Entrepreneurs frequently need to flex, bend and break the rules of personal finance. Sometimes it means putting up safe assets for a risky investment. At other times an entrepreneur needs to accept a higher total cost to abate short term cash issues. No matter the rule you break, an entrepreneur wants the risk to be calculated. The trouble is that it’s not always easy to separate your entrepreneurship dreams with the cold hard math of reality.
How do entrepreneurs differentiate between calculated risk and foolish mistake?
My wife, Mrs. No Telly No Trouble, has been bitten by my entrepreneurial bug. She wants to start her own private music studio this fall. For years, she has been an elementary school music teacher, but the long 50 mile commute and scheduling changes due from budget cuts has taken its toll. Since she’s started work, we’ve also become parents of two wonderful kids and private teaching will allow her to be more involved in their childhood than working/traveling 11 hours a day. Success means great benefits for my wife and my family.
I’d like to think that we’re making a calculated risk, but I seriously doubt I’m an object voice. What better place to put it to the test than to ask the financial blogging community? What do you think?
Our Entrepreneurial Finances
Of course, you’ll need a little information to make an assessment. Here’s a rundown of costs, assets and issues surrounding starting a music studio.
Out of Work, but Still Employed
As a public school teacher, my wife can take the year off without pay and still go back to her job next year should things work out. It’s nice to know that there is potential income safety net. However, my wife will need to make a decision to leave or return to work 6 months before the start of next year. So while delaying is definitely a plus, it doesn’t leave a lot of room for building up a customer base.
Income Exceeds Expenses
Unfortunately, our finances aren’t as sounds as I’d prefer. Without a second income, we’d get by on emergency savings, but expenses would exceed income. I have full faith that we’d be ok for a year, but a second year would be tight if not impossible.
Some Assets Need to Be Purchased
Luckily, our house can easily be used for a studio, but some investment will be needed. We’ll need to purchase a new piano since our electric is broken and our current piano can no longer hold a tuning. As you can imagine, pianos are costly; between $5,000 and $7,000. Leasing is no longer a common practice among piano stores. If we buy, we’re going to have to get a loan or pay for it out of the emergency fund that is necessary for making up for loss of income.
More Budget Cuts Could Cut the Safety Cord
The school district where my wife works has cut so deep, she’s next in line for unemployment should additional cuts occur next year. In a way, this only increases the need for us to diversify income. However, that safety net we thought could replenish our losses could be nothing more than a mirage.
Access to Students
It’s not all worries and concerns. My wife already has a lead on 10 or more potential students this year. A full studio would be between 40 and 45 students. Few businesses opportunities start with 25% of capacity. Not without buying an existing business anyways.
We also live in an excellent location, where there is strong community interest in music. Additionally, our house is situated on a main road with plenty of commuter traffic. It should be easy to attract notice with little more than a sandwich board sign.
What do you think? Calculated risk or foolish mistake?
This Week’s Carnival
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Don @ MoneySmartGuides writes Living Paycheck to Paycheck – In my recent wanderings on the world wide web, I came across an article on CBS MoneyWatch that said 38% of Americans are living paycheck to paycheck. This is up from 31% back in 1997.
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YFS @ Your Finances Simplified writes 2 Home Buying Tips That People Never Tell You! – I would like to talk about home ownership, in particular, mortgages. Now everyone tells you that home ownership is better than renting.
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SB @ One Cent at a Time writes How to replace HP Laptop – Effectively managing financial institution accounts is equally important as saving money. Still we don’t usually put much attention on managing side of the personal finance. In personal finance, diversification is as important as managing that diversified portfolio. Do it effectively
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Thanks for hosting, and including my article John!
I hope you have a great week ahead!
Thanks for inclusion and hosting, I really appreciate it.
Jacob @ My Personal Finance Journey says
Thanks so much for the mention!
SB @ One Cent at a Time says
Thanks for hosting and including my post
Ted Jenkin @ Your Smart Money Moves says
WE need more and more entrepreneurs in America! Here is a whole list of articles tat i have written that might "help" with some of the aspects of Entrepreneurship
Thanks for including my article and mention as well!!!
Thanks for sharing. I’d definitely look some of the articles over.
Steve Zussino - Canadian Coupons says
Thanks for the inclusion this week. I love to see more entrepreneurship. Even if it brings in only a little more income – every bit helps.
Modest Money says
Thanks for including my post John.
It sounds like it is a worthwhile risk for your wife. It does sound a bit intimidating at first, but with a little bit of marketing, I’m sure she could fill up the studio with enough students to get by.
Thanks for your encouragement.
Marie at FamilyMoneyValues says
It sounds very exciting, two treps in the same house! Here are some questions that popped into my mind as I read your scenario:
– could you get a used piano – perhaps at an estate sale?
– would your wife’s leads to new students dry up if she isn’t involved with the school music program?
– is she putting a potentially valuable pension at risk by quitting?
– would there be an advantage to waiting to get laid off – in so far as getting some kind of severance package?
– how much future demand is in your geographic area? Are you close enough to potential students to have the studio in your home and what will it do to your home life with students tromping in and out?
Good luck which ever way you go!
Thanks for including my link as well.
1. We are looking at professionally refurbished pianos from a local technician, but unfortunately, you can’t skimp too much when it comes to musical instruments. If you are going to teach and parents are going to spend, you need to be on a professional instrument and most used pianos don’t cut it.
2. Her job is very far away and won’t impact her positively or negatively
3. Yes. The hope is that at some point she goes back to finish the pension, but there are no guarantees that this will be an option. In today’s political landscape, it is. There is minimal danger should things not work out and she goes back to work next year.
4. This area needs to be researched more. She’s just on leave. It’s possible that if she were let go while on leave, she could get unemployment.
5. There is a lot to answer here. The area is good for music students. It’s not growing dramatically,but it is stable. The studio will be in our home and that means lots of family adjustments as will having my wife working part of the evening.
Thanks for your thoughts! Greatly appreciated.
Thank you for hosting this carnival, and including my post. Your blog is doing very well. Congrats!
I’d also agree it’s a good risk. It will certainly be tough to start and make take a few months before you really see the income exceed the expenses, but it’s a lot of fun owning your own business!
Jen @ Master the Art of Saving says
Thanks for hosting and for including my post. 🙂