I am 21 years old and have a Pretzel company with 2 food trucks running. I am looking upgrade all of our equipment to be able to handle the amount of wholesale orders we are getting. I have had multiple friends, older guys I know and other business owners tell me when I am ready they would be happy to invest. Is this the route I should go or would it be better to get a SBA loan?
If I went the route of asking for an investor how do I go about asking them and what is a reasonable valuation for a business that is profitable in 8 months and with net over $150,000 our first year.
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150k profit in 8 months is great! If you can get financing with friends and family, do that. Create an IOU and agree on repayment terms. If instead you’re thinking of trading equity, you have to be careful about what % you’re giving up and realizing you have a partnership now. Third option, with those profits is to modernize over time as you can afford it.
Don’t give up equity or take on partners. There’s no need for you to do so.
You can get an SBA loan pretty easily depending on how much you need. But really the question is where is the $150k you’re making this year going? If you’re not reinvesting 75% of that this year then you’re doing it wrong. Live frugal the first year or two, build the business to a $3-500k yr income stream and then start enjoying if you’re seeing as much growth and potential as you’re talking about.
In order:
- Fund with cash flow
- Get debt with bank
- Get debt with family/friends (you can swap 2 or 3 here but I think bank debt is Bette than family debt. If I fail I’d rather owe the bank than my family. I don’t see the bank on thxgiving)
- Sell equity / get partners
Based on some of your numbers, can you explain the $150,000 net? What is that “net” of?
My cousin’s husband owns very successful potato chip factory. He has always invested in his business.
However, since you are only eight months in, I would invest carefully so you don’t eat up cash flow unnecessarily.
Instead of upgrading all equipment, consider engaging an engineer to help determine what needs to be upgraded.
As you may know, all equipment components do not wear out at the same rate.
Retro-fitting or upgrading only what is necessary to get the job done will help reduce the amount debt to take on.