Can we open our dream business?
We are Mark and Lisa Johnson, both in our mid-thirties, living in Austin, TX, with our two children, Emma (6) and Ellie (3). We've both had stable jobs in our lives (Lisa has been at home with the kids for the last few years), but deep down, we’ve always wanted to open our own bodega. It’s a dream we’ve nurtured for a while—one that feels within reach now that we’ve saved up some money and Mark’s recently received a promotion. But, with young kids and a lot of financial goals, we need to make sure that we don't move prematurely on starting the business before we will have the stability to weather a rough start or a downturn in business.
Current Financial Picture and Goals
We’ve been careful about budgeting, but like many families, we have a lot going on financially. Here’s a quick look at where our money currently goes:
Mortgage: $2,100 a month on a $330,000 home
Daycare and After-school Care: $1,200 a month for both Emma and Ellie
Car Payments: $600 a month for both of our cars
Living Expenses: $2,500 a month, including groceries, utilities, insurance, and miscellaneous costs
Savings: We’ve managed to put away about $30,000 in an emergency fund, which would cover roughly 3 months of living expenses in case of an emergency.
Our big financial goals include:
Building a college fund for Emma and Ellie: We’ve started a 529 plan but are currently only contributing $200 a month.
Saving for retirement: We’re contributing about 10% of Mark’s salary to his 401(k), but we know we need to do more.
Vacations and Family Time: We’ve prioritized taking one family vacation a year, which costs us around $4,000 annually.
Starting our own business: This dream is right at the top of our list now, but it’s going to take a big chunk of money and some careful planning to make it happen. This is the scenario we want to model so that we can make the best adjustments to make thios achievable in the next 5-10 years.
Baseline: Our Current Situation with Cashflow Breakdown Graph
What we saw:
We were a little surprised to see that we would be pulling from our retirement funds in the first year of Emma's college. We, of course, have the option of scholarships and student loans, but this is certainly a red flag for us to be more conservative in planning a new business with two small children. With StartingOutPlan, we will model a very conservative scenario where the business takes time to take off and we weather some negative returns and down periods in the business. This will give us a look at where our challenges will be. Finally, we will model a scenario where we are more optimistic about returns and the success of the business; additionally, we will model this scenario with Jennifer returning to work part time until the kids are a little older and the bakery opens.
Building Our Personal Financial Scenario
We started by going into the Workshop in StartingOutPlan. The first thing we did was to add the goal of opening our business. Our best estimates say that we will need around $150,000 to get started. We plan to put down $30,000 and finance the other 120,000 with a small business loan. We are estimating 6% interest and a $1742 a month loan payment.
We will factor in a 1 year period without any income to account for an extra long period with no revenue. We will also have our investments have a significant (20%) downturn for two years. Finally, we will add insurance for both the business and our own medical coverage.
Scenario 1: Stress Test with no income for a year, extra expenses, and a 2 year downturn in investments
What we saw
This was actually not as bad as expected. Given the time we are now waiting to start this (7 years), and expected increase in our household income ($75,000 to each of us), the long term implications of opening our store are predictably positive. After all, this is one reason we want to do this. & years allows us to be pretty stable financially and for our girls to be teenagers when we start working at the store long hours. We both have experience in running stores and believe our innovative ideas, expertise, and experience will enable us to be successful once we get this off the ground. The bad news is that we have a year before we start bringing in revenue that will hurt us significantly. This is a stress test, but we still want to make sure we can survive a down period, if possible.
We are prepared for Jennifer to work part time until we open teh store to bridge the gap and give us some breathing room if something unexpected comes up. Let's take a look at our scenario when we add a part time job for Jennifer.
Net Worth and Expense Report after adding Jennifer's part time job
Making The Decision
This looks great! If we can hang on for awhile and Jennifer picks up a part time job, we will be able to comfortably attain our dream business right around the time we ar eboth 40 and the girls are in their early teens. This has been very educational and inspiring. We knew that it was possible, but seeing a model of how are dreams can be achieved, even if things go wrong, will give us the motivation to work hard to make this dream a reality.
The Importance of Comprehensive Planning
This case study presents a simplified financial scenario. In a more detailed personal financial scenario, we would incorporate specific expenses, financial goals, and the details of all debts and assets to ensure a more precise and tailored financial plan.
The Role of Professional Advice
While we’re confident in the numbers we’ve run, we recognize the importance of consulting with a financial advisor. StartingOutPlan has given us a solid understanding of our financial situation, but having a professional advisor validate our plan will give us peace of mind and ensure we haven’t overlooked any critical details.
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