Business Expansion

[Ran]

Hi, I'm 17 years old. I'm a part-owner of an IT company - just registered as an LLC last week. The company itself is about 1.5 years old, making a net profit of about $800.00/month. We recently made a small investment amounting in about $2,000 that would increase our net profit to about $1,200/month immediately (pretty good investment ).

I'd like to provide as much information as I can without actually revealing the plan itself. Basically, I was the one that put together the investment proposal and planned out the procedure. I was able to workout a formula that translated "X" dollars of investment into 20% times "X" per month:
$50,000 Investment = $10,000/month Net Profit

I was thinking of applying for a small business loan instead of seeking out an investor. This kind of return rate is just a little too good to be sharing with a private investor, I'm not too keen on giving out any percentage cuts.

So now for my problem. I'm planning on attending college for at least my bachelor's degree (majoring in business), and I won't be starting until Fall of this year. I have a lot of real-life experience in running a business, but I have very little "traditional" business education. With this kind of income, I think it'd be safe to say I won't be able to hide from the IRS anymore :P

I'm wondering:
1. How will the LLC be taxed? Is it modifiable so that I can be added as a percentage owner? (The owner registered himself as the sole owner I believe and not as a corporation, and I current have no LEGAL connection to the company).
2. I've done some research on SBA loans and micro loans. What's the typical interest rate for a fixed rate $100,000 loan paid over 5-years?
3. What qualifications are needed for a typical business loan? My partner has a near-perfect credit history. But we have little to none corporate liquid assets as our company is based on providing service.


I've been an ambitious entrepreneur since the age of 13. Only recently have I been able to represent an already established business entity and have the opportunity to actually obtain such a large amount of capital. Although I usually don't follow "proper procedure" planning out ideas, I do make sure that EVERYTHING is accounted for. However this time, when I'm dealing with this much money, I'd like to do everything the "right way".

I'm pretty sure everything I need to know could be learned in my next 4-years in college, but that's 4-years of money lost.

If anyone could help that'd be great. More specifically, if anyone would be able to chat with me 1-on-1 over the phone or IM, I'd be happy to talk this over. What I'm really looking for is a mentor with experience in running a business legally in the U.S. and is willing to lend a hand.

Thanks for reading.

[akula]

Now that's a grrrrrrreat pitch!

This should be stickied

[mxer210]

Hey Ran. How much mentoring are you looking for? I'd be happy to consult your business over Skype or AIM. PM me if you are interested.

[jasaunders]

If you want to speak, PM me and we could arrange a time.

To answer some of your questions briefly:
LLC's are taxed to the individual. You should have your partner ammend your LLC bylaws/article of incorporation, to include you in them. In the bylaws you should specify your ownership percentages and how you plan on paying yourself out as the owners. A lot of people who form LLC's don't understand that legally it can be harder to pay yourself than it is with other entities because technically you can't just "pay yourself," it is considered a loan from the business to yourself that must be repaid. This is something you should really speak to a CPA and lawyer about and it will depend obviously on the state your LLC is registered in.

It will be very, very hard to get an SBA backed loan for $100k in your situation. However, typical rates for this would be several points above prime (current prime is 8.25), so expect something around 12-14%, if you have a very good credit history. For a little bit smaller loan, like $25k, your rate will probably be closer to 11-12%, again with a good credit history.

There are many things that could help you get a business loan, if you want to discuss in detail, PM me, but in general you need a good credit history, you need to show the lender how the business will make money, if the business does not make money do you have any way of paying it back, etc... Since you are only 17, I suspect your lack of credit will be the biggest obstacle to you getting a loan.

[Ran]

Thanks for the info, I've PMed both Ryan and Joshua and hope they'll get back to me soon.

As for your question Ryan, I'm not sure I can put a timeframe on the number of mentoring hours I need. Honestly, it could take maybe 1-2 hours to ask some questions, get some answers. But then again it may take days and weeks to figure out EVERYTHING I need to do before putting this plan into place.

To Joshua: If I was to go ahead and get this loan, my partner would most likely be the person going after the loan. He's 20 years old and has a good credit history.

But now that I think of it, I'm a little worried about dishing out 50% of the profit for someone to get a loan for me. Maybe I should in fact go for the loan myself and setup a separate entity? If that was the case, I would probably pursue a smaller loan, somewhere in the vicinity of $25,000. The thing with this plan is, I can start as small as I want or as big as I want. Even with a $5,000 investment I'd be able to come up with about $1,000/month profit.

[Chris123]

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[danbu1]

Ran,

You are young, I would go for the slow and solid growth(don't take on an investor). You will find that your business will grow exponentially. That is if your window of opportunity allows for it. If not, then you really do not have a choice.

btw, how much to buy you idea?

[Ran]

Haha, the idea is not for sale.

Just to update everybody, I was able to secure an initial investment from friends/family of about $3,500.

[Ran]

Another update for anyone interested. I left my management position since I was so confident in my business plan. After a few weeks of planning, I launched my OWN company in mid-May (registered it as a LLC), and am now making a steady profit of about $450.00/month from a $3,000 investment. So far, so good.

[akula]

way to go son

I'm very much inspired by your attitude

[Young Spark]

^^ I agree, quite the story if you ask me, and from a $3,000 investment... your doing one hell of a job Ran.

Ran: Allow me to ask though, are you able to share what your business is? Maybe I missed it somewhere but I think you kept it confidential.

[Ran]

I'd like to keep the names of both companies confidential for now. It's not too important anyway. I'm in the web-services industry.

Thanks to both of you for your kind words.

[radreality]

Wow, I'm surprised no one has mentioned getting an attorney (maybe I missed it). You just opened the door for yourself to get screwed. You better hope that you can trust your "business partner" (its in quotes because legally there is no connection between you two if you aren't part of the legal documentation for the business).

Paying $190 - $250 to sit down with an attorney for an hour will provide you all the information you need. If "your partner" used an attorney to form the LLC, then you should have a different personal one to represent your best interests.


______________________________
Robert Falk
Business Developer / Investor
Self Help & Success Forum

[Ran]

I'm not sure what you're trying to say, I think you missed my most recent post. I don't have a business partner, I took my idea and ran - started my own company (and registered it myself).

[syia]

I just want to say.. what a great success story .. hope you find useful help here