Financing a staffing business
Hi all - I'm helping a friend with some HR related stuff for her staffing business and when she told me about their investment structure, something didn't make sense to me, so thought you guys might be able to help.
Are business loans similar to home mortgages (as a landlord, it's easier for me to relate to the RE business) where equity in the business (valuation for businesses versus an assessment, of course) could act as the sole collateral? If an LLC declares bankruptcy, would the owners be personally liable for the loan or just the LLC? Any thoughts on how they can limit their liabilities or do a better job financing their business at this stage?
Business has been around 2 years now. It is an LLC, but basically a 'partnership' between two husband/wife teams. My friend and her husband puts up all the money and works part-time for the company supporting the operations. They log an hourly rate for the work they do, but instead of taking out payroll, they get 'equity'. The other guy works full-time for the company and gets a salary. His wife, if she puts in any time, also gets the same hourly rate - paid out through payroll. Seems ok to me so far...
By reinvesting their 'time' into equity, they basically have a positive cash flow. If they include the operational investments that they make (new brochures for their first job fair, etc), then they are in the negative. They have so far invested $150k of their own cash into this business, with approx 50k in AR and approx 25k in technology (printerns, servers, etc)
My friends both work full-time jobs and are expecting their first baby so I'm a bit concerned for them. Maybe I just don't have the stomach for this and this is normal, but you guys have helped us a lot in the past so thought I'd confirm. Thanks!