Photo courtesy of hyku
Near the end of the first hour of the February 23 Dave Ramsey radio show, a Ford employee (Mark) called in with a dilemma. Ford has offered him an “entrepreneur” buyout package with a $50,000 lump sum payment plus free health insurance for the next five years. The caller was running a part-time lawn care business and asked Dave if he should take the money and run, or stick it out in the interest of job security.
Ramsey correctly pointed out that if a company is offering people money to leave there is not much job security left. Very true. I would go even further to say that there is no such thing as job security – for any of us.
So the decision before Mark is to take the buy out now and work on his lawn care business (or look for another job), or hang around at Ford and hope he isn’t laid off without a buyout offer down the road – a very real possibility these days.
Mark currently earns $70,000 a year at Ford. By applying the $50,000 lump sum payment to what he owes, he will be debt free but the house. The lawn care business grossed $30,000 last year while he and his son ran it part time.
I would advise Mark not to use his entire lump sum to pay down debt; at least not right away. Instead, I would tell him to pay himself a salary from the $50k for the first eight months or so after leaving Ford. I would go so far as to automate the process by stashing the lump sum in a high-yield savings account, such as the one offered by ING Direct, and schedule bi-monthly transfers to his primary checking account, as if he was still receiving a paycheck from Ford.
When the lawn care business is consistently bringing enough money in to cover his bills (consistently meaning at least three months) then he can pull the trigger on the lump sum and use what’s left to pay down as much debt as possible, minus an emergency fund.
I worked in the lawn care business some in college, and ran my own business as a side hustle for a short time. It is the epitome of a cyclical business because during spring and summer things are hopping, and by fall they start to taper off. Over the winter, it’s hard to land a job doing anything other than removing snow or doing landscape projects (pathways, retaining walls, etc.). For that reason I would recommend Mark save up a large business emergency fund to cover those down months, or to cover a period of illness or injury. After all, you cannot take any sick days when you work for yourself.
Would I Take the Buyout?
In a heartbeat! The only thing stopping me from pursuing a freelance career now is our remaining debt and concerns over health insurance. If someone offered me a $50,000 check and insurance for five years I take it before the ink dried. But that’s me. Some people do not have the same tolerance for risk. Some people do not like all the aspects of running your own show. The marketing, the bookkeeping, the administration, etc. can be a drag to someone who just wants to get their hands dirty. But that’s part of being an entrepreneur. You either have to do it yourself, or hire someone to do it for you.
How would you respond if someone made you the same offer?