Piano (Photo credit: esc861)
Entrepreneurs frequently need to flex, bend and break the rules of personal finance. Sometimes it means putting up safe assets for a risky investment. At other times an entrepreneur needs to accept a higher total cost to abate short term cash issues. No matter the rule you break, an entrepreneur wants the risk to be calculated. The trouble is that it?s not always easy to separate your entrepreneurship dreams with the cold hard math of reality.
How do entrepreneurs differentiate between calculated risk and foolish mistake?
My wife, Mrs. No Telly No Trouble, has been bitten by my entrepreneurial bug. She wants to start her own private music studio this fall. For years, she has been an elementary school music teacher, but the long 50 mile commute and scheduling changes due from budget cuts has taken its toll. Since she?s started work, we?ve also become parents of two wonderful kids and private teaching will allow her to be more involved in their childhood than working/traveling 11 hours a day. Success means great benefits for my wife and my family.
I?d like to think that we?re making a calculated risk, but I seriously doubt I?m an object voice. What better place to put it to the test than to ask the financial blogging community? What do you think?
Of course, you?ll need a little information to make an assessment. Here?s a rundown of costs, assets and issues surrounding starting a music studio.
As a public school teacher, my wife can take the year off without pay and still go back to her job next year should things work out. It?s nice to know that there is potential income safety net. However, my wife will need to make a decision to leave or return to work 6 months before the start of next year. So while delaying is definitely a plus, it doesn?t leave a lot of room for building up a customer base.
Unfortunately, our finances aren?t as sounds as I?d prefer. Without a second income, we?d get by on emergency savings, but expenses would exceed income. I have full faith that we?d be ok for a year, but a second year would be tight if not impossible.
Luckily, our house can easily be used for a studio, but some investment will be needed. We?ll need to purchase a new piano since our electric is broken and our current piano can no longer hold a tuning. As you can imagine, pianos are costly; between $5,000 and $7,000. Leasing is no longer a common practice among piano stores. If we buy, we?re going to have to get a loan or pay for it out of the emergency fund that is necessary for making up for loss of income.
The school district where my wife works has cut so deep, she?s next in line for unemployment should additional cuts occur next year. In a way, this only increases the need for us to diversify income. However, that safety net we thought could replenish our losses could be nothing more than a mirage.
It?s not all worries and concerns. My wife already has a lead on 10 or more potential students this year. A full studio would be between 40 and 45 students. Few businesses opportunities start with 25% of capacity. Not without buying an existing business anyways.
We also live in an excellent location, where there is strong community interest in music. Additionally, our house is situated on a main road with plenty of commuter traffic. It should be easy to attract notice with little more than a sandwich board sign.
What do you think? Calculated risk or foolish mistake?
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Source: http://myfamilyfinances.net/2012/08/carnival-of-retirement-calculated-risk-or-foolish-mistake-edition/
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Public release date: 28-Aug-2012
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