Joe Doyle has recently received a substantial inheritance on the death of his mother. Joe has been working in a job that he does not really enjoy, and has dreamed of starting up his own photographic studio, since photography has been his passion for many years. Now that he has an amount of $500,000 available, he is faced with a number of investment options. He realizes that to invest all his money in the studio may not be wise and would like to invest in Billabong International Ltd in order to ensure a good income stream and security for his future, apart from his new business.
He estimates that he will need half his inheritance for the business, and is therefore looking to invest $250,000 in buying shares in Billabong. The main concerns Joe would like you to advise him on are these.
1. Since his friend Paul Jones has expressed an interest in investing $50,000 in the studio, should he set up the business as a partnership or a company? Paul is not anticipating having any direct role in the management of the studio. Joe definitely wants to maintain control over both the creative and business side of the studio.
2. On the basis of its past performance, is Billabong likely to provide him with a good income stream and a secure future?
This represents a very significant investment decision and lifestyle change for Joe. He would like your advice about his plan. He does have concerns about the volatility of the stock market and is also nervous about going into business with a friend. He has come to you for advice, in your capacity as the manager of the Financial Accounting and Reporting section of Nelson & Irvine, a Chartered Accounting firm specialising in small business consultancy.