Very GOOD opportunity but still - a little skeptical...opinions please!!

My2Beauties wrote: Ok, so Brian has been laid-off since Dec 22nd with no end in sight. I'm starting to get worried. There are 100 people laid off, Brian was the 30th person, meaning there are 70 people above him with higher seniority getting call backs first, well so far, no one has been called back. I'm really worried that we may be in this for the long-haul. He's been working with his ex-boss for the past month or so now. This guy used to be part-owner (50%) of the company he worked for before going to the railroad, then he let the other guy buy him out and he started his own roofing/sheet metal business with his son, they are both extremely well educated, smart men and have been in business and done well for themselves forever. He bought his house 9 years ago (about 3-5 acres, inground pool, 5 bedrooms, beautiful home nestled in Shepherdsville, Ky) and it's already paid off...so he's done well for hisself and his family. The company they own is doing very well, they stay busy and are very consistent. It's just him and his son right now. They LOVE Brian. The ex-boss, his name is Cliff, by the way was the one who loaned Brian the money to attend Marshall College and become railroad certified, it was almost $6000. We paid it off fairly quickly once his railroad checks started coming in. Anywhoo, they have been thinking about adding a 3rd partner since business is going well and Clifff will probably be retiring in the next few years. The third person will own 10% of the company but receive 30% of profits each year. They would add the 3rd person to payroll and take a weekly deduction from their check in order for that person to pay them the 10% they'd need to buy into the company. This guy just dropped $30k to adopt a child from Korea like it wasn't nothing (his poor wife cannot have children so they have decided to adopt), they go on fancy extended vacations every single year, they have very nice houses, very nice cars, own other properties and have nice things, I know they are making very good money. They are smart and do good business and do really good work. Ok....so while it's not "official" they wouldn't hesitate to ask Brian to be the third owner. Even the son's wife has asked specifically that they talk to Brian since they know he's reliable, trustworthy and have worked with him for years. This could be an awesome opportunity for us...however....my pessimist side comes in now. The railroad is a darn good job to have, they make decent money (it's not 6 figures or anything crazy but in Kentucky it's a decent living) and they have one heck of a retirement plan. When he retires he not only receives his 401k money, but they match him at 50% and that money goes to the spouse. So if he has $100,000 in his 401k at retirement let's just say, then he'd get his $100k and I'd also receive $50k as the spouse. The insurance is untouchable, we pay $170 per month for him, me and all 3 kids plus we have no deductible, $15 co-pays, and $10/$20 Rx, they pay EVERYTHING!!! Now my job offers insurance but it would be around $280 per month and it doesn't cover half the stuff DH's does. His dental and vision are also completely FREE. It's just him being laid off, I'm not sure how long this will last and how do I know this won't happen again next year when they get slow. His pay changes from check to check (which I know it would in the other business) but it's drastic sometimes. I guess I'm just outweighing the pros and cons, the railroad is surefire, it's safer, owning a business is risky. Roofers are always needed and I know they are smart and have plenty of clientale (sp?), it just makes me nervous, wwyd?

DVFlyer replied: I know a lot of people who "look" rich and are so far in debt they are hiding from bill collectors.

There is no logical reason to bring on a third partner unless they needed someone to inject capital into the company. Basically what they would be getting in this deal is an employee who gives up 10% (or more) of his paycheck in hopes of becoming a partner.

And what does 10% equate to? You can't take 10% out of your paycheck and own 10% of a company... it doesn't work like that. You have to figure out what 10% of the company is worth, figure out how long you plan to take to pay for that 10% and go from there.... which could be MUCH more than 10% of his net paycheck.

eg: If they are going to pay your husband $40,000/ year. 10% of that would be $4,000/ year. I'm guessing the 10% of the company is worth more than $4,000/ year.

Have them hire your husband as an employee and pass on the partnership for now. In 6 months, if everything seems good, sign the agreement to become a partner.

Oh... forgot to add, IMO, I would not wait for the railroad job to call.

(edited to correct a misinterpretation.)

momofone replied: I think he should take the roofing job - it sounds like more of a secure job.

My2Beauties replied:
The only reason they would be taking the 10% out of his check would be because we can't afford that cost upfront. Believe me they are in no debt, their houses are paid for, cars are paid for, he has seen them write enormous checks from their personal accounts, they are not hurting for money. They aren't crazy spenders, they are very good with their money and they have preached to my husband about living debt-free, so I doubt they are in a lot of debt. They would also give him a set fee and a set amount of time for it to come out, I'm fully aware of that, they wouldn't screw him over. The company is doing very well, they want the third person because they would save money by not having to pay a lot of taxes employers have to pay, unemployment insurance taxes, OASDI, etc...which I'm aware of being that I'm in payroll/tax and understand the soft costs to obtaining FT employees versus having contractors or having an actual stake in the company, the costs are phenomenal, so it's cheaper for them to have a 3rd person own a stake in the company, he's realize 30% of the profits but only own 10% so if they were to sell he'd get 10% of the profits from the sale of the business. Believe me there would be contracts etc...

DVFlyer replied: I'm glad you trust them. Understand that just because people write enormous checks does not mean the business is supplying the income to do that. Only an examination of their financials would reveal the health of the business.

So are they going to "hire" him as an employee or pay him as a subcontractor. You mentioned adding a 3rd person to the payroll which would indicate hiring him as an employee but then talk about the cost savings of not being an employee which would indicate him being a subcontractor.

I'm confused.... not unusual.

Being in payroll/tax, I'm sure you realize that as a part owner, he would have to pay income tax on the profit of the company.... If he was also getting a paycheck, he pays tax both places....

Not trying to argue...just trying to help.

lovemy2 replied: My BEST suggestion would be to get an attorney and an accountant - ask to look at the books, see the profit and loss and balance sheet to determine the real profitability of the business and have the attorney look into how the business is set up - is it a dba or an LLC or S Corp - all that stuff really matters not only for the finance part of it but also the liability part - make sure if he does go into a deal with them he has an attorney review EVERYTHING and don't just go on their "word" make sure its in writing - its worth the money you would have to pay an attorney and accountant to look out for your best interest, 10% isn't much to own but its a start and if they aren't looking for the money upfront it may not be a bad deal but again ask to look at the books and not just this year or last - like 2-3-4 years back......

Good luck - my DH is a county employee, fabulous health care, dental care, pension and retirement I could not imagine our life right now had he not made that career choice - its alot of security to let go of - maybe staying with the RR but doing this on those times when they are slow or laid off is the way to go - at least for now - this recession shouldn't last forever but it could be another year or even two before things straighten out.....

lovemy2 replied:
If he is on the payroll - a W-2 worker they will incur those costs - regardless if he is an "owner" not matter how big or small - many companies use payroll as a way of reducing liability to the State and Feds and to customers........so don't think they are putting him on as partner to save on payroll costs/tax - it actually costs them more in the scope of the business' day to day cost.

Kaitlin'smom replied: does he have to give up the RR to take this? what about looking into the oppertunity while keeping the RR as back up and vice versa if he can keep both then why not, that way if it takes a while for him to get back to the rr he has this and if this falls though he still has the rr to go back to.

coasterqueen replied:
I totally agree! I am also surprised this company is doing so well in this economy. Everyone I talk to in this business is struggling around here.

You also say who knows if he will get laid off next year w/the railroad. Who's to say that next year the economy gets even worse and the business goes under?

I guess it depends on how BIG of a risk you want to take, IMO, to get rich faster. You can't go by what you see or what you hear as far as people go and their finances, IMO. It always looks better from the outside looking in

I think if you wanted to take the risk, I'd definitely tighten up the spending on things and create a nice little nest egg in case something happens to the company. That way it won't seem so much like a huge risk.

My2Beauties replied: He'd be working with them full time so doing both probably wouldn't be an option. He'd only be on the payroll until the 10% is paid, then his ownership would commense, hope that makes sense. They will pay the employee-employer taxes while he's on payroll, but want to get away from that as soon as his portion is paid.

luvmykids replied:
HUGE 2nd to that....it shocked us to say the least the first year we were in business to find out that not only had we paid our taxes on each pay check but then had to be taxed again on the company profits on our personal return Of course, if the company has a loss that is beneficial in some ways but really a company who has losses year after year isn't doing so hot and secondly, from what you've said, it doesn't sound like they do.

I strongly second what Christine said, have an accountant and attorney look things over and give their opinions some weight.

These people sound great and it sounds like a great chance for Bryan but I can also tell you being a business owner isn't all roses....if these people have it together as well as they appear to, no worries BUT you still have to go into it considering things like what's the plan if work slows down (and it CAN happen, to the most successful business) and cash flow gets tight...how much liability is he carrying simply for having his name on the business if things go bad, etc, how would it work if he wants out down the road, how much say will he have in business decisions, etc.

Being a partner/owner can be awesome and it does sound like they have it together but speaking from experience, every little thing including the things you *think* will never be a problem has to be thought about, talked about, and on paper. I always encourage people to take advantage of an opportunity but to try to do it without all the excitement clouding the realities of it.

My2Beauties replied:
Thank you this is the type of info I need to be aware of, because I'm a lot more skeptical and well know a lot more about these things than Brian does, but never having owned my own business I'm not 100% on everything. Yes I was aware that he'd have to pay taxes on the profits, I did mention that to him which he is well aware of as well, it's something we have taken into consideration. It's definitely something that would have to be talked about and a lot of thought put into because I know his dream has always been to be his own boss but I don't want his dream to be the cause of a catastrophic financial loss to our family either. Thanks for everyone's thoughts, keep 'em coming.

luvmykids replied:
I think it's really good to realize that, we NEVER thought it could happen to us and every year we were successful we thought we were one more giant step away from the risk...when our business went under we went with it 1000% and it happened a lot faster than we ever imagined...we are still dealing with the mess and fallout, almost two years later.

Having said that though, my DH is in no way, shape or form a 9-5er (although I'm usually desperately wishing he was ), he just isn't cut out to work for someone else long term and as bad as it was, we've started again with a lot of hard lessons learned. If I could tell you anything it would be enjoy the peaks but don't let your guard down and always, always, always keep in mind that no matter how much it looks like the worst can't happen, be prepared for it anyway.

If you all decide to do it though, I hope it's a fantastic experience all the way around

My2Beauties replied:
Thank you and if you don't mind (if you do just be honest and let me know) could you PM me and let me know what happened? What type of business did you have? What type of difficulties did you face? I understand you not wanting to air it publicly on the boards, but I need real life hard core lessons from people who have BTDT so I know not to live in a dreamworld. I'd appreciate it, but I TOTALLY understand if you don't want to.

lovemy2 replied: Your doing the right thing LeAnn - make a list of the pros and cons - even the pros and cons that could be very remote - there are alot of tax, income and liability issues that come along with owning a business - as Monica can attest to - and I see it alll the time - my firm specializes in small business....just an example - I have a new client I brought in - his old accountant really screwed up - they have a 5 year old business that to date hadn't showed a profit - that however doesn't mean they didn't make money just FYI - but it never showed on their tax returns until they paid off a HUGE chunck of debt last year and they now show a profit and each have a $32,000 income tax debt (personally) to pay because of it and because their accountant didn't pay attention...........

DVFlyer replied: Another thing to ask about is worker's compensation. Many times, owners are excluded from WC insurance (might be different outside of California).

Doing roofing, I'd want to be included in case I stapled my thumb to a roof tile.

My2Beauties replied:
lol or hit your thumb with a hammer...my DH is notorious for that one!

My2Beauties replied:
I totally agree with you Karen, I have said the same thing, while he could get laid off next year he has railroad unemployment and knows he'll get called back eventually, if the business goes under, boy can we go way downhill from there! Also we are re-financing our home right now which is saving us $$ and I just called another auto/home insurance agent today and saved us $143 a month - I'm still in shock. I can't believe how much we were paying, and we're getting a better insurance policy, the liability coverage is greater etc...it's Ky Farm Bureau which is a very reputable company, the largest in Ky, probably why their rates are so good. I'm cutting corners any way I can lately, I'm trying to find ways to cut costs in our household.

My2Beauties replied:
Oh one more thing, the roofers/contractors here are doing well because we've had so many horrible storms that have caused tons of damage - lots of insurance claims going on in this area lately!

luvmykids replied: No problem

DVFlyer replied: If he gets another job, does that affect his unemployment?

My2Beauties replied:
Yuppers....

luvbug00 replied: I dunno right now i'd be inclined to lean tward which ever is going to be secure. Trust me the job that is closing right now things are bad. The owners who were best buds are backstabbing eachother left and right. I'd keep him out of that mess.

lovemy2 replied:
But remember that dries up eventually...either everyone gets everything fixed or the insurance money dries up...

Hang in there - you will make the right choice