Starting a Business- Need CC/App-O-Rama advice

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Hello all- long time lurker but always enjoy the FW community!  Let me begin by stating my intentions, I am going to use credit cards (0%) to jumpstart a business. My background is in finance and I understand the risks of using credit cards, but with my combination of partners and experience I am quite confident in our success.  We will not be cash flow positive until months 6-7, with actual profitable ROI coming around month 12/13.  I will be putting in $100,000 for 12% of the company.  We are also floating this around with some Private Equity people, so that number could be more or less depending on external valuations. I am going to give a somewhat thorough description of my finances, so everyone can make appropriate recommendations. Thanks in advance!

About me:
29 years old (married), wife is working full time. We combined for $220k in income in 2016 per w2, my income excluding investments was $174k of that total. My home was purchased in 2014 for $189k, I have it paid down to $138k.
My wife owes approx. $92k in student loans, $49k will be forgiven once she reaches 10 years employment with her job (5 years from now). I make absolute minimums on the forgivable loans, and 2x-3x monthly payments on the non-forgivable loans (paying highest interest rates down first).
I have $82k liquid cash, $42k in retirement, and her teacher’s pension fund which is currently valued at $14k. Approx. another $20-25k in tangible assets (vehicles/jewelry/artwork/furniture etc).
My major concern is being without MY income for the next 6-12 months, I will be cash flow negative for quite a while, hence the 0% credit cards look attractive as a bridge.

My current credit:
745 Experian, 3 inquiries in last 2 years. All accounts positive (no lates) except one medical collections for $700 in 2010. I tend to think paying it off would not make sense as it is scheduled to stop reporting in April 2017.
Fidelity Visa Cards (2)- $32k max limit, low/no revolving usage. (these are my newest accounts, only 180 days old)
Citi Double Cash (1)- $9k max limit, low/no revolving usage (2-year history)
Chase Amazon Card (1)- $3k max limit, low/no revolving usage (6-year history)
Chase Marriot Rewards Card (1)- $5k max limit, low/no revolving usage. (5-year history)

My goal is achieving $75-$125k in 0% CC’s with terms lasting from 12-18 months. Ideally, I would like to get there with only 5-6 cards. Technically, I will only actually need access to about $20k/monthly for the first 6 months, so a delayed/structured app-o-rama may make more sense. I have done some research but wanted the opinion of this community. Your thoughts/comments are welcome; I know starting a business with credit cards is risky.  If you have a different strategy please share!

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Having a good combination of skills doesn't equate to being successful in business so be careful when dropping your job/stability. It is always a high risk. I didn't quit my day job till my business was making MORE than my dayjob (my background was engineering and finance). Are you starting company with just you and your wife? How did you value your business already at 100k=12% if it hasn't started yet?

that being said....go ahead and apply to most 0% cards that offer 12 months . You don't have that many cards at all. I have well over 50. US bank and Bank of America gave me 10k-30k no questions asked for the most part. Chase is getting a little tighter than before. Try banks you don't have any cards in first like US bank or BofA. They tend to give you higher limits in my experience. Good luck in your business.

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tomcellio said:   Hello all- long time lurker but always enjoy the FW community!  Let me begin by stating my intentions, I am going to use credit cards (0%) to jumpstart a business. My background is in finance and I understand the risks of using credit cards, but with my combination of partners and experience I am quite confident in our success.  We will not be cash flow positive until months 6-7, with actual profitable ROI coming around month 12/13.  I will be putting in $100,000 for 12% of the company.  
  So which is it? Using your credit cards to start it, or putting in $100,000 of your money?

atikovi said:   
tomcellio said:   Hello all- long time lurker but always enjoy the FW community!  Let me begin by stating my intentions, I am going to use credit cards (0%) to jumpstart a business. My background is in finance and I understand the risks of using credit cards, but with my combination of partners and experience I am quite confident in our success.  We will not be cash flow positive until months 6-7, with actual profitable ROI coming around month 12/13.  I will be putting in $100,000 for 12% of the company.
So which is it? Using your credit cards to start it, or putting in $100,000 of your money?
$100K of his money using credit cards, clearly.

OP: a background in finance doesn't imply understanding of finance . Why are you paying down your mortgage? It should be 30-yr at below 4%, which is practically free and almost certainly cheaper than the non-forgivable student loans.

Make sure you account for making the minimum monthly CC payments. Have a backup plan if you can't pay off all the cards by the time 0% APR expires or if the business doesn't produce as much or as quickly as you expect. You may not be able to get a HELOC or cash-out refi, because you won't have any income and your wife's income may not be enough.

Any chance you can remain at your job and work on the new gig on the side? Or maybe reduce to part time at your current job? This reduces a fair amount of the risk.

We need to see your spend side. What you make now is irrelevant. Also, you're planning to finance both your spending and investment on CCs -- correct?

tomcellio said:   . Technically, I will only actually need access to about $20k/monthly for the first 6 months, so a delayed/structured app-o-rama may make more sense. I have done some research but wanted the opinion of this community.
One of the primary rules of harvesting 0% money is to get as much as you can, as quickly as you can. The whole point is to get the money from each issuer before there are signs you are also getting money from other issuers. Trying to structure something over time just means that as new accounts/balances start appearing on your credit report, your future results will deminish severely. Business cards can negate that effect to some extent, but you shouldn't expect to open a new $20k credit card each month and max it out.
  

Another option, or at least one to use in conjunction with credit cards, is to open a HELOC (maybe even use your cash to pay down your mortgage to the point you can get the best terms on a HELOC**).  They (assuming you pick the right one/lender) are interest-only for 10-15 years, and you can draw on it as-needed.  So while the interest will cost more from day one (or not, depending on what BT fees you pay to draw the 0%), you only need to draw money as you need it and the monthly cash flow requirements will be significantly lower over a much longer term than 12 months.

**Since you are already close to 80% ltv, you dont have much to gain - each $1 cash you pay will get you better terms on little more than $1 of credit limit.  So money in the bank is probably more valuable than unused HELOC credit limit.  Especially since you dont have the cash to pay off your mortgage entirely, so you will still have the same monthly payment obligation - if you could pay the mortgage off in full then replace it with a HELOC, your month to month cashflow requirements would decrease significantly.

Excellent replies all! To start, my outgoing expenses are currently approx $6400/monthly, I will be quite frank, I could shave another $1000-$1200 off of that by reducing dining spend, shopping for insurance, and reducing optional spending (clothing/electronics etc). My mortgage is currently at 4.625%, it is actually the highest interest debt that I have (other than some of the forgivable loans my wife has). I probably should have refinanced already over the past year.

Without giving too much info, there are 6 partners that would be involved, all have a combination of sales/finance/management/marketing experience, all of my partners except 1 have significant experience in this industry (my experience is 18 months, first job I took out of college). The industry itself is established and regulated, one of the partners currently has a 3 man office in this exact business. He could do it on his own but is lacking in money/sales training ability to expand at the pace he would like.

We will be starting with 12-14 employees, our total spend will be approx. $125,000/monthly (an additional $35k the first month for opening expenses). We currently have an offer from an attorney group for $360,000 up front for 30% of the company. We are still shopping and are getting with a couple PE groups next week to see if the market will bear a higher valuation.
Regarding my current position, I am a vice president at an INC 100 company, I’ve helped us grow at an INSANE rate over the past 2.5 years. I love my job, but equity is not an option, I want my own business. 4 out of 6 partners would be leaving together to start this new venture (different industry, no non-compete issues), so it could effectively crash and burn my current company. We are having a meeting with my current owners in the next week or two to give them a heads up, and also to offer an opportunity to invest themselves.

I will offer to stay in my current position for a period of 3-6 months at either a full rate or even reduced rate (less hours) to train someone else to do my day to day responsibilities. Firing me outright or just letting me walk is not really an option, I have a very specific set of skills and knowledge which account for over 70% of our current revenue, and this is not an automated process. I am not trying to brag; someone else could do my job but it would take extensive training.

Sorry for the wall of text, after reading the comments I am definitely going to apply for every CC at the same time, just trying to figure out the fewest/best cards to get.

stanolshefski said:   We need to see your spend side. What you make now is irrelevant. Also, you're planning to finance both your spending and investment on CCs -- correct?
  I'd like to keep my liquid cash above $40,000 (6 months of expenses),  as of this moment I have an additional $42k that I could put towards the first 6 months of living expenses. That is actually a great point, I probably need to acquire +/-$150k in cc's in order to leave a comfortable margin. If I can stay in my current job for 6 months it would obviously help tremendously, but that's not up to me. It would literally be impossible for anyone currently in the company to just plug and play into my position, but they could probably find someone on the open market that could be up to speed in under 30 days.

 

What industry is it?

Financial sales in the B2C space. Apologies for being vague, I believe we will have a competitive advantage in the industry, and there are a few incentives right now that the general public is mostly not aware of- I don't want to start a flood into the space

tomcellio said:   
stanolshefski said:   We need to see your spend side. What you make now is irrelevant. Also, you're planning to finance both your spending and investment on CCs -- correct?
  I'd like to keep my liquid cash above $40,000 (6 months of expenses),  as of this moment I have an additional $42k that I could put towards the first 6 months of living expenses. That is actually a great point, I probably need to acquire +/-$150k in cc's in order to leave a comfortable margin. If I can stay in my current job for 6 months it would obviously help tremendously, but that's not up to me. It would literally be impossible for anyone currently in the company to just plug and play into my position, but they could probably find someone on the open market that could be up to speed in under 30 days.

 

  Shouldn't you have more assets on $220K income and $80K expenses?

Typically but I am only 29, I've been paying down my wife's student loans for the past 5 years (she owed $220k initially), and my income has only recently spiked. $174k in 2016, $112k in 2015, $77k in 2014.

tomcellio said:   Typically but I am only 29, I've been paying down my wife's student loans for the past 5 years (she owed $220k initially), and my income has only recently spiked. $174k in 2016, $112k in 2015, $77k in 2014.
  what industry?

tomcellio said:   Typically but I am only 29, I've been paying down my wife's student loans for the past 5 years (she owed $220k initially), and my income has only recently spiked. $174k in 2016, $112k in 2015, $77k in 2014.
  I feel like you need to cut your expenses before you zero out your income ideally, you'd figure out how to live off of your wife's income plus investments so you borrow less money -- and that a failed business leaves you in a better financial situation.

Also, you need and exit plan if th business oesnt before cash flow positive or become profitable. You don't want o be three yers down the line telling yourself that it's going to be profitable in six months.

1. Holy smokes your wife got hosed on the student loans. 2016 income -> 220 - 174 = 46.
2. Why won't the new company be paying you an income or shares for your amazing skills?
3. When is your expected break-even for net worth on the new venture and your old $176K/year (and growing) corporate career path?

Have you consider WeFunder or StartEngine?

Personally I'd spend a few hundred for some advice from a BK attorney to see what structuring you could do now to protect yourself from the likely outcome of this mess. If your wife isn't 110% on board, you might spend a few $$ with a divorce attorney too. I know, I know Debbie Downer, but someone has to be realistic.

All I can say is if you are putting in 100k for 12% the other partners better be doing the same. Don't join up with anyone that has "experience" but wants you to bring the cash. If they had good experience they'd have the cash or be able to get it from a bank.



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