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To loan or not to loan?

Flybye

Bronze Contributor
Feb 19, 2018
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Cuba v2.1 (Miami)
I have had a little over $100,000 in revenue my first year for my brick and mortar. The company usually pays for itself, but that is obviously not the point to having this adventure. When I had no other source of income, I had to pay myself to pay personal bills when I should have saved the money for inventory. Personal complications and needing to get a full time job for the past 2 months (from home and only in the afternoon) slowed things down. Thankfully, I live just a few miles away from my business. It can take me 5-10 minutes to get there, and I have an extremely reliable retired family member who does very well tending to the sales aspect of the business when I am not available. I believe my learning curve has finally straightened out. I better understand now what customers want in my area and the type of inventory to get. I already have repeat customers and referrals. My location is small which means I need to churn out product as quickly as possible. A hiccup causing a delay in getting products ready for 1-2 months causes disaster. I know some businesses can take longer than others to become profitable. A friend in the same industry took 2 years to become profitable, but boy oh boy was the cash rolling in afterwards.

I was just approved for a $50,000 loan, but I have not looked over all the details. It is more of a line of credit with my vendor than a cash loan which will allow me to get more inventory and jump start things back up.

What are everyone's thoughts on going this route? I am being pulled in all possible directions. People telling me I should close the business, concentrate on a stable job, pay off my personal debts, then open the business again. While others are gun ho about it: Do it, time is wasting, the money will eventually come rolling in to obliterate my personal debt and keep the business growing.
 

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Creep

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What type of business is it, and why do you need 50k of inventory to survive?
 

RazorCut

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Is the business profitable now (ignoring previous debts)? If not how long will it take to be in the black?

If it is not profitable how much are you personally funding the business a month and how long can you realistically sustain that?

You have to ask yourself a lot of cold calculated questions.
 
OP
OP
Flybye

Flybye

Bronze Contributor
Feb 19, 2018
119
138
142
Cuba v2.1 (Miami)
What type of business is it, and why do you need 50k of inventory to survive?
I do not need to use the full 50k. I could actually get by using just 6-10k.

It is a very small warehouse based used car dealership that can only hold 4-5 cars.
 
OP
OP
Flybye

Flybye

Bronze Contributor
Feb 19, 2018
119
138
142
Cuba v2.1 (Miami)
Is the business profitable now (ignoring previous debts)?
Yes/No. One month I can make 1 sale which would cover all costs then not so much the next month then suddenly 3 sales the month after. Preparation costs are different for each car. I can get really lucky and have minimal prep one and have hidden costs on others.

If not how long will it take to be in the black?
The credit line is approved just for inventory. Technically, I can buy and pay off what I borrowed the very next month.

If it is not profitable how much are you personally funding the business a month and how long can you realistically sustain that?
It is hard to say. I can sometimes make 1 sale which will cover all overhead but then not be so lucky the month after. Therefore, there are months personal money goes in and some months not. I have only been open for business about a year. Setup took a lot longer than expected which ate into my starting budget, but that is another story.

You have to ask yourself a lot of cold calculated questions.
Many people mention do not expect to be profitable for a good 2-3 years. I get thrilled having a few months in a row when it pays itself. My plan is save enough capital to be able to do buy-here-pay-heres. I could try setting up an account with a financing company, but I am unsure to what will be left once their fees are considered.

I won't lie. Even knowing the industry rather well, I have still had to deal with a learning curve. It is a matter of having consistency with the sales and knowing what to buy that can be quickly flipped.
 

RazorCut

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Many people mention do not expect to be profitable for a good 2-3 years. I get thrilled having a few months in a row when it pays itself. My plan is save enough capital to be able to do buy-here-pay-heres. I could try setting up an account with a financing company, but I am unsure to what will be left once their fees are considered.
You make money selling finance. In fact new car dealerships make minimal earning on a new car sale. They make their profit selling finance packages and on the back end with servicing. So see what finance packages are on offer that are both attractive to you (earning potential) and to the customer (sensible rates and conditions).

My pizzeria had a carpet and furniture business right next door so I got to know the owner well. He was always complaining that customers would come in, have a good look round, see something they liked then drive to the city and buy it. I said that was because he offered zerop payment options, just cash or cheque. He didn't even take credit cards let alone offer a finance package. His reason was he didn't like credit cards and wouldn't have one personally.

He forgot the golden rule. He wasn't there to please himself, he was there to please his customers. It's not what he wants, it's what they require. Having a low deposit finance option would increase your sales and earnings as now your customer base is larger and for anyone that take that option you make a percentage. Win/Win.

It is also something you can use as a selling point on your Google and social media advertising (you are advertising aren't you?)

Many people mention do not expect to be profitable for a good 2-3 years.
That old chestnut. It always used to be a rule of thumb that it could take 2-3 years to break even in a business and 5 years to establish itself but time and the internet has changed all that, plus it depends on your niche. It took 14 years for Amazon to post a profit as it was spending quicker than it was earning. However you could set up a business and be profitable in month 1. My current business (construction, so non-net) was profitable from month 2. So don't use that out of date premise as an excuse. Average effort brings average results. Extraordinary effort brings extraordinary results. You get out what you put in.

Find ways to leverage the 80/20 rule for maximum results. What things take low resources but produce much greater results? Making your lot stand out as people pass by (why do you think large car lots have flags, pendants and buntings outside). Set up financing. Do something for your community that will get you featured in the local papers. Create a new charity event that you can do annually so it builds up every year rather than be forgotten in a month. Lots of ways to stand out from the crowd.
 
OP
OP
Flybye

Flybye

Bronze Contributor
Feb 19, 2018
119
138
142
Cuba v2.1 (Miami)
You make money selling finance. In fact new car dealerships make minimal earning on a new car sale. They make their profit selling finance packages and on the back end with servicing. So see what finance packages are on offer that are both attractive to you (earning potential) and to the customer (sensible rates and conditions).
And that is exactly what I have been saying since the beginning. But the problem? My starting budget was a lot less than it should have been. I am unable to pour x amount of funds into inventory to have to wait for it to slowly pay itself back which is why my plan was always to sell at the low end first, save capital, and be able to do buy here pay here when I am able to. Another consideration is the class of cars to finance. Financing will come with an expected warranty. I can either sell a 3rd party warranty or warrant the car myself which may not be cheap. So the preferred option there is financing cars with less than 100,000 miles.

My pizzeria had a carpet and furniture business right next door so I got to know the owner well. He was always complaining that customers would come in, have a good look round, see something they liked then drive to the city and buy it. I said that was because he offered zero payment options, just cash or cheque. He didn't even take credit cards let alone offer a finance package. His reason was he didn't like credit cards and wouldn't have one personally.
Not offering financing is one thing, but to not offer credit card option? That is just plain silly lol. Believe me, I WANT to finance! I 100% agree this business is all about the finance, but I have to reach that level.

He forgot the golden rule. He wasn't there to please himself, he was there to please his customers. It's not what he wants, it's what they require. Having a low deposit finance option would increase your sales and earnings as now your customer base is larger and for anyone that take that option you make a percentage. Win/Win.
It is sad how many business owners do not realize this. I hate SUVs. Does that stop me from buying SUVs? Nope. You have to get what the customers want. I am not at the supreme level of making a product to see if I can shift the entire industry. I have to suit to the current demand.

It is also something you can use as a selling point on your Google and social media advertising (you are advertising aren't you?)
Of course. Offerup, Letgo, FB, my own half decent site, flyers where I can, etc.


That old chestnut. It always used to be a rule of thumb that it could take 2-3 years to break even in a business and 5 years to establish itself but time and the internet has changed all that, plus it depends on your niche. It took 14 years for Amazon to post a profit as it was spending quicker than it was earning. However you could set up a business and be profitable in month 1. My current business (construction, so non-net) was profitable from month 2. So don't use that out of date premise as an excuse. Average effort brings average results. Extraordinary effort brings extraordinary results. You get out what you put in.
I hope I did not sound like I am using that old 2-3 year rule as a crutch. I am all for going full speed. I will not use the word "problem." Instead, I will use "hurdle" as one of my hurdles is the fact that I operate out of a small warehouse. I can't have flags and other things outside, but I am lucky to be on a side road connected to a main road. I have to solely rely on word of mouth & advertising. I like to think of myself as a people person. Hence why I already have referrals and repeat customers. I was at the lot yesterday at 4pm showing a car, and I have no trouble spending extra time talking to customers. They liked me enough to already be asking about researching a 2nd buy for them. They are scheduled to do the pickup today. :D

Find ways to leverage the 80/20 rule for maximum results. What things take low resources but produce much greater results? Making your lot stand out as people pass by (why do you think large car lots have flags, pendants and buntings outside). Set up financing. Do something for your community that will get you featured in the local papers. Create a new charity event that you can do annually so it builds up every year rather than be forgotten in a month. Lots of ways to stand out from the crowd.
Agreed. I do what I can but am confined by the limitations of my location. I have even thought about making one of those cheesy 80s style crazy commercials for Youtube.
 

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