MY SCARIEST MONEY MISTAKE-LEAPING BEFORE WE REALLY LOOKED

By in Debt, Guest Post, Money Management | 7 comments

Best Money Saving Tip – How Not to Start a Business

Guest contributor, Crystal Stemberger from Budgeting in the Fun Stuff

Today Crystal is writing about “My Scariest Money Mistake and What I Learned From it” for the Yakezie Blog Swap. A group of Yakezie Finance and Lifestyle Network members all write about the same topic on another website. Check out all of the contributors (at the end). And be sure to visit Budgeting in the Fun Stuff for my post!

I am proof that even the most budget-conscious can have misguided moments when it comes to cash.  My scariest money mistake happened over a few months in 2007.  That’s when we started investing in a friend’s business.

How did I lose 15K in a gaming biz?

How did I lose 15K in a gaming biz?

Back Story

My husband and I love board gaming.  I’m not talking about the well-known ones like Monopoly.  We play games like Power Grid, 7 Wonders, Ingenious, Magnum Sal, and Ticket to Ride.  My husband also plays Magic: The Gathering quite a bit.  So when we discovered a game shop near our apartment that had it all, we started hanging out there whenever we could. We quickly became friends with the owners.

So when those owners started mentioning some cash flow problems a few months later, we thought we could help and become game store investors ourselves.  Dreams of hanging around a game shop 24/7 flooded our heads, and the owners painted us a more optimistic picture than they should have when we started looking into the finances.

Investing and Losing

It looked like a cash investment of about $5,000 could solve most of their problems.  Even though we were looking into buying our first home around that time, we decided we could handle both issues and jumped in.  But $5,000 only solved about half of the problems, and there were back taxes and inventory bills that we didn’t know about.  $5,000 turned into $10,000 over a few months.  $10,000 turned into $15,000 halfway through the year.  That’s where we drew the line.

I had taken over the checkbook when we started investing just so we could get it back in order.  And it was working!  The store stopped overdrawing its account and we were a few days from being able to get access to the line of credit again.

But one of the owners disregarded what I said one day.  I was very clear that we could pay the electricity bill, but that we would need to wait 2 days before buying more inventory.  I even texted her after I left because I felt like she wasn’t listening.  But she paid for both on the same day, overdrew the account again, and the bank called in their loan.

And that, ladies and gentlemen, is how you bankrupt a business overnight.

Money Saving Tip: Don’t Lose Money

We “only” lost $15,000, and we were able to get a little back from the loss from the tax returns over the next 3 years.  Plus, we kept enough cash to still put 20 percent down on our first home and move forward from there.

But I learned a really valuable lesson – don’t trust the rosy picture people in trouble will paint.  Also, don’t go into business with anyone that you can’t trust 100 percent. (Barbara’s comment, do your own due diligence, look at the books, and verify everything you are told)

If my husband and I were running that game shop, it would have had a real chance to turn into a very profitable business.  But its owners spent way too much in the beginning on pretty-factor (stuff that doesn’t matter).  So they didn’t have the cash reserves needed to get through the first year or two when a business doesn’t make as much as it earns.  They also weren’t being honest with themselves or us about how much trouble they were in.

In the end, this just ended up being a super scary, stressful, and expensive time in our lives.  I don’t think it affected us negatively long-term, but it definitely was a sore spot for a few years.

Barbara’s Comment; One of the best money saving tips is to avoid making the same mistake twice and learn from your money mistakes!

Guest author Crystal Stemberger, writes from Budgeting in the Fun Stuff, where she covers spending, saving, and budgeting in the fun stuff along the way.  She and her husband work from home now thanks to a business she started online.  But as you read, they haven’t always made the best financial decisions…

Participants in the Yakezie Blog Swap

Check out other money tips from personal finance writers as they unveil their scariest money mistakes:

What was the scariest money mistake of your life?

 

    7 Comments

  1. Whether you are investing in a public or private company, you need to investigate (due diligence) it. You have to have confidence in management that they can overcome whatever obstacles if front of them including profitability.

    krantcents

    September 12, 2013

  2. @krantcents, yep. We were just too optimistic.

    Crystal

    September 13, 2013

  3. Were you investing your money in this business, or were you just helping out? I would assume you thought you could profit from your $15k investment, but in what way? The business arrangement is unclear.

    Bryce @ Save and Conquer

    September 13, 2013

  4. I would say avoid partners at all costs. Unless it’s your spouse, I would not go into business with anyone, especially family. When you can’t call all the shots, you never know what someone else might do.

    Kim@Eyesonthedollar

    September 14, 2013

    • Hi Kim,

      I’m in partnership with my sister on a couple of projects. I’ve thought about partnering with others at times, but I’ve seen lots of partnerships go bad, so I’m quite hesitant.

      Barbara Friedberg

      September 15, 2013

  5. OMG, this reminds me the exact mistake I have made several years ago. I wanted to invest in a small manufacturing business. I fell in love with the product and although I checked the books and knew immediately that the business was dead I refused to acknowledge it and invested about 30k dollars. All lost of course.

    Martin

    September 16, 2013

  6. @Bryce, we were going to be given a significant percentage of the profits if they had stayed in business.

    @Kim, so true.

    @Martin, that just super sucks. I am sorry. It’s hard to say no when your heart gets involved.

    Crystal

    September 16, 2013

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