This is going to sound terribly cynical -- who me? -- but I sometimes wonder if most small businesses are just churning money.

Let me try to give you example.

Middle management couple from Cali. sells nice house for 500k and moves to Bend, buying a slightly nicer house for 350k. They invest the 150k difference in a new business, and borrow another 150k from the bank.

Over a five year period, they pay back to the bank about 50k in principle and 100k in interest.

Meanwhile, hubby has found a job that pays much worse than his Cali job, but considerably better than their business. He takes over the home mortgage, and the wife pays for food and gas from the business.

After five years, they sell the business to a new couple from Cali for 200k. (50k down, and 150k in owner carried payments). Since they took out 10k a year from the business, and because their house has appreciated by 100k, they figure they came out O.K. They pay back the bank the remaining principle, (the bank is happy) and have 100k left. A net loss of 50k, and a house they can't sell for the appreciation without moving down or out.

By my calculations, they could've earned 6% interest on the 150k for 5 years, and avoided the 8.5% interest on the 150k they borrowed, gotten modest jobs, and come out much further ahead.

The second couple sold their 500k house in Cali for 450k, and bought a 400k house in Bend, because houses have gotten much more expensive, they actually took a step down in quality. They invest the 50k difference in the business, and borrow another 50k from the equity in their house. (They made a 10% downpayment, so that pretty much wipes out the equity, plus.) They manage to pull 15k a month out, of which half are payments to former owners and bank, but because that is one third more than the previous owners ever managed to do, they are taking out the muscle not the fat of the business and it quickly declines.

After five years, they've paid about half the 150k they owe the original owners, who have long ago put the experience behind them, and they've paid at least 50K in interest to the bank, but without making much headway on their principle. Their house has supposedly increased in value, but when they go to the bank for more equity, they are turned down.

They liquidate the business for 50k; both get low paying jobs that barely pay their home mortgage. Meanwhile, the original owners don't get their last 75k, but they got 30k in interest, so they figure it's a small lesson.

Pretty depressing, huh? And because it happens over a 10 year span, and because eveyone more or less loses just a little, it never really comes out to friends and family that all they did was churn money for the bank for 10 years.

Just like Vegas.