent her whole life on the ranch and she and my grandfather made it what it was. She is also 87 so that will not continue forever. My Mom doesn"t take a salary from the ranch but she lives in one of the ranch houses and gets groceries on the ranch account, the ranch pays for part of her car, etc. It"s frankly less than she deserves for the time she puts in doing the books and working pretty much full time during the summer and on lots of weekends but she gets by on her teacher"s salary and is dedicated to the ranch being successful.

My brother and sister have agreed to me inheriting the ranch and them getting a small property in town that my Mom inherited from my Dad"s parents. This is grossly unfair in the sense of dollars per kid but with the time I am putting in at the ranch and their own desire to keep the place in the family they are okay with it.

Family farms/ranches can be and often are an absolute disaster. I see it all around me all the time. I know people who are in their 60s, have spent their whole lives on the ranch, and have kids moving back who have their father"s will hanging over their heads and he refuses to even tell them what it says. If he decides to divide the place between his kids equally they will owe 3/4 of the value of the ranch to their siblings and the place that they worked their whole lives on and planned to be a legacy to their kids will be sold for the benefit of the siblings. I have seen many families and business ruined, sometimes simultaneously, by the drama of passing the ranch to the next generation. I think we pretty much have a handle on that for this generation, but then my Mom thought the same thing and that still managed to blow up. Being in business with family can really be a bitch.

I found a retail rental property that was too good to be true..... It"s on a busy road I wanted to be on. and it"s half the price of any other location on the road.

The problems.... Parking. Limited parking like 5 spaces available. The other bombshell that I found out is the property is for sale. The agent says it"s been on the market for "quite a while" with no interest in it so far. Hes saying that even if someone was interested in buying it today for redevelopment, it"d take at least a year and more likely 2 before I"d be moving out.

As a startup business, do I consider it anyways?

What I need is 1000 sqft or so at the minimum. On average I don"t expect more than 3-4 cars of people in my store at one time. Also parking is available next door at like an auto zone etc. So I don"t think customers would have to skip going into my store, just parking next to it instead of infront of it.

This property is 3000 sqft. 2000 sqft is open for retail etc. The last 1000 sqft is offices. Could be used as an office and storage space etc. The perk of this property is that it"s $1500 a month for 3000 sq ft.

The other property I"m looking at is 1500 sqft for $1800 a month. It also has a parking issue. It has a shared lot with many tenants and can become full at peak times.

As I"m typing this post, an email from the realtor came through. I can get a 1 yr lease for sure, with a possibility of a 2 year lease at that rent, but if it sells I"d get several months heads up and wouldn"t be locked into the lease obviously.

It feels like a decent decision. Stay there for the first 2 years, getting a large space for cheap rent. Then moving if I have to once the business is proven? Or is this just an absolute nail in the coffin?

Theres also the possibility that this place never sells. I"m guessing after lets say the 2 year lease agreement, rent would get a raise. By then I"m either going out of business or thriving and can pay closer to what the market is asking.

Corndog - what type of business are you planning on opening?

and Blazin, what type of business are you in?

Brutal, I know jack shit about the cattle business, but is it true that almost all the beef we eat comes from like 2 or 3 companies, like Cargill? So it makes it hard for smaller ranchers like yourself? Also, again this just be my naivety talking, but what about switching to other animals? I keep hearing that buffalo is very profitable, but then again I"ve never looked into it myself. [edit] and I have to ask, why did you switch back to ranching? It sounds like a nightmare with all the family drama, and you took a paycut. It doesn"t sound like it"s worth the hassle, so I hope you are getting something out of it.

I"ll be opening an aquarium only pet store. Freshwater fish only. I have run a fish store for the past 5 years. Doing everything except taking money to the bank. I paid taxes, all ordering, found vendors, basically rose our revenue by about 30% above the 5 years before I was here. The problem is the current owner is not a business person. He puts 20 hours into the business a week. I do the rest.

The business is in a small town of only 5 buildings. People drive 30+ minutes to get to us because we have the best product around. Healthy fish. He"s slowly bleeding himself dry. The business makes between 5k and 8k a month. With the rent/power being about 2k of that. It doesn"t quite cover all his home bills plus my salary. So his mom bails him out every 6 month with like a 5k infusion of cash.

In years 2 and 3, I really busted my ass, and brought sales up to where 8K and up were the norm. All that did was make him hire someone to cover the 3 days he had to work. So he didn"t come in at all. This hurt the business, and my morale. Whenever I"ve done well for the business the money is taken away from the business and not reinvested. Instead of payin goff back bills like power and b&o taxes, he was buying toys. One month he bought 2 laptops because they were good deals. And a new iphone etc. So clearly busting my ass to improve the business only improved his home life.

Without trying to be too cocky in the industry. I"ve been head hunted by other stores to come in and manage their stores. But no one can really retire in this industry managing someone elses store. The pay just isnt there. However the profit margins are huge. Tropical fish are at least tripled. Dry goods are at least doubled. Working with livestock, if you can keep it alive and healthy there is huge profit. Most stores can"t keep their stock a live and healthy because they won"t pay more than minimum wage to their employees and turnover rate is high.

My business is to keep knowledge high in the store. And keep the live stock a live and healthy like I currently do at the place I manage. It"s not that difficult it just takes practices that people skip. For instance most stores clean the tank when there is a problem. We clean the tank EVERY time a fish is going to go into it. It doesn"t matter if we brought fish in yesterday and sold out today. We"ll clean it today and put fish in it tomorrow.

Yes a tank would be fine to put fish in it, if it was cleaned 2 days ago. The problem is, when hundreds of tanks, often times you forget exactly when it was cleaned. Oh yeah, that one we cleaned like a week ago. Turns out it was 3 weeks ago. The new fish that came in have a value of $50 wholesale. But they die. That actually costs us $150 retail. Because now we"re without fish in that tank for a week.

Most of our competitors, just slice bags open with a razor blade and poor out the fish into the tank. This shocks the fish and releases all the ammonia build up in the bag to the tank putting stress on it too. We acclimate fish over the coarse of an hour to every tank. This takes more time, but takes your new fish sick rate from 50% to 10%. It only costs the business about 20 minutes in time. So, 1/3 of a working hour, to give a 90% chance the fish will be saleable the next day.

On top of that, most stores use a centralized filtration system. All the tanks share water. Disease spreads as if someone had the flu on an airplane. In ours, all of our tanks are indipendant. Further reducing losses.

My shop I"m setting up will also have auto matic water changes and top off. Each day 10% of the water in every aquarium will be changed. This won"t stop the need for cleaning but it will keep them healthier. It also lets you hit a button and fill all the tanks you"re cleaning etc.

I"ve watched 3 stores in my state that had been in business for 12-30 years go out in the last 6 months. Being a luxury business, the times have been good around here until the last 1.5 years or so. Sales have dropped for everyone accross the board. Many of the owners haven"t downsized and maintained their lifestyle. 3 of the stores failed so far. A store that used to have 5 busy employees all at the same time, now has 4 sitting there, with only 2 busy. They"re not downsizing fast enough. I went into Petsmart yesterday at 2pm. There were 3 employees and a manager for the whole store. And were all busy and people had to wait. This store is 10x as big as any fish store, yet shares the same employee base. Petsmart knows wage cost kills them. The mom and pop shops don"t get it.

Lyrical said:

Be real, you"ll do the same when once you get established. It is the way of things.

Click to expand...

It"s not the buying toys that kills me. It"s the buying 2 laptops and a iphone the same month you"re 3 months late on your B&O taxes and PUD. He also racks up several hundreds of dollars a year in overdraft charges at the bank, due to him being lazy putting money in there. Customers complain saying their checks haven"t been cashed that were written 6 weeks prior etc.

Obviously the end goal for every business owner is to get to a state where you can step away from the business from full time to enjoy life. He"s just doing it prematurely.

Lyrical said:

How are you financing this?

Click to expand...

Financing is 50k cash from a friend, and an additional 50k at the 1 yr mark. He"s written into the LLC as a Angel Investor. 25% silent partner owner.

He"s a friend who lives a couple hours away who is managing a large tire chain store. He works 12+ hour days and has been socking away money maxing out retirement funds etc. On track to retire at 45. He wanted to diversify his savings and wants to try investing in my business.

We"re aware that going into business with friends/family is a bad decision as if it doesn"t go well it ends the relationship.

Planning has been going on for roughly 2 years. Before that we joked and toyed with the idea of opening the store. Then got serious about it. I"ve bought 2 other stores who went out of business getting their equipment for super cheap.

Through aquiring used stuff and buying things over the past year when the deals hit. The entire build out should be less than 10k. I already own all the aquariums. Have the custom steel stands ready to be made by a different friend once the location.

Few hundred aquariums are in storage already. Paying $65 a month to store them. Cheap because it"s up a flight of stairs

So far I"ve spent about 3k, With another 3k to finish off the build out. That leaves ~40k for operating expenses like my salary, buying stock etc. To give perspective. The current store I manage spends 1000-1500 a month buying dry goods and fish.

Obviously you should always plan for failure. The opperating cost to pay me, utilities, rent etc. is about 4k a month. That"s only 6 months worth of a barrier if I manage to kill all the livestock several times and make bad buying decisions etc.

This would mean I"m banking on my experience to not make those mistakes. Assuming I spend 5k for initial stock. I could go on without having a single customer for 9 months or so. This seems very unlikely.

The reality is, I dont have enough equity etc to start a business on my own with a loan etc. Also a loan can be crippling to a small business.

I"ve got tons of insider knowledge. Know all the wholesalers on a first name basis. Know all my competition and am on good terms with them. The local fish club that is one of the largest in the country, I"ve been active and on the board of directors for for the past couple of years.

Everyone one I know for years before this have questioned why I didn"t just go into business for myself. It"s the risk. Taking out huge loans then failing, can hurt you pretty bad in life. This way is taking out a lot of the risk. My risk is a friendship. Which is less than financial ruin personally.

I"m scared and second guess myself every day. It"d be so easy to just get a job somewhere making a decent wage in a different industry. But I also feel like I can make this work.

I"m hoping that I"m humble, scared, and careful enough to get me through the rough times. Being able to identify a store model that doesn"t work then watching it go down within the next year has helped me. I"ve also sat many hours outside competitor stores and been inside analyzing what is making them work, what is killing them etc.

The stores that are doing well right now, are the ones who cater to their target customers. My target customer is an average working joe between 30 and 50 yrs old. He"s stuck in the grind and wants to buy something exotic for less than $50 bucks on payday. Most fish stores are only open until 6pm in my state. This means all their business is happening on the weekend. There are a couple of mom and pop shops open till 8 and 9pm, and you"d be shocked how busy they are between 7pm and 9pm. The average Joe can find some food, then go shopping.

TLDR: Scared to death. Hoping that being scared is a good thing when opening a business and being cocky would lead me to overbuy etc.

Lyrical said:

Don"t go into business with family.

Click to expand...

I don"t really agree. While me and my brother don"t always get along great, and we"re most definitely not close (I would never call him up and be like "hey want to go for a beer?", as we have never done such a thing socially), I can trust him 100% and vice versa. I never have to worry that he"s going to steal from me or the company, or really do anything that"s not in our best interests overall. My dad and one uncle had a similar relationship, however their youngest brother had to go out and start his own company as he couldn"t get along with the two older brothers.

That"s not always the case with people and their family/friends, I agree. I guess we"re both lucky that way. I agree that involving family/friends as professionals such as your lawyer or accountant is a bad idea. Because if they fuck something up that costs you a lot of money or worse, you don"t want to worry about pissing off family because you"re suing a cousin or uncle or something. My dad had a bad experience with a brother in law being his lawyer, and swore he"d never make the same mistake again.

Corndog, being scared is normal, I would question you if you weren"t at all =) Honestly, if you aren"t scared, that means you haven"t done your due diligence, I think once you realize how much things cost, it can be very daunting. It"s the people that go into business without a though into how much things are going to cost or how much they realistically expect to make that are most likely to fail.

You have your emergency fund in place, which is good, and you have though out your expenses well. I don"t know if you have calculated out your projected income, either you didn"t mention it or I missed it. You did say that the place you currently work at brings in about 8k a month? But that is at an established place of business, with a working clientele, you will be starting fresh, and although you can expect some poaching from your old place of employment, you should obviously project lower to start.

Two things give me pause. One is that your are in a very small town, with apparently only 5 commercial buildings in it? That"s tiny. That means your potential clientele is small. You mentioned people travel miles to come to your area, but you need to figure out what your capitated growth is for your area. The current place you work at, how many clients do they have? What"s the growth rate of clients year-to-year? What about revenue/client, how has that changed year-to-year? If it"s gone flat, then the current business is at it"s maximum revenue, barring any changes. How do you expect your business to do compared to that? Also....the larger city they drive from.....is there no good fish store there? If a good fish store was to open in the city, how largely would that affect your business? Would you be able to survive if you could no longer draw customers from that city? Would you be better served to open up your store in the city instead?

The second is your space. You mentioned it"s $1500 for 3000 sq ft, but you only need about 1000 sq ft. So even though it"s cheap, don"t get more space than you need. Every sq ft is going to cost you. What are your CAM fees? Are they included in the $1500 figure? I doubt it. You will be paying more for space that you won"t even utilize efficiently. Also, what about the taxes? Are you going to be responsible for them? Bigger space....bigger taxes. Ideally you want to build out in the most efficient space possible, so if it"s going to be 1000 sq ft, get 1000 sq ft. If you think you will expand in the near future, get a bigger space. Otherwise, don"t worry about it, because if you need more space in the future, you can always either 1) take the adjacent lot when/if it becomes available, 2) move to a different, larger location to rent, or 3) build your own space.

Yes, multi-year contracts have a built-in rent adjustment, usually in the neighborhood if 2-4% annually. It won"t matter much in the short run, but also you have to be careful signing a long term lease, a mistake I made with my first business. I signed a 10-year lease instead of a 5, and it"s costing me a lot of money. I should have signed a 5 and then re-negotiated another 5 after my first lease was up.