Thursday, February 19, 2009

A Business Proposition???

All is well on the financial front, however a teacher friend came to me with a business proposition that I have mulling over for the best couple of days. I think it is an excellent idea but the downside is I will lose a big chunk of my E fund.

So my friend would like for me to partner with her and open an early childcare/daycare center. My initial investment would be $10,000 for 35% ownership. We would also have to split the title of program director and work at the center 2-3 days a week from 3pm-6pm. The business plan seems solid, location is already zoned, and she is thinking about opening sometime around junish.

My concern is putting down $10,000 for only 35% ownership. Does that not seem right to you? If I am putting down $10,000 I want at least 40% ownership. Perhaps we could negotiate something like me investing $7000 for 30% ownership.

My second concern is my money being tied up for over six months with no return. The industry average for a day care center to reach profitability is 12 months (if we are lucky 7 months), however, in Philadelphia there is a waiting list at most day care centers.

This is a big risk...but this risk can change my life. From the projected income/expense it looks like I could bring in about $14000 gross my first year and then more and more the second and third year. There is the opportunity by year five for the business to grow to 2 more new center and etc. By then it should be all about the passive income!

Any advice or ideas??

until next time, think prosperous thoughts



The Monogamoney Duo said...

I would be careful ... even if there is a waiting list at daycare centers, people are cutting back and getting laid off ... if I had kids and got laid off, daycare would be one of the first expenses I cut. Not that it couldn't be a great business, but it is a huge risk and the projections could easily not come true. It's not that easy to open multiple locations, either. How much money is she putting up? If she is putting up 65% of the money then I think it's fair that she gets 65% ownership. But if she is putting up only as much as you, then I would forget it, or ask for 50% ownership, or at least 45% or something like that. It's not like she has this brilliant idea that no one else could have thought of. You could easily open a daycare center on your own. Think about whether she's really bringing enough to the table to demand 65% ownership.

Fabulously Broke said...

I agree with Monogamoney.

If $10,000 is 35% ownership, then it's only fair she gets 65%.

But you should be careful going into business with a friend (or even family member). You may end up feeling resentful, not knowing how it changes your relationship in terms of separating work and personal.. and times are not exactly fabulous right now that parents are working constantly and need daycare.

Couldn't you do something like a home daycare in that case, and have less overhead? I've heard of people starting up their own home businesses, and they just buy a couple of toys, snacks, keep the living room clean/safe and from 3-6 they watch the kids and play with them.

I also am concerned about the EF chunk being taken out at this time.

With that being said, if you think it's a good idea, then you should go with your gut instead of not doing it and regretting it for the rest of your life.

Tessie said...

Yes, I think I have to agree with the first two comments. I'd really think about it seriously. Usually partnerships with friends don't turn out husband did this and he ended up doing all the work, and contributing most of the funds! Well, we chalked that one up to live and learn. I'm all for entrepreneurship, but child care doesn't seem like a growth industry right now. Here in Dallas it is really going down the tubes. But I will say, if that is absolutely your passion, than that's another thing. But like The Monogamoney Duo says, you can do it yourself! I am really really leery of business partnerships with friends and family. In my own experience, I have never seen one that turned out well.

Small Budget, Big Style Chick said...

There is definitely a need for affordable childcare in Philly, but I would tread carefully in going through with business ventures with friends. If you do go through with it, spend the extra money and time to hammer out an agreement with a lawyer that will protect you legally.