Drained My Life Savings for My Failing Business

Brought to you by the EveryDollar app. Start budgeting for free today. I have a full-time job, I have a side hustle, and I have a third business, which is a kids' play center. And it's currently losing me about $13,000 a month. Ouch. I know. I know. It's really painful. And had you spoken to me like five years ago, I would be on baby step five or six or seven. But unfortunately, this business has drained all of my 401k. It's drained all of my kids' college savings. And it's also forced me to sell a rental property that I owned. So the question I'm asking myself is, do I sell my home Take some of the funds and try and rehabilitate this business. Do I ditch the business and possibly even downsize the home? Or do I borrow money against the house, which has got about $350,000 of equity in it, and try and figure things out that way? How long have you been losing money on this? Yeah, I mean, since I set it up. Which was how long ago? One year ago. And so in one year, that's $150,000 in losses if it's a 13,000 burn rate, right? So that was your whole 401K is $150,000 and a rental property too? No. So about six years ago, one of my little girls had to have a bone marrow transplant. And I had a full-time job, fully funded 529, fully funded 401K, my main home and a rental property. And I was working the whole time that she was in hospital and then subsequently recovering. And at the end of that, I kind of reassessed my life and said, OK, do I want to be in the corporate grind or do I want to do something in service to other moms that enables them to spend quality time with their children? So I took a payout, a redundancy payout from my previous employer. I paid my mortgage six months in advance and I said I would live off the proceeds of my side hustle. And unfortunately, Miami property market completely exploded after the pandemic, and it became much more difficult to find a rental location. I then had some issues with the... But I'm sorry, but you started the thing one year ago, and you haven't had a time to lose all the money you're talking about you lost. No, I lost the money during the setup process. And in that time, I returned to a corporate role. I know, but that was one year ago. So how much did you put into the business initially, before you started losing money? About $120,000 went into the business before I started losing money. So what makes you think, to answer your original question then, my friend Dr. Henry Cloud has a book called Necessary Endings. And we have a necessary ending to a relationship, a job, a business, when we see no hope that it's going to get better. So why do I think, if you're going to sell me as your new investor, why would I invest if I'm your investor? I'm not. But if I were that, if you're on Shark Tank, why would I want to put money in this? What makes you think it's going to turn around? I mean, I think I haven't had the time myself to invest in it. So, you know, I'm also thinking maybe it won't turn around. Yeah. So it might be time to move forward. I think your idea might be bad. It's a franchise business. It's well-founded. It's a noble cause. What you were trying to do was a nice thing, a good thing, but the business aspects of it apparently suck. Yeah, it's a franchise business. So what can you get out of this? If you close this thing down, what can you get out of it? I think... I think my best chance is for a resale to somebody else who's got the time to devote to it because my time has been sucked up by this full-time. Are you tied in a lease agreement for the space? Well, but a new franchisee come in, buy her out of the franchise and buy her out of the space and take over the lease. That's how that transaction would normally work. So the fact that it's a franchise makes it really devastating that you've still lost this much money because that means they suck. Um, but the, uh, but on top of that, the good news is, is that they probably can sell, resell the franchise rather than let their new location close down. And so the franchise owner is probably going to be a big help in getting you out of the lease and getting you out of the business. So I'm out of there, kid. I don't hear any reason to stay in this. I understand from a heart perspective, how you got into it, but I'm not staying in it. Nothing in this conversation says who, who five years from now. That's great. Thank you. Yeah, that's a necessary ending. I mean, it's like, you know, if you're married to an alcoholic and he keeps saying he's going to get better, he keeps saying he's going to get better, but every night he comes home drunk, at some point you go, this is not going to get better, and this marriage is done. And that's a necessary ending because there's no hope of change. There's no hope of a shift. And, and. Honestly, inside of a business, we have miniature, all of us have miniature P&Ls or projects that we have to either sunset them, meaning we close them, because what we thought was going to work didn't work. Welcome to business. And I closed one not long ago inside of Ramsey, but we didn't close Ramsey. It was just a portion, a thing here that used to work and doesn't work. We're not doing it anymore because we couldn't see a way to make it work in the current environment. So that's what you're doing. You're analyzing, is there hope for the future? Give me a reason for hope. Give me a logical, rational, business reason for hope. And $13,000 a month burn rate, that takes away my energy real fast. Yeah, and sinking more money into it, as you've already found, is not the answer. So I don't want you to sell your home, the last asset you have, after already draining the 401k, the 529s, all to try to make this business work, and then it doesn't. Now you've got nothing. And now that's insult to injury. It's kind of like a gambler who went, hey, I'm going to drain the 401k, drain the savings. You're chasing losses. And it's going to be different this time. I can come back if I just had one more. Yeah. That's the scary part to this to me. Harvard Investment Letter calls it a sunk cost analysis, meaning what you put into it doesn't matter. All that matters is what the future looks like. So if you bought a stock for $70 and it goes to $10, you know, do you sell it? Oh, I'm going to wait for it to come back up. Well, would you buy more of it? No. Well, that's the same reason you sell it today. It's because you wouldn't buy more of it because you think it sucks. But the fact that you paid $70 for it makes you refuse to turn loose of it for $10. And there's too much pain associated with it. You know, what you put into it, your sunk cost is skewing your judgment, not her judgment. But, I mean, in the case of any of us, when we're looking at this, I can't sell it for that. You don't know why I paid for it. What you paid for it is irrelevant. All that's relevant is what you can get for it. It's just the emotional pain of having done something stupid. That's what kills all of us. It makes us hold on to something too long. When you wouldn't buy it again for what you paid for it, it's time to sell it. And I can promise you, Helen would not set up a new playground today if she wasn't in the business. Hey, Helen, would you put in $150,000, $200,000 and open up a playground today based on what you know today? No would be her answer. And so, yes, sell it. Create your free every dollar budget today. The simplest way to budget for your life.