DH is self-employed, earns no money, but wants to invest £20,000 -- ARRRGGGHH!

[zebra]

Hi Mumsnetter -- guess I'm seeking a Reality Check.

DH has been trying to start his own business for 2.5-3 years. Parttime until recently. He got voluntary redundancy from his previous job last autumn. With the VR money we paid off the mortgage -- so financially secure, but DH's business is bringing no net income in. It makes about £350/month right now.

I said he could do his business 4 days/week & I would support family on my meagre salary (about £100/week after house & childcare costs). On the condition that if the business intake didn't double every 6 months he would go out and get another job.

DH has a business partner who I don't trust with money. He wound up an Internet company recently with lots of debt (£20-£40k?). He gets threatening letters & phone calls from creditors. He used to lease a Lexus car thru the business, & blames his accountant for the business debts. His wife supports him (no kids, thank goodness). They have found money last year to go see Madonna in concert, go to Wimbledon, drive to Spain. Biz. partner complains they have no money but they still pay £40/month for Sky TV. He just got a personal loan for £1000 for a band he's in. I only say all those details because I want somebody to tell me if I'm being unfair to label Biz.Partner Financially Irresponsible.

DH loaned the business £2300 in December, which it looks on track to pay back by June. Now DH has this idea to put £20,000 up (some savings, some money MIL is giving us). DH thinks if we put up the £20k, we might get a Govt. grant of £1000/month for 10 months. That he (DH) can pay himself back £2000 each month tax free, plus half of the £1000 (so £2500).
We're invited to a birthday party in 2 weeks time we can't possibly go to on our strict £100/week budget. I insisted on the strict budget because I don't want us to dip into savings when DH's business hasn't been that successful even after 2.5 years. And because I want DH to realise for himself that it's not working; he's working 4 days/week for zero income.I would dearly love to go to this party! But what's the point of strict budget if we don't stick to it? Alternatively, why should I suffer because DH doesn't want to give up on this business idea?

Also, I badly want to move away from the town where we're living. We keep hanging on because of the business. I would like to get settled in a new town before Autumn 2005 when eldest child starts school. Although I have close friends here, too,and feel scared of the current houseprice bubble, so moving away is a toughie....

do you think I should let DH invest the £20 k?if not, how do I explain it to DH?
should I just tell DH why I think he's wasting his time & holding up our lives, or bite my tongue since it's his dream?
should we go to the party?
If you read this far, Thanks for listening; it's so complicated, I never get to explain it all or write it all down. And sometimes the situation drives me completely batty.

I would be extremely cautious investing so much money in a business where the other partner has such a bad track record. I hope you have a very good solicitor and a well written partnership agreement, you could end up losing your £20k plus paying out to sort out the irresponsible partner's foul ups. Do you think that the business will ever make money? or is it just stumbling along and never likely to go anywhere? If there is potential and you can minimise your risks then perhaps you should trust dh and go for it but if the only way to make money is to qualify for grants then I don't think it is worth the risk.

I'm glad that you are level headed enough to insist that he doesn't eat away at your savings and also feel that he is a bit selfish to let you keep the family while he does his own thing. It all really comes down to whether the business is viable or not and whether you can trust this partner not to mess things up for you. I am over cautious anyway but I would certainly think more than twice before putting so much money into the business in the current situation.

Agree mostly with PamT.

It's not the investment per se that worries me, but the business partner. If he does invest the money, then you should also invest in a good solicitor like Pam says.

On the other hand, everybody makes mistakes, and one man's necessity is another man's luxury (maybe he needs Sky Sports like I need my newspaper). Depends on what the business plan is really - has he been to the bank? (if they will agree to loan money, then they will be impressed by the business plan - just as an acid test sort of thing).

Not much help am I?

zebra, if the business is only bringing in an income of £350 per month now (to support 2 partners I assume?) how is it going to generate enough profit to be able to pay back the £20k? It just doesn't sound like it adds up to me.

Plus if his partner is financially untrustworthy it sounds risky. What will the return be on the £20k and how long is the payback period? Oooh, I wouldn't go for it if I were you, not unless I was thoroughly convinced that they have a sound business with achievable profits. Has a bank looked at it? What do they think? If they won't lend the money then why should you (you as in you and DH, not you personally)?

Is there someone you could ask to go over the figures with you so you can understand them and decide whether you think they're realistic or not? If you don't think they are then you'll have a good solid reason for telling dh you don't think he should do it. You sound to me as if you've been very patient so far. If dh really wants to go ahead and you agree, could you do so on the basis that the partnership is dissolved and dh employs this guy instead? That way he could be involved but shouldn't have enough power to completely scr*w things up.

And if I were you I would go to the party and ask dh to pay for it. Good luck.

Beware of partnerships. if your dh is in a legal partnership and the other guy owes money they can come after your dh for his partner's bad debts.

How can your dh pay himself tax free each month?I don't understand, please excuse me if I am being thick.

What costs are involved in the party? Is it a meal in a restaurant? Will you feel obliged to take an expensive gift?

DH says that he would get the grant just for himself, this would be a separate business enterprise. That money paid from and to yourself is not taxable. And somehow he would pay the Bus. Partner some money out of it -- as a loan, or maybe as salary (which would be taxable, I presume?). I don't know. I'm glad you all don't think I'm being unreasonable....

Fallala: the main party cost is just getting there -- £60-£80 any way we look at it. We are trying to live on £100/week....

zebra you've just made me change my mind - don't let him do it!

I've just asked dp who knows a bit about these things, and he is pretty sure that money paid out of a business (any money, any business, even if it is 100% owned by yourself) to yourself counts as wages and is therefore taxable. Money paid to the bp is definately taxable. There could be a loophole, but either way it sounds like your dh's bp has come up with some scam that isn't 100% right.

You should definately get some independent advice before going ahead.

zebra this is all sounding a bit odd.
I am self employed and if there is a way of paying myself out of the business and avoiding tax PLEASE TELL ME!! Seriously, there is no way.I also am in a partnership and just like a marriage it has serious implications, legally, practically, and emotionally
I would advise him NOT to invest the 20k but at least to use a little of it to go to the party

Also yes - if you can access 20k for a business, then you should be able to pay £80 for travel to a prty every noe and then.

I know we could cough up the £80, but I am determined to A) point out to DH how much money we're losing because of him trying to start this business for so many years and it never making money enough to live on, and B)save up to buy a nicer house. I don't want to eat into our savings, so set firm rules about how much spending we should do. I do feel really resentful he isn't willing to give up on the business. If we lived in a nice place I wouldn't care about eroding our savings, but I know that to live somewhere nicer we need to scrimp & save. ATM We live in a deprived area in a polluted town with a filthy walk to the town centre from this neighbourhood. I'd move now, even within this town I hate, but we don't have enough money to buy a house in a nicer area outright & sure couldn't get a mortgage on my salary.

Thanks for the business advice; I feel sure DH must have the wrong idea about tax on payouts from these SMART grants.