We Bought A Business for $500,000, And It Doesn't Make A Profit

I'm calling in with kind of a two-part question about business cash flow concerns. My husband had worked at this business for over 20 years, and we recently bought it. We took out two personal $50,000 loans to pay the previous owner and to start the business. But now after two months, we're feeling a lot of stress in our new marriage, feel like we're only paying debt, not making any progress, and can't breathe anymore. We need guidance on how to manage the cash flow so we can try and get ahead. The monthly business expenses are between $50,000 and $60,000 a month, but the income varies between $40,000 and $70,000, depending on the month. My second question is that I'm- So you paid $100,000 for a business that breaks even? He told us it didn't. He said that it had a significant cash flow, but we are finding that we're only breaking even. He said it's a slow time period right now. Did you look at previous books of the business, like the last 12 months before you bought it, to see seasonality, if that is true? He didn't really offer that, and we kind of went on good faith because my husband had worked for him for so long. But I'm realizing now that maybe we should have. No, not maybe. Absolutely. Yeah. You stepped up into a bear trap. What kind of business? It's an appliance repair business. What is the $50,000 to $60,000 in overhead on appliance repair? Mostly, it's payroll. There's six technicians, but we're also paying for health insurance, rent, software insurance, auto insurance, website, leases on the vehicles, which I don't agree with. So the six technicians are not working all the time? Well, there's three office staff and three technicians. We did used to have four technicians and one quit during this time frame, so we're trying to hire a new one. Why would you want more expense? We're hoping that he can also bring in more income. And why would you have that hope if you're not already overwhelmed with business? Yeah. Are you guys turning down a lot of business? No. Right now, they're pretty busy. I think my husband's schedule, he's booked out to next week, so not turning down a lot of business, but we're at least a day or two busy all the time. Yeah. Okay. So here's the thing. You have to ask, what must be true for this to work? And so revenues have to go up and expenses have to go down for this to work. That's a basic business premise, right? We all know that. And so that's what you've got to start asking yourself, what can I do to get revenues up and get expenses down? And none of these things are going to be easy. They're all going to be painful. Your husband's going to be working all the time, welcome to being self-employed. And the technicians, you're going to get them to where they're so busy, they can't breathe. And then you're going to bump your rates and start charging more. And then you're going to lay off one of the three office staff or two, and you're going to be down there doing the books. And then you're going to look at getting rid of these leased trucks and get some old trucks that show up because nobody gives a crap what you're driving if you fix their dishwasher. Yeah. The hard part is that I'm active duty military, so I can't move there yet. Okay. If you're serious about budgeting, you can't ignore healthcare. For most families, it's one of the biggest line items. Y'all, you can cut subscriptions and eating out, but if you're still stuck with a massive premium every month, it's going to be stressful. Now, Christian Healthcare Ministries is different. It's not insurance. It's believers sharing each other's medical bills. And the best part, programs start at just $115 a month. So go to chministries.org slash budget and use code Ramsey for 50% credit towards your first month. I'm debating if I should pause my TSP savings, put that money towards the debt. Okay. Yeah. You guys got to clear this debt and you got to stop everything and get where you can breathe. But the point is, the more you move into increased revenue and decreased expenses and more margin in your personal budgets, the more there's a light at the end of the tunnel that's not a train. And then you can, you know, the problem with where you are is if you feel like you're stuck there forever, that's an untenable place that creates unbelievable anxiety. But when you're in a hard time, but you can see your way out doing some hard things, well, the brain will help you do that. Where is your husband right now living? If you're in San Diego, where is he? He lives up in the Fresno area. Okay. And you guys are newly married. How long have you been married? One year. Okay. Were you deployed or something? No, we just met living in two different locations. When are you guys planning on being in one location together? Next year. I retire next year. Okay. I'm just wondering, does he have this level of stress as well? Because you're the one calling us and you're not even in the same city with the business. His stress is easily two to three times what mine is. And so you're just hearing it. You guys are talking through and you're like, I'm just going to call and see what they say. Yes, exactly. Okay. And you don't owe this former owner any money. We owe him almost $400,000. Holy moly! You paid $500,000 for a business that doesn't make a profit fixing dishwashers? Oh my gosh, kiddo. Yeah. You guys screwed. Wow. Unbelievable. Okay. So what does she do? So I can help you with this real quick. Call the former owner and tell him to come get it. Come pick up the keys, buddy. I'm done. Just walk away. And walk away. With $100,000 and just pay it off. Yeah, pay the $100,000 off and call that stupid tax. Call him and tell him to come get the thing. Screw this. You got hammered. Yeah. For a business to be worth $500,000, you need to be making a profit of $150,000 to $200,000 a year. And you ain't going to see that in your lifetime out of this thing. And I think that's what he told us that it was worth. Yeah. Well, he's a liar. Okay. And I'll be mean. Can I be mean for a minute? Sure. Y'all were dumb on how you did this. Yeah. I mean, you believe this guy just because your husband used to work there and he got a paycheck instead of actually checking out the freaking numbers. You signed up for a half a million dollar trip around the sun and didn't look at a stinking number. Just trust some good old boy. Yep. That's like walking in front of somebody's quick. Oh my gosh. Bless your heart. Yeah. You got a mess. This is not going to end well. I'm calling that owner and saying, I can't do this. You sold me a pig and a poke. I'm done with you. And there's no possible way this thing is worth any where close to what you sold it to me for a, you screwed me. And here I'm leaving. You can come pick up the pieces and tell your husband to move to San Diego, move to San Diego with his new beautiful wife and get a job. And then y'all scratch through your stupid a hundred thousand dollars worth of debt. And when you look back on that, you'll say, that was the dumbest thing we ever did. Cost me a hundred grand. By the way, I've done dumber things that cost me more than a hundred grand. But I, but, but, but man, I can look at myself in the mirror and go, you are stupid Dave when you did that. So yeah, you, this is not recoverable. I'm turning this over to this guy. I'm serious. You're not going to work your way through $500,000 in debt. And the seasonality part of appliances that I'm like, you're dishwashers don't break in the summer more than the winter or less than is what he's telling them. I know that's just absolute bogus. If it was heating and air, maybe we'll talk about it. There is some, there is some, there's some come and go on heating and air, but that you said appliance repair appliances aren't on a schedule for repair. Refrigerators don't go, Oh, I'm going to wait till after Christmas to break. They don't do that. So this guy's full of it and he sold it to you and he's sitting over there grinning going, look at these fools sending me checks. No more checks for Bubba. Nope. I'm done. How does that really quickly? I'm serious. You're probably going to get yourself sued. I was going to say legally. What do you, how do you do that? The other thing I would do is when he sues me, then I would counter sue him for fraud and say, you lied. This is verbally. This is what was said. When you lie to do a business transaction, that's called fraud. Yeah. And this guy was fraudulent. He lied about how much money this business makes. I promise you, he lied way, seriously lied. And the dumb part was you believed him. So you get to, you get to, you're probably going to get sued. You're probably going to have a counter suit and you definitely got to pay the a hundred grand that you borrowed from real people. Oh, geez. Sorry, Michaela. Yeah. This is awful. I'm so sorry. I'm aghast on your behalf. Christian Healthcare Ministries can save your family hundreds of dollars on health care every month. Learn more at chministries.org slash budget.