Setting Up a Business With $25,000
QUESTION: I work in the oil industry and got my walking papers almost four months ago. Since I have worked for the company about 25 years, my boss gave me four months to find a job. I have continued to draw a salary but spend most of my days job hunting. I figured four months’ leeway would be plenty of time, but I was wrong. I still haven’t found anything. It’s beginning to look like the only choice I have is to go into business for myself. I can probably scrape up $25,000 from family, friends and my own savings. Is there any way to tell whether that’s enough cash to make a go of it?--G. L.
ANSWER: It depends on the business, of course. In the oil patch, people used to say that all they needed was a car or truck, a stack of business cards and a good sales pitch. But nobody needs to tell you that times have changed.
Consultants who work with laid-off employees trying to strike out on their own say they typically recommend having a cash cushion of at least $100,000. But depending on what end of the business you intend to specialize in, you may be able to get by for less.
With the current hard times in the oil patch, hundreds of oilmen are throwing in the towel and practically giving away their equipment. At recent auctions in Texas, Oklahoma and Louisiana, such equipment as oil pipe, casing and rig components have sold for a mere 10 cents on the dollar, even less in some cases. So, you could argue that $25,000 will get you as far in the oil patch today as $100,000 did just six months ago.
If, however, the success of your infant company would hinge on buying oil properties or leases, you’re likely to encounter a far different situation. Four months into this bust, owners are still hoping to ride it out and so are desperately trying to hang on to their properties and leases. That’s why oilmen say there are far more land buyers than sellers right now. Only those willing to pay a huge premium or those who get lucky and find someone desperate to pay their bills can find sellers at the moment, they say.
There is one thing you might try taking up with your employer before your grace period runs out. Consultants say an increasing number of employers, realizing that jobs in such industries as oil are virtually impossible to find right now, are helping laid-off employees set up businesses of their own. Typically, the employer either offers the services of the company’s own legal and accounting staff or pays for an out-placement agency, which in turn provides those services at no cost to the idled worker. The consultants say it isn’t unheard of for some employers--or even out-placement agencies--to take such a liking to the employees’ business plan that they even invest in the start-up.
But keep in mind that you have lots of competition. To give you an idea of how many laid-off workers are now striking out on their own, someone has coined a new term for them: exitpreneurs.
Q: Your recent column on SEPS raised one question that you didn’t address. If I put some money into a SEP but later wanted to roll it over into a Keogh plan, which is a better deal for me and several others I know, could I do that?--H. K.
A: No, you can’t. You may roll over a SEP, short for Simplified Employee Pension Plan, into an IRA, but not into a Keogh.
