Financial Advice for 2 year old startup business needed

[rmsllc]

Hey everyone, this is my first post on this forum but ive been reading for a while. I would like to pose a financial question for those in similar stages with their startups. Let me start with some info on my business.

I operate a small scale Used car wholesale and retail business. I have $40,000 of my own cash for operating capital. I have a retail dealers license, a small office, and my cell phone doubles as my business phone. I attend car auctions (Adesa and Manheim) where I buy and sell cars. Some cars I purchase at auction, send them to my detail guy, and run them back through the auction the following week and average $300 profit. I also buy some cars, detail them, and list them on craigslist, eBay, autotrader, etc. These cars generate avg profit of $800. I turn over between 5 and 10 cars per month.

In addition to this, I am the General manager of a separate used car dealership. A good friend owns the dealership and pays me 25% of gross profit as a commission every week. I am able to afford my cost of living with my paychecks from this income, and I am re-investing 100% of my profits from my own retail/wholesale car business.

By re-investing my profits, I have been able to grow my business operating account by around $1,000 per month (conservatively) for the last 6 - 8 months. My business is 100% debt free. No lines of credit, etc. It is run using debt free money that I contributed personally.

My question is this:

Should I consider a revolving line of credit to expand my business? My inventory cost is $3,500 avg per unit. If I were to take out a 20k line of credit, I could, in theory, add about 6 additional units to my inventory. At $300 profit each, that realizes an additional $1800 a month income for my business. At 5% interest on the loan, im looking at netting an additional 1650-1700 in profit each month (assuming im paying only interest, not reducing the principal).

Does this make sense? Or should I stay debt free and continue growing at the current pace? It feels like a snails pace!!!

I have big dreams for my business. My goal is wholesaling 50 units per month. Id like to add employees as purchasers to travel to other auctions and buy cars. Ideally, they would also act as reps at the auction when I sell them. This is my idea of a business that I dont have to babysit every day. Anyway, enough rambling. What are your thoughs??? Thanks in advance!!

Matt

[JKansas]

It sounds like you're dealing in pretty low cost cars. Can you afford the time to move 6 more units a month?

Debt free is good, but building business credit is smart also. I started a small LOC For this reason but that is really a personal question that you have to decide. Could you use the line of credit to maybe step up into some higher dollar cars with higher margins? It woudl be the same amount of detailing and sales work, just more capital up front. Maybe use the LOC on two 9,000 cars you can make 2,000 on?

It sounds like youre doing well and building it, sometimes we need more patience than we have and sometimes we need the push to grow. Really write out what you're looking to do and look at it on paper. See if that helps.

[rmsllc]

I am dealing in low cost cars. Most of the vehicles I sell are 5-10 years old with 120,000 and up miles. I started out selling more expensive vehicles(8-10k each) and the profit margin is the same on those vehicles that it is on the cheaper ones that I have gone to now. I got tired of my $8,000 investment only clearing me $800 profit on one car. I can buy two $4,000 vehicles and make $800 each on them. Twice the work, twice the profit.

The local market demand is higher for the $6,000 and under cars that can be bought with cash. There is a large division in our customer base. One half has solid credit, good incomes, and are either purchasing new cars, or purchasing $10,000 and up, less than 100,000 mile cars. The other half, the half I have chosen to target, are the $6,000 and under cars. I am selling to people with sub prime credit, low income, or they just don't want a car payment and are choosing to buy a less expensive vehicle with their own cash.

The ROI is much larger on these less expensive vehicles. Unfortunately, the demographics of the majority of my retail customer base means they can be very difficult to deal with!

[JKansas]

Makes sense to me. So can you afford the time for 6 additional units per month?

[hershey20]

just make sure that you've a business permit before
building you're own business..

[charharhar]

Sounds like you're doing great! What if you took out out a smaller loan (4,000) that is just enough to help you move one more unit. That way you can start doing more business, but don't have to worry too much about paying it off.

Charlie