People start businesses all the time with varying degrees of success. My wife and I have even started our own online business which is slowly starting to see sales increase which is nice. One thing that you would expect people to do when starting or buying a business is to perform some form of cost benefit analysis in regards to the future profitability of said business.
So a few weeks ago I was watching one of my favourite TV shows (Selling Houses Australia) and there was a couple that featured on the show that was in a dire financial situation. They had purchased a business (a bowling alley) for $1.2 million, but it was only worth around $700,000. The reason that they bought the business was that the husband was a star bowler and he loved everything to do with bowling. He made a business decision based on emotion, not cold hard facts.
The outcome of this poor business decision was that the couple had to work all day at the bowling alley and then the husband also worked driving cabs of a night time so they could continue paying the rent and interest payments on the business loan. Even with all this work, the couple was going backwards financially. They had maxed out their credit cards, had many unpaid bills and had the bank breathing down their necks expecting payments they just couldn’t make.
To get out of this mess they decided to sell the bowling alley. Unfortunately it seems that most people realise that bowling alleys are a lot of work for a limited return, so they had been unsuccessful in selling this poor investment. The only choice they then had was to sell their family home which had some equity which would hopefully give them more time to find a buyer for the bowling alley.
Fortunately for them, the Selling Houses Australia team managed to do the house up well enough for them to sell it at a tidy profit. This allowed them to reduce their debt load and have more time to sell the business. The down side to this was that they had to find somewhere new to live and most likely now have rent to pay on top of their existing business expenses.
Watching the episode made me realise just how silly some people can be when it comes to making business decisions. This families life has been torn apart with the relationship becoming obviously strained, all because of a poor investment decision.
So in summary when deciding on starting or purchasing a business, please do not do it based entirely on emotion. You might get lucky, but I suspect you are more likely to end up poorer than you started.