Quitting Job of 20yrs to start business

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Quitting Job of 20yrs to start business

Postby NewChapeter12 » Sun Jan 27, 2013 3:55 pm

I'm 40yrs old and I've been in middle management for a major company for the past 19yrs. My wife has grown her hair/makeup business to the point she is ready to open a salon. She has no business sense, but lots of great ideas. I have no doubt our salon concept is going to be a lucrative business. I've decided to resign from my job to run the business side of our new venture while she focuses on the creative side. This decision also stems from the recent death of a childhood friend and realizing life is too short to work 70hrs/week in hopes of enjoying a few golden years.

I currently have $50k in a 401k plan, and $50k in a Cash Pension Plan. I also have $11k remaining on a loan from the 401k. I'm debating to cash out the pension and roll over the 401k to an IRA. I'm sure the first year in business we will have a lot of write offs and can offset some of the 20% tax hit on the pension cash out. I'd love to roll everything over to IRA and only pay taxes on the outstanding loan, but I need some cash to work with the new business.

I'm guess I'm looking for some reassurance?
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Re: Quitting Job of 20yrs to start business

Postby UpstateNY86 » Sun Jan 27, 2013 5:27 pm

Whats your current salary that your giving up? Tough to have both sides relying on business $$ initially. Kids?
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Re: Quitting Job of 20yrs to start business

Postby RenoJay » Sun Jan 27, 2013 5:30 pm

Hi. I'm 41 and have started four companies. Please accept my sympathies on the loss of your childhood friend. I'm a pretty business-savvy guy with lots of good ideas, and I started at least two of my businesses during good (or great) economic times. Even with those tailwinds, three of the four companies went nowhere. (The fourth made a ton of money. But by that point, I had lost all my entrepreneurial enthusiasm and was in it just for the money.) Also, ironically, I had $10 MM in investor money for my first business which ultimately had next to no revenue and zero profits. For my last business, I invested only $300 and got profitable to the tune of millions.

I have come to believe there's only one good reason to start a businesses and that reason is if you have a product or service the world truly needs. Short of that, personal reasons (i.e. "I want money" or "I don't want to work this many hours", etc.) are meaningless. In my area of Nevada, in the past four years I've seen countless restaurants, retail and salon concepts open their doors then shut them six months later, presumably for lack of cash flow/customers. In each of these cases, the entrepreneur would have done better to quit their day job and spend their start up money fishing, golfing or whatever they enjoyed doing since putting it into their business ended up being a huge money-loser and time-suck.

On the surface, "another salon" doesn't strike me as something the world desperately needs. Perhaps you have something to make it unique, but the one thing I do know is you'll spend a lot of money setting things up before you know if a single customer will walk in the door. For that reason, I heavily favor businesses that are services and don't require much overhead (like doing haircuts at customers' homes) or other low overhead businesses in general. Also, now is a historically cheap time to buy someone else's business. It may not be exactly what you're looking for, but at least it will have a track record and you can usually buy it for about 2x what the current owner earns in a year. (Check with a local business broker or http://www.bizbuysell.com.)

I realize I sound like the Angle of Death with this post, but when I advise people through SCORE I really try to get them to open their eyes to reality that the vast majority of new businesses don't end up anywhere near expectations. If your true concern is that life is short and that you don't want to kill yourself with 70 hour workweeks, I'd suggest finding a job that pays less but that gives you some satisfaction and shorter hours. Starting a business does not typically reduce one's hours, and usually brings an entirely new set of stressors that didn't exist previously.
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Re: Quitting Job of 20yrs to start business

Postby Fallible » Sun Jan 27, 2013 6:12 pm

RenoJay wrote:Hi. I'm 41 and have started four companies. Please accept my sympathies on the loss of your childhood friend. I'm a pretty business-savvy guy with lots of good ideas, and I started at least two of my businesses during good (or great) economic times. Even with those tailwinds, three of the four companies went nowhere. (The fourth made a ton of money. But by that point, I had lost all my entrepreneurial enthusiasm and was in it just for the money.) Also, ironically, I had $10 MM in investor money for my first business which ultimately had next to no revenue and zero profits. For my last business, I invested only $300 and got profitable to the tune of millions.

I have come to believe there's only one good reason to start a businesses and that reason is if you have a product or service the world truly needs. Short of that, personal reasons (i.e. "I want money" or "I don't want to work this many hours", etc.) are meaningless. In my area of Nevada, in the past four years I've seen countless restaurants, retail and salon concepts open their doors then shut them six months later, presumably for lack of cash flow/customers. In each of these cases, the entrepreneur would have done better to quit their day job and spend their start up money fishing, golfing or whatever they enjoyed doing since putting it into their business ended up being a huge money-loser and time-suck.

On the surface, "another salon" doesn't strike me as something the world desperately needs. Perhaps you have something to make it unique, but the one thing I do know is you'll spend a lot of money setting things up before you know if a single customer will walk in the door. For that reason, I heavily favor businesses that are services and don't require much overhead (like doing haircuts at customers' homes) or other low overhead businesses in general. Also, now is a historically cheap time to buy someone else's business. It may not be exactly what you're looking for, but at least it will have a track record and you can usually buy it for about 2x what the current owner earns in a year. (Check with a local business broker or http://www.bizbuysell.com.)

I realize I sound like the Angle of Death with this post, but when I advise people through SCORE I really try to get them to open their eyes to reality that the vast majority of new businesses don't end up anywhere near expectations. If your true concern is that life is short and that you don't want to kill yourself with 70 hour workweeks, I'd suggest finding a job that pays less but that gives you some satisfaction and shorter hours. Starting a business does not typically reduce one's hours, and usually brings an entirely new set of stressors that didn't exist previously.


I believe this is spot on based on long-ago conversations I had with my Dad and stepmother who ran a successful small business in CA. My dad had a public relations/advertising background and my stepmother had excellent accounting skills and they also worked together well, a great team. They also were ideally located for this type of business (property management) and they were very hard workers who put in long hours. I don't know if you will have employees, but my dad often said a good employee could make all the difference. This is pretty much all I know of it, but thought it might help. Good luck in whatever you decide.
"Common sense and a sense of humor are the same thing, moving at different speeds. A sense of humor is just common sense, dancing." -William James
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Re: Quitting Job of 20yrs to start business

Postby EternalOptimist » Sun Jan 27, 2013 6:21 pm

Hi. I'm 63 and retired from corporate life. When I was your age I quit a good corporate job to try a franchise business. After 2 years I ended up going back to corporate life. I encourage you to try it as life is way too short and you could always more forward as long as you maintain hope and work hard. It taught me a lot about myself and life, and that I probably am the type of person who should work for others...and I'm OK with that...I have no regrets. Go with your heart tells you what to do. Good luck :!:
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Re: Quitting Job of 20yrs to start business

Postby jhd » Sun Jan 27, 2013 6:34 pm

I was self-employed for more than a decade, first with a software consulting business that paid salaries for a half-dozen folks, then with a couple of startups - one of which went died, and one of which made a lot of money. I did this without taking excessive personal risk: no debt, no dipping into my own long-term savings, and only a modest amount of external investment (compared to a lot of startups). Some entrepreneurs take pride in going "all in", mortgaging their homes and draining their savings to fund a business, but that always seemed like unsystematic risk to me. Why not diversify startup risk with the safety of long-terms savings, employable skills, etc.?

As long as (1) you don't dig a hole so deep you can't climb out, and (2) you're in a position to move back into a safer job if you need to, then starting a business isn't nearly as risky as people sometimes think. And it can be extremely satisfying and enjoyable, when it's not terrifying.

I guess the Boglehead approach to entrepreneurship would be something like:

* Live below your means.
* Save consistently, even during the lean years.
* Have an emergency fund big enough help you get back on your feet if/when a business fails.
* Have a career Plan B.
* Be more conservative with long-term investments than you would be otherwise.
* ...THEN take entrepreneurial risk.

One red flag, though: you sound like you want to work less, not more, by starting your own business. You might be able to achieve this eventually, but isn't it likely that you're going to be working more, with more stress, at least for several years?
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Re: Quitting Job of 20yrs to start business

Postby zebrafish » Sun Jan 27, 2013 6:37 pm

Is your username (NewChapeter12) a reference to bankruptcy? Hopefully, it isn't a future prediction on the outcome of your business venture 8-)

Honestly, I would be reluctant to cash out my retirement to start a business-- this seems like putting all the chips on the table, but I'm not an entrepreneur so my opinion probably matters little...
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Re: Quitting Job of 20yrs to start business

Postby Mel Lindauer » Sun Jan 27, 2013 7:04 pm

As jhd pointed out, you're likely to work MORE hours to make your business successful, not less. And keep in mind that something like 4 out of 5 business startups fail to last five years.

As someone who left a cushy job to start a successful business at 29, I know that it can be both stressful and rewarding, but you have to be willing to basically sacrifice your personal life. Like you, my wife (and kids) were in the business, so at least we had some family time at work.

While it's risky leaving a good job for the unknown adventure of starting your own business, I can't imagine what it would have been like if I had failed to take the risk and start the business only to end up later in life wondering "what it I had only done it". I was prepared to go back to the corporate world if I failed, but I was prepared to do anything and everything legally possible to make sure that didn't happen. As it turned out, it didn't fail and my sons now run the business which I retired from at age 59.

Good luck in whatever you decide.
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Re: Quitting Job of 20yrs to start business

Postby Rick Ferri » Sun Jan 27, 2013 7:10 pm

This decision also stems from the recent death of a childhood friend and realizing life is too short to work 70hrs/week in hopes of enjoying a few golden years
.

I've been a business owner for 14 years and before that worked for companies that paid me based on the revenue I brought in. I agree with Mel. Don't quite your salary job because you think owning your own business requires less time. I don't know any business owner who would say starting a new venture doesn't require at least 70 hours a week to be successful.

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Re: Quitting Job of 20yrs to start business

Postby jdilla1107 » Sun Jan 27, 2013 7:16 pm

This decision also stems from the recent death of a childhood friend and realizing life is too short to work 70hrs/week in hopes of enjoying a few golden years
.

Maybe you are hitting a mid life crisis of sorts. (I had one recently!) Maybe you just need to find a different job. There are plenty of them where 70 hours a week is not required. Often times people get into a rut in their jobs without even realizing what the issue is. It took me a long time to figure out that I actually hated my previous job. I blamed the feelings I had on almost everything else, but it turned out my job made me miserable.

If it is a mid-life crisis of sorts, starting a biz would be a terrible move, in my opinion.

Perhaps I am off base and projecting my own recent experiences onto you. Just a thought though.
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Re: Quitting Job of 20yrs to start business

Postby MN Finance » Sun Jan 27, 2013 7:25 pm

I certainly would not cash in a retirement account. If you don't have capital outside of a retirement account, that signals a risk. You will pay, say 15% fed income tax, maybe 5% state (wherever you live) and 10% early w/d penalty. Even if no income means you are in a low bracket, that doesn't seem to make sense. And I would absolutely ensure you cash balance pension plan - is just that, a cash balance, and not a defined benefit plan. If it's a DB plan you'd be loosing a huge benefit, not just $50k. I'm not expert, but I would also say that good ideas don't = profit and profits don't have to come from brilliant ideas.
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Re: Quitting Job of 20yrs to start business

Postby bottlecap » Sun Jan 27, 2013 7:30 pm

I am not a business owner, but know a few and have seen how a bunch end up (sometimes in bankruptcy, sometimes not). This thread seems to have some great advice (from both the pro and con perspectives).

My only thought is that you could hold off on quitting your job and run the numbers of the business part time for your wife. If the business really does take off, you can always quit down the road. You could also "downsize" to a less demanding job, but my guess is that having some steady income will make things a whole lot more workable.

Good luck,

JT
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Re: Quitting Job of 20yrs to start business

Postby Calm Man » Sun Jan 27, 2013 7:52 pm

OP, I am worried. You don't have that much in the way of assets. You are putting yourself and wife and a bunch of these assets in a business than has at least a 50% of failure. I also wouldn't discount the wife's business ability. She built this business so far without anybody's help.
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Re: Quitting Job of 20yrs to start business

Postby Rodc » Sun Jan 27, 2013 8:33 pm

I don't mean to be rude, but that is very little savings after 20 years of decent employment. Are you over estimating your ability to run the finances of a business? Or are there other funds you did not mention?

Sounds to me like you have very little margin of error. Even if the business could work, you may fail due to too little cash to run the business while it gathers steam.

At the very least do some detailed cash flow modeling for the first couple of years before going all in to make sure you don't run out of cash before you can generate a decent income stream.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
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Re: Quitting Job of 20yrs to start business

Postby DiscoBunny1979 » Sun Jan 27, 2013 9:50 pm

In my opinion, it's perfectly fine to take risks. But sometimes risks have to be based upon good calculations.

NewChapeter12 wrote:I'm 40yrs old and I've been in middle management for a major company for the past 19yrs. My wife has grown her hair/makeup business to the point she is ready to open a salon. She has no business sense, but lots of great ideas. I have no doubt our salon concept is going to be a lucrative business.


The first piece of advice, if the OP hasn't done it, is to create a business plan. It's interesting that someone in a "middle management" position can say that the concept will be lucrative when there is the possibility that after doing a business plan, identifying the competition, understanding the current economic conditions, developing marketing strategies, and financial analysis of Basic expenses and income, that there just is enough to break even. I've noticed maybe 2 or 3 new nail salons opened in the recent past in my town, just how many are necessary, or are they 'cover' for something else?

I currently have $50k in a 401k plan, and $50k in a Cash Pension Plan. I also have $11k remaining on a loan from the 401k. I'm debating to cash out the pension and roll over the 401k to an IRA. I'm sure the first year in business we will have a lot of write offs and can offset some of the 20% tax hit on the pension cash out. I'd love to roll everything over to IRA and only pay taxes on the outstanding loan, but I need some cash to work with the new business..........oh, I forgot.....send the wife to night school to learn about business concepts.


Please don't touch Your retirement. Just think . . .If you let that $50K grow over the next 20 years at a compounded rate of 7%, money will double every 10 years and grow to $200,000 by the time you're 60. If you cash it out and invest in a business in which at least 75% small business fail . . . it'll be difficult to catch up.

But counter to that opinion, I have a short story. A guy I knew who was about 50 years old wanted to leave his government job to start his own business. He cashed out his retirement plan and bought the trucks and equipment needed for his business. But, there were limited customers. After 6 months he had to sell everything, taking a 50% loss on his equipment and trucks just to get out. He could not join back into the 'retirement' plan with the money he had withdrawn. But decided to go back to work at the same job. Problem . . . he died a year later. The moral, if there is one, just because you follow your 'dream' doesn't mean it will pan out. But sometimes just doing it can make you feel like you've done something. One the other hand, all that busy work was for nothing. And therefore, sometimes, it's never greener on the other side of the fence. You might not like working long hours at your current job, but if you have health care benefits and a pension plan, sounds like a big gamble to test on a business concept that might not have a Business Plan. Work out the Business Plan, Open the shop, but keep the day job! Oh, I forgot, maybe the wife should take some night College courses to learn some business concepts so you are both on the same page.
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Re: Quitting Job of 20yrs to start business

Postby camiboxer » Sun Jan 27, 2013 10:00 pm

I was a hair designer for 25 years. I was an employee on straight 50% commission for 2 years. The next 18 years as an independent contractor and the last 5 years as a co-owner of a salon. The salon was all booth rental and we knew our guaranteed income on a monthly basis. I was never going to get rich being a salon owner and in fact made far more money working 4 days a week as an IC.
Co-owning the salon meant working less behind the chair and more behind the scenes. This cut down on my income. I knew going in that I was on a 5 year plan as co-owner but by year three I was ready to walk (25 years was my limit behind the chair).
If you have any questions....the good the bad or the ugly I will be more than happy to share my experience.
I left that career and started another about 7 years ago and couldn't be more happier.
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Re: Quitting Job of 20yrs to start business

Postby NewChapeter12 » Sun Jan 27, 2013 10:19 pm

Wow, definitely a financial advice Blog. I appreciate all the opinions and suggestions, but I'm going to stick to the advice I'm reading on the entrepreneur blogs. I refuse to be the guy who waited until retirement to start living and looks back saying "what if". Thanks again for taking the time to post a reply, I wish you all the best!
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Re: Quitting Job of 20yrs to start business

Postby bottlecap » Sun Jan 27, 2013 10:38 pm

NewChapeter12 wrote:Wow, definitely a financial advice Blog. I appreciate all the opinions and suggestions, but I'm going to stick to the advice I'm reading on the entrepreneur blogs. I refuse to be the guy who waited until retirement to start living and looks back saying "what if". Thanks again for taking the time to post a reply, I wish you all the best!


It only took two posts to run you off? i think that's a record. Sadly, I think you got a lot of things to think about from honest-to-goodness entrepreneurs. To discount their concerns because they are not telling you to leap before looking would be a mistake. No one told you not to do this, they simply gave you advice to consider.

Good luck,

JT
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Re: Quitting Job of 20yrs to start business

Postby Imperabo » Sun Jan 27, 2013 11:28 pm

I just read an NBA player blog. They all said that choosing a career in basketball was the best decision they ever made. I'm gonna go out to the driveway and work on my crossover.
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Re: Quitting Job of 20yrs to start business

Postby Frugal Al » Mon Jan 28, 2013 2:29 am

Apparently he was looking for "reassurance" for his plan, not REAL advice relative to its viability. There's lot of good, sensible, advice here--the OP should take it.

If the OP has to raid his relatively meager pension plan to start his business, I'd say he is grossly undercapitalized, one of the primary causes of business failure. If his wife is doing so well with her hair/makeup business, where are the revenues to support growth into a full fledged business operation.

I've seen "hair-brained" business plans ruin marriages and futures (pun intended). The OP would be better off figuring out a way to NOT raid the pension, and to assist his wife with building the business without quitting his regular job (although he may want to consider changing jobs if he is really as unhappy with his current one as he seems to be). If the business proves to be as successful as claimed, it shouldn't take long to generate viable profits.

At age 40 and with the death of a childhood friend, it's normal to be reflective on one's own life, mortality, goals, and happiness. The business may very well be viable, but go into it sensibly with the best chance of success.
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Re: Quitting Job of 20yrs to start business

Postby Rodc » Tue Jan 29, 2013 12:49 pm

NewChapeter12 wrote:Wow, definitely a financial advice Blog. I appreciate all the opinions and suggestions, but I'm going to stick to the advice I'm reading on the entrepreneur blogs. I refuse to be the guy who waited until retirement to start living and looks back saying "what if". Thanks again for taking the time to post a reply, I wish you all the best!


If your mind was made up, why bother to ask the question?
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
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Re: Quitting Job of 20yrs to start business

Postby BuckyBadger » Tue Jan 29, 2013 1:19 pm

If I'm doing the math correctly, OP has $89k to his name? (50 + 50 - 11) That's before the penalties he'll be paying for taking his money out early.

It's absurd to risk every penny of your limited funds to start a risky business. And as others have said, the fact that he has less than $100k saved up after 20 years of work in management is somewhat terrifying and not usually an indicator of future fiscal success.
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Re: Quitting Job of 20yrs to start business

Postby tyrion » Tue Jan 29, 2013 1:31 pm

OP,

If you're still reading this, I think the middle road is the best choice for you. Keep your job, and start the business at the same time. Once you get the business up and running, you can quit your day job. If the business doesn't work, you still have a job.

Nobody said it will be easy. Follow your dreams, but stay grounded in reality.
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Re: Quitting Job of 20yrs to start business

Postby Kulak » Tue Jan 29, 2013 1:53 pm

NewChapeter12 wrote:She has no business sense, but lots of great ideas. I have no doubt our salon concept is going to be a lucrative business.

This statement is strongly indicative of a cognitive bias to which we as humans are all prone. You're a unique person, but your business plan isn't unique. Without presuming to tell you what you should do, I'll ask this:

Given everything objective you know (and can learn, if you don't know) about it -- your startup capital, the demographics of your locale and how that translates into demand curves, your fixed and variable costs, etc. -- what is the base rate of success of businesses matching these variables? Imagine you're a third-party observer. Out of 100 starts, how many will succeed? (Hint: Not 100.)
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Re: Quitting Job of 20yrs to start business

Postby Watty » Tue Jan 29, 2013 2:00 pm

jdilla1107 wrote:
This decision also stems from the recent death of a childhood friend and realizing life is too short to work 70hrs/week in hopes of enjoying a few golden years
.

Maybe you are hitting a mid life crisis of sorts. (I had one recently!) Maybe you just need to find a different job. There are plenty of them where 70 hours a week is not required. Often times people get into a rut in their jobs without even realizing what the issue is. It took me a long time to figure out that I actually hated my previous job. I blamed the feelings I had on almost everything else, but it turned out my job made me miserable.

If it is a mid-life crisis of sorts, starting a biz would be a terrible move, in my opinion.

Perhaps I am off base and projecting my own recent experiences onto you. Just a thought though.


+1

A new job would also mean that your health insurance would be covered which would give the salon a better chance of breaking even or making a profit so it would have more time to grow into being a sucessfull business.

I was also wondering if being the business manager would actually be a full time job if the salon only has a handful of stylists at first.
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Re: Quitting Job of 20yrs to start business

Postby indian86 » Wed Dec 25, 2013 5:05 pm

I am in a similar position as you. Starting a new business is challenging for sure but not a big deal if you are prepared to go back into the corporate world if it doesn't work. Actually, it doesn't really sound like you are starting your own business. Sounds like your wife is and you will be the financial manager.

In any case, assuming you have run the numbers and everything, the decision to start a business or not is really like the "pay off mortgage or not argument." Mostly it comes down to a life issues. You are pointing to something outside finances that is driving your decision. That is fine. It is like those who pay off a mortgage when the money could likely do better in investments. It doesn't make alot of financial sense...But they "love the feeling" of having no mortgage, the freedom, etc...Even if for the last 70 years stocks have returned an average of 8%, some people would rather take the 3% and the feeling of being debt-free, even if it costs them some of their financial goals.

You may be right that this blog may not be the best place to help you with this type of decision because much of the discussion here is about eliminating risk, and starting a business involves alot of risk. But the question isn't "What is the likelhood I succeed?" The first question must always be, "What if I fail?" As long as you can answer the second question without shaking in your boots go for it. For me, the worst case is I fail and I chew up about 100k of my savings and I go back to the corporate world. At the end of the day I will be gratified that I tried.
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Re: Quitting Job of 20yrs to start business

Postby 555 » Thu Dec 26, 2013 2:52 am

This thread's almost a year old. He's probably broke already.
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Re: Quitting Job of 20yrs to start business

Postby Meps » Thu Dec 26, 2013 8:57 am

555 wrote:This thread's almost a year old. He's probably broke already.


made my day :D
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Re: Quitting Job of 20yrs to start business

Postby Bfwolf » Thu Dec 26, 2013 10:48 am

Hopefully, the business was a big success. In any event, I sent the OP a PM asking him to come back and update us.
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Re: Quitting Job of 20yrs to start business

Postby Diogenes » Thu Dec 26, 2013 8:34 pm

Old topic. Post deleted.
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Re: Quitting Job of 20yrs to start business

Postby denovo » Fri Dec 27, 2013 1:19 am

There is some good advice here in general about starting up a business; I saw some red flags in the OP, but am wondering how it worked.
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Re: Quitting Job of 20yrs to start business

Postby Draak » Fri Dec 27, 2013 6:22 am

Didn't realize that was a year old thread. Deleted comments. Can't imagine this worked out well.
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