Getting into business with family can be extremely brutal. Make sure you're aware one day you guys might end up not speaking to each other.
The fact you two are so set on bringing someone else in, is just a recipe for disaster for many reasons...
It seems like you're looking for any excuse to exit corporate America, and hoping others give you that extra courage to do so.
Money doesn't come out of a retirement savings until retirement. Unless emergency.
mtn wrote: He's very smart, but been without direction for most of his post-high school life. Has had half a dozen majors but no degree. He dropped out of college, and now might be in community college? But he's among the more competent people I know. If this was 1955, when a college degree wasn't so commonplace, he'd already be wealthy because he'd have found his way into a Fortune 500 company, and worked his way up. I'm exaggerating, but not by much. He's a skilled salesperson, quickly becoming a skilled woodworker, when my wife and I need help with some carpentry/electrical/mechanical, we usually call him for advice. Aside from that, he's a people person. Everyone likes him for his honesty, loyalty, and work ethic (just not in school).
Devil's Advocate (not meant to offend): Based on your description, one could infer that your brother could also be described as something of an underachiever or someone that doesn't routinely finish what is started. These are traits that I wouldn't want in a business partner. Especially if I didn't think that I could handle all aspects of the business on my own should the need arise. Having a cogent plan, and executing it seem like critical needs for a successful small business owner. You need to figure out why your brother has been "without direction for most of his post-high school life". Is it a lack of planning? Does he start something and then get bored? Does he quit if something gets difficult or uncomfortable? I don't expect you to answer these questions here, but you should be asking yourself questions like this.
I think that SVrex's advise about dipping your toes in before diving in head first is wise. If all parties are willing, then start as a mostly silent financial backer, using money that you don't really care about losing. If the business takes off, and more of your time is needed then deal with that situation if it comes. You can always quit your corporate gig, but throwing away a decent job in order to chase a business that you admittedly know little about is risky at best.
I also think it's very important to have a plan in place, and to stick to that plan. It seems easy to get in much deeper than you'd want when dealing with family. You need to have an end game or 3 figured out before you get into this. Something like "I'm willing to invest no more than $XXXXX into this venture." or "If the business takes off, and I can sell my portion for $XXXXXX, then I automatically cash out and turn over my part of the business to partners/new investors/whomever."
Fueled by Caffeine wrote: Money doesn't come out of a retirement savings until retirement. Unless emergency.
Look at it a different way: I'm keeping my retirement savings, but putting it in another investment. Yes, an extremely risky investment. Not what Jack Bogle would be advising, and probably still a bad idea... but the IRA contributions can be withdrawn without tax and without penalty. And again, that isn't the whole investment, and it is only about 10% of my total retirement fund. Actually probably less now.
It's none of my business and you probably don't want to say because you already hinted at 10% and so.
At your age if you're gambling with $5,000-$10,000? You have many years ahead of you to recoup. Many blow that on a tranny or a set of dual quads and a blower.
If you're gambling with $50,000-$100,000? Now this decision needs a lot of thought and wise counsel must be sought out.
Think of it this way though, plenty of people drop $50k on college that doesn't pan out either. Or worse, like me, buying a house in a bubble market where I could make a little money or lose $50k.
Where is the money going? Fixed assets?
I once had a buddy who proposed me getting in on his family business. Basically, for a large sum of money I could purchase a franchise of his "Catchy Phrase" business, and he'd train me on how to do things. He argued that it the name the got him the majority of his business, but I'm not so sure.
I said to him "couldn't I just work for you, learn the business, and go out on my own if I wanted?" and he said "yea, but that'd be lame and I'd be hurt if you took my experience and became my competitor."
Truth was, his business didn't really require anything special. It was also skills that could be built on the job, even working part-time. You just had to be interested to learn more and ask the write questions.
Here's my question: how can a silent investor guarantee that the investor/employee doesn't just pay himself while never earning any benefit to silent investor. Basically "buy me all my fixed assets and I'll earn my paycheck (but nothing more).
In reply to pheller:
So, a $50K loss shouldn't be avoided?
I don't think so.
Historically, a $50k investment in college or in a piece of real estate is a far better investment than a startup business. Far better. Probably 10X.
According to Bloomberg, 80% of businesses fail in the first 18 months.
Datsun310Guy wrote: Many blow that on a tranny.
Selective editing. I do's it.
I would hold to the mantra to not go into business with family. I told my wife not to buy "investment" property to rent to our son, and I was 1,000% correct on that.
SVreX wrote: In reply to pheller: So, a $50K loss shouldn't be avoided? I don't think so. Historically, a $50k investment in college or in a piece of real estate is a far better investment than a startup business. Far better. Probably 10X. According to Bloomberg, 80% of businesses fail in the first 18 months.
Nobody wants to lose money. I didn't want to pay $30,000 for college and not get a decent job. I'm not saying MTN needs to be proverbial fine art student. I'm saying that $50k could be spent on a lot worse things (like cars). I think it's worth investigating (as he's doing) and perhaps talking with a business attorney and accountant on how to "dip his toes" without giving up his current job.
No just no. From your initial description it does not seem like a good idea.
You are handing out money for something you don't seem to know anything about.
That right there is a huge red flag. Run away
If it matters I own and run my own company. I have employees. I have been in the field for 30 plus years and I am still learning.
pheller wrote: I'm saying that $50k could be spent on a lot worse things (like cars).
We don't know a dollar amount here, but at least with cars you have tangible goods that can be sold to recoup some money. Most small businesses don't have a ton of assets that can be liquidated. This is a high-risk investment, in that it could pay off or it could all disappear.
MTN sounds like he understands the risk. It's risky to start a business in a field that you know very little about. Most financial guys would strongly recommend against pulling money out of retirement savings before retirement, so there's risk of long term damaged there as well. Finally, there's the risk of family relationships being damaged. MTN seems to understand all of this, and he's just trying to figure out if the reward could justify the risk.
You would be better off working a second job delivering pizza and putting that money in your retirement fund. You are only 27? That is a much smarter and better investment. If you did that for the next five years I bet you coul retire five years sooner and have a boat load more cash on hand at retirement.
In reply to pheller:
BTW, I know you don't see the value in a $50K education and love the Mike Rowe approach, but here's what I know...
I am in construction. The epicenter of where the Mike Rowe guys should succeed. Almost universally field employees have NO higher education, and middle management has degrees. They never say a degree is a requirement, but the vast majority of the time it shakes down that way.
In my region, field employees make from $20K- $40K. Middle management makes from $35K- $85K. In larger metro areas, middle management can easily hit $120K, but I can almost guarantee you won't get hired without a degree (unless you have 25 or more years exoerience)
I realize it is an indirect relationship, but it sure looks to me like a $50K degree has a reasonable value.
dean1484 wrote: You would be better off working a second job delivering pizza and putting that money in your retirement fund. You are only 27? That is a much smarter and better investment. If you did that for the next five years I bet you coul retire five years sooner and have a boat load more cash on hand at retirement.
No time, that is boring, and I already have a second job.
In reply to mtn:
What do you do for a living?
(Both your primary job and your 2nd job)
SVreX wrote: In reply to mtn: What do you do for a living? (Both your primary job and your 2nd job)
I'm in Banking--Risk Management. My second job is an ice hockey referee, which is good money during the season (and even a solid $200-$500 a month in the summer) and fits well with my schedule.
Fueled by Caffeine wrote:Datsun310Guy wrote: Many blow that on a tranny.Selective editing. I do's it.
Forgot to add "and coke". Still cheaper and more fun than the four semesters I spent as a college freshman.
In reply to mtn:
Banking? I'd be running for the door too.
So, we need to find you a minor league hockey team to buy, so you can combine your banking/ financing talents with your hockey talents, right? 
SVreX wrote: In reply to mtn: Banking? I'd be running for the door too. So, we need to find you a minor league hockey team to buy, so you can combine your banking/ financing talents with your hockey talents, right?
I've worked (reffed and other side-gigs) for minor league hockey teams in the past. Every time I got the check, it was a race to the bank it was written from to make sure the check didn't bounce. You want to talk about overhead, look at a pro/semi pro/junior hockey team.
Do not invest anything in a business that you're not prepared to lose. That includes a relationship. For that reason, I would never start a business with a family member or a best friend whose relationship I really value. There's too much chance of never speaking to them again.
I don't know enough about the details of everything else going on to offer good advice on this business in particular.
SVreX wrote: I realize it is an indirect relationship, but it sure looks to me like a $50K degree has a reasonable value.
Not related to topic at hand, but I'm just saying that there might be more experience gained in trying to run a business than in an art or literature degree. He's already got proven work experience in a high paying field (banking), so it's not like if this venture fails he won't able to get back into such a field again. I'm saying this business is a good idea, nor do I know his exact investment ($25k loss is way different than $100k loss).
On topic: I certainly understand that the corporate world can be a drag. My life has been mostly cubicals for going on 4 years now. Prior that I had multiple jobs working outside making pennies. Many young people (under 30) struggle with this. Our generation just isn't satisified to make good money, we want to go into work every day with a new challenge, a new adventure, new social interactions. I know a guy personally who had a successful 5-year stint in banking by the time he was 27, making damn good money and he left it to be a poor farmer, and wants nothing to do with banking ever again, but he's still great at looking at budgets. He's in politics, farming, and minor auto repair now. I think in some ways he wishes he would've continued saving for his own farm, but even that to a certain extent is pretty frivolous. A $650,000 organic farm will likely not to put you any further ahead than working a bunch of jobs for $40k a year for the rest of your life.
So yea, you want out of a cubicle. What's the pay off? Maybe that's the question to be asked. How much do you expect to make per year versus the current job, and what would you make if/when this business sold to a bigger entity? Weigh that against potentially leaving your current job in a cubicle to do a cool (albiet low paying) job for a few years.
Nobody wants to work in a cube the rest of their life, and I didn't either, so I moved across the country to work in a new cube, making more money in a new place with new adventures (and I occasionally get out of the office for a few days).
Having tried both, I'd rather be broke than work in a cubical.
Toyman01 wrote: Having tried both, I'd rather be broke than work in a cubical.
That's about where I am. Well, I'm not there, but I will be at that point soon.
I've talked this over with my wife some more. We're still interested and will pursue conversations with the other relevant parties (by we I mean I, but I need her full support). Our current plan is for me to find a new job (likely still in a cube) to get a salary increase, and continue to save. As I said earlier, this is still a few years away.
Oh, and 90% of banking careers are not what you are thinking of salary wise. Not bad money, but my wife and I (who makes very similar money to me as a Dietitian) were priced out of Chicago city limits.
In reply to pheller:
I appreciate your optimism.
As someone who has run several businesses (and who understands the particular space he is contemplating), I offer a different perspective.
Like Toyman, there is NOTHING I would rather be than self-employed. However, there IS an 80% failure rate.
Very few people who have never run a business understand. It's really easy to sit in a cubicle and assume someone somewhere else has it better than you do.
I am extremely pro small business. I do not think there is enough positive information about THIS business (as proposed) to consider it a worthy risk.
My primary concern is the direct involvement of an operating partner with far more knowledge than mtn has, and mtn's likely inability to influence either the revenue or the expenses. This is EXACTLY the kind of investment (on paper) that advisors tell everyone to run away from. (Although there are things I know offline that make it a little better)
There is a lot at risk. Money, family, marriage, etc. I've lost businesses, and I've partnered with family.
Having said that, I have also discussed more offline with him, and support him in his quest to leave big corporate.
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