Business is rarely straight forward and frustratingly many decisions are not just ‘grey areas’ – some don’t even have a right or wrong answer. As many businesspeople will tell you, very often ‘a’ decision must be taken and the consequences lived with and adjusted to. The average company director would not be able to stand the pressure of worrying about every decision they or their colleagues make.
And that’s the way it is. But some decisions can have far-reaching consequences far beyond the world of work and a laissez-faire approach just isn’t worth the risk.
Perhaps the biggest decision somebody could take is whether or not to risk their home either on a new start up business or to invest in an existing firm. It’s easy to see why somebody could be tempted. Recent house price increases mean that many people are sitting on a tax free nest egg, often in the tens or even hundreds of thousands of pounds. Plenty there to drop in to the business, reap the rewards and pay yourself back later right?
Perhaps.
But consider this. Around 30% of new businesses fail within the first two years so that new venture could quite easily swallow equity with nothing to show for it at the end.
And if you’re considering using your home’s equity to fund an existing business ask yourself
- Is it a sure fire investment? And if it is, how come the business isn’t doing well enough to take its own loan?
- Are you delaying the inevitable, pouring in money to pay day to day expenses?
Owning a failed business is hard enough but if it has also cost you your home that could be catastrophic for anyone.
But, going back to the ‘grey areas’ dilemma, there are of course many prominent businesspeople who have risked the lot on their business and it’s paid off. But it is worth remembering that very often these people have failed in business once, twice or more before getting to this point. Richard Branson is often cited as somebody who risked it all to become successful but failed first selling Christmas trees and budgerigars!
Also remember that cashing in your home has consequences for others, your family need to be consulted too. If you have a mortgage that has been running for a number of years, consider that lending rules have toughened up recently, especially for the self-employed – lose your mortgage and you might struggle to get another.
If, in spite of the possible pitfalls you still decide to go ahead, bear in mind the timings could be off. Putting a home on the market, finding a buyer and getting the sale through can take many months – about six months is average. There are professional property buyers such as House Buy Fast who will guarantee a fast sale but this comes at a cost – usually a 15% reduction on full market value so if you’re selling up, you’ll need to plan ahead.
Finally, before you commit, ask yourself “why?”
Must you really take on the business or expand your existing one? Could you be happier, secure in your home and keeping things as they are? Many people dream of hitting the big time and lose focus of the important things – their home, family and time. Talk it over, think about it, and don’t rush in. The way forward will become apparent.
