Worst case scenario? 8

[rlee53]

I've read in a book about engineers going solo, that if you fail as a sole proprieter, as long as it wasn't for unethical or gross negligence reasons, it will not hamper your ability to reenter the work force; you will have learned new skills and be better because of your free lance experience. So worse case, your out the financial cost of the business failure, but you should be in a better position to find a job as an employee with your new business experience that was gained, and the courage and independence to have taken a risk.

Does anyone agree, disagree, or have anything to add to that?

 

[ee2002]

rlee53,

I read that same book and tend to agree. The experience shows that you can be a man to wear many hats and that experience and skill set that you gain can take you far.

 

[SlideRuleEra]

Concur. It is always possible to learn much more when "things" go wrong, be it in business or even on a project. In the scenario that you describe, it is important to take the business thru an orderly shutdown so that creditors get paid, outstanding obligations are filled, and the only financial loser is you. Anybody can go bankrupt, it takes skill to "closeout" a business.

http://www.SlideRuleEra.net

 

[GregLocock]

BTDT

I learnt a lot from my brief stint (18 months or so) in a partnership that failed.



Cheers

Greg Locock

Please see FAQ731-376 for tips on how to make the best use of Eng-Tips.

 

[arunmrao]

My friend from US who is visiting me now has many horror stories to say. As his business collapsed he had many unpaid commitments. The tax department would not let him go. He was very close to be being behind bars. His personal property attached,bank account attached and whenever any credits were available it was just swiped by the tax department.

He could not apply for Social Security assistance as technically he still owned the company for whatever its worth.

When he went on a holiday ,while settling his bills he realised that there was no balance and all his money withdrawn. Missus had to come back to US,make short borrowings and then remit the money to him for settling the bills.

He worked in WalMart,unloading packages,as a janitor sweeping the floors and also in a platic injection industry on a line cleaning the labels.


These are just a few of the worst scenario presentation. I too have many but they are in a different country and may not be applicable to most of the members.

 

[rlee53]

That's sad arunmrao. I hope your friend gets back on his feet.
I don't plan to invest more than I can afford to lose, about 1 years expenses. I expect to know if the business is working or not before then.

 

[DonPhillips]

One way to protect your personal assets is to create a corporation for your liabilities. Make sure you file your articles of incorporation with your state and file annual tax returns for that corporation.

Don Phillips

http://worthingtonengineering.com

 

[GregLocock]

Your fledgeling business will then find it borderline impossible to get a loan or credit. That may not be a bad thing.

Cheers

Greg Locock

Please see FAQ731-376 for tips on how to make the best use of Eng-Tips.

 

[rlee53]

Greg,

Impossible to get a loan or credit; I'm not sure I understand the context, can you explain?

Richard

 

[arunmrao]

In India a new venture is always classified as risky. Access to funds,market,raw material etc becomes limited or most instances denied.. The simple reason being that there is no track record available.They are unsure of your entrepreneurship zeal,and your strength to survive.

 

[GregLocock]

Exactly. With no collateral why would anyone lend you money?


Cheers

Greg Locock

Please see FAQ731-376 for tips on how to make the best use of Eng-Tips.

 

[rlee53]

The plan was to take a home equity loan for one years expenses to get the business started. The other option was to take a loan from my 401k, but I decided against that option.

 

[GregLocock]

I understand that. Dobn was saying that to protect your assets,set up a limitied liability company, I was pointing out the practical consequences of that.

Cheers

Greg Locock

Please see FAQ731-376 for tips on how to make the best use of Eng-Tips.

 

[bvanhiel]

A corporation in the US will provide legal protection should someone sue you. It will allow them to take the company's assets, but not your personal assets. Should you do business 'naked', you are risking your personal $$$. I think it's better protection than insurance for a company with few assets, but then I'm an engineer and not a lawyer.

You can always borrow money as 'you' and give it to the corporation.

-b

 

[arunmrao]

If you sign for personal guarantees then despite forming a company your liability does not cease. Ask me I know it through experience.

Without a personal guarantee and a collateral for a startup company I doubt if anyone would fund.

Additionally for the traditional industries there is negative rating provided by the finance companies and I see most of us in this sunset industries. So real hard way.

Today I have a debt free company and the very same finace companies are willing to provide funding,which I have been declining. This style of working without finace sort of has become an addiction today. But it is not easy to juggle your cash flow especially in a manufacturing environment. Sorry for the long post.

 

[tygerdawg]

bvanhiel has it right. In the US there is great business rules and climate geared towards getting small businesses started. So the liability is limited. Bankruptcy laws WERE advantageous, but I think that has recently changed to be more restrictive.

If you start a biz, then pay the bucks to be incorporated or LLC'd. It protects your personal assets.

Regarding any "stigma" associated with running / failing, then getting back into it: the workplace is littered with people who tried/failed. I'd say it doesn't even matter. The optistic view is that it is a badge of honor to show your initiative and "real-world experience." Your business savvy and luck doesn't even show up on your resume, only that you were self-employed at some point.

TygerDawg

 

[GregLocock]

Are we living in fairyland here?

Taking a personal loan out against your personal assets and lending it to your company is identical to not having a company in the first place, if it all goes belly-up, so far as the loan institution is concerned. If you can't keep up the payments in either scenario they will come after the assets the loan is secured against.





Cheers

Greg Locock

Please see FAQ731-376 for tips on how to make the best use of Eng-Tips.

 

[rlee53]

I took the suggestion of incorporating to mean it would protect me personally for some error or omission or problem with something I designed. The company could be sued, but my personal assets were off limits.

It is understood that any loans I take in my name remain my responsibility to repay to the creditors, regardless of what I do with it.

 

[bvanhiel]

Greg,

rlee53 understood it correctly. Having a corporation just limits your losses to whatever's currently in the corp.

-b

 

[GregLocock]

Still in fairyland?

Let's do the maths

I have house value 100k. I borrow 100k. I lose 100k, and cannot make repayments. Bank takes house.

I set up company. I have house value 100k. I borrow 100k. I lend 100k to company. company loses 100k. I cannot make repayments. Bank takes house.

In the real world what is the difference?




Cheers

Greg Locock

Please see FAQ731-376 for tips on how to make the best use of Eng-Tips.