I want to start a small business...

Cogliostro

So for the first time the other day I wanted to start a small business and I've been running with the idea ever since. It's going to be a membership-based. I won't go into too much detail here, but let's say it is a niche that isn't really filled.

The start up costs are minimal; I only need a decent sized space (~1500 sq ft) and some other things that I am capable of building. I will have no stock since I'm not trying to be a retail establishment. The service I will be providing is more of a space thing. Think of it as a gym for geeks.

I don't want to have to take out any loans because I don't want to have to owe anyone. I have no business experience and I've never taken any classes. What I have is an idea and the drive to make it work.

What advice do you have for a first-timer in this sort of thing? I am all about learning from the experiences of others.

useless4

Honestly if you don't have the start up capital for the space you need then you are out of luck from the start if you don't want a loan. Lining up a loan (be it from a bank or an investor etc) will have to be your first step typically.

Cogliostro

Well, I plan on having the money in the next year. During that time I'm trying to get help on new businesses. I will also have to build some of the things required for it.

I just don't want to owe any money should the business not perform as well as I think it will. I don't want to have to go through the crap of filing bankruptcy. I assume I am correct when I say that Kickstarter doesn't allow itself to be used for business start ups?

CycloneRanger

A "gym for geeks" is going to be a hard sell. Your target demographic is exactly the one that doesn't normally use gyms.

Also, gyms typically require a shitload of fancy and expensive machines (even though really you should just be using a barbell or set of dumbbells 90%+ of the time) because they want to look the part.

Druhim

Cogs, when you say you'll have the money by next year so that you don't need to take out a loan, my concern is whether you've really been realistic about your costs and whether you can afford to lose the capital if the business fails or at least doesn't make a profit for the first several years. And Cyclone, I'm pretty sure he doesn't mean a typical gym with all the equipment. He was clear that he doesn't want to go into specifics and I think we need to let him decide whether his business plan makes sense because we don't have the details to make any kind of reasonable analysis of it. But Cogs, just make sure you have thoroughly accounted for what your monthly and yearly costs are going to be. It's never going to be a perfect estimate, but if you're new to this it's easy to not think of really basic stuff that will add up quickly and cost you more than you expected.

Thanatos

Druhim wrote: »

Cogs, when you say you'll have the money by next year so that you don't need to take out a loan, my concern is whether you've really been realistic about your costs and whether you can afford to lose the capital if the business fails or at least doesn't make a profit for the first several years. And Cyclone, I'm pretty sure he doesn't mean a typical gym with all the equipment. He was clear that he doesn't want to go into specifics and I think we need to let him decide whether his business plan makes sense because we don't have the details to make any kind of reasonable analysis of it. But Cogs, just make sure you have thoroughly accounted for what your monthly and yearly costs are going to be. It's never going to be a perfect estimate, but if you're new to this it's easy to not think of really basic stuff that will add up quickly and cost you more than you expected.

I was coming in here to say exactly this. The number one reason that most new businesses fail is under-capitalization, i.e. not having enough money. If you haven't run a business before, it's really easy to miss some pretty big costs, and if you have a slow start and end up with less revenue than you were expecting, you can take a big enough hit that you end up having to shut down, even though you were on the verge of becoming profitable. You should have enough capital to operate for at least the first year at a loss.

I would recommend talking to an accountant and/or lawyer about how you should set up your business. There are ways you can set up a business where you can take out a loan and if the business fails, you don't have to pay it back. There are advantages and disadvantages to many of the various ways of creating a business, so it's best to talk to someone who is familiar with the laws in your state, and the typical pitfalls of different models.

Cogliostro

CycloneRanger wrote: »

A "gym for geeks" is going to be a hard sell. Your target demographic is exactly the one that doesn't normally use gyms.

Also, gyms typically require a shitload of fancy and expensive machines (even though really you should just be using a barbell or set of dumbbells 90%+ of the time) because they want to look the part.

I guess I was using that as a metaphor. It isn't actually a gym, but I would charge membership fees like a gym does (minus the ridiculous 'start up' fees).

The start-up costs are seriously going to be minimal. The 'equipment' will cost less than $1000. The main cost will be rent, insurance, and electricity. I could have the entire thing up and running for less than $4000. I would want four or five months operating cost in reserve, so I would probably want $10,000 in the bank before I start.

darqness

If you're planning on starting with 10 grand, I would suggest looking into getting a loan with no early payoff penalty. That way you can have some reserve in the bank JUST in case. It would be harder to get a business loan 5 months into a business in rough times.

Would you plan on paying yourself during start-up? Or would this be a part-time gig?

Druhim

I'm no expert in such things, but only five months operating costs seems pretty risky.

Iruka

Being involved in a small business currently, we've just gotten a real floating start after about 2 years. Getting regular customers, steady income, accounting for maintenance, rent, city licences, neighborhood associations, all of it plays in. Does a historical association have say over when, where and how you can renovate? Can you find a space that is properly zoned for your hours of operations? Do you plan to serve food, or even drinks, on the premises? Will you have above normal power requirements for a space?

Without the details, remember that opening a business is a pain in the ass process. Get some one to talk to about it, professionals, a trusted business partner, scope out the businesses in the area you are thinking about. With no knowledge of where you are or what you are doing, I cant really say, but 4000 sounds low for start up costs.

Cogliostro

I don't plan on paying myself at all. It's a part-time gig that I honestly don't care if I *make* money at. I just want to break even.

Jurg

Owning your own business is not really a "part time" thing. And you do have to pay yourself, unless you can support yourself from some other form of income that is not this business venture.

Orikaeshigitae

It takes most successful businesses 2-5 years to break even.

Cogliostro

Well, I am a full time paramedic and make waaaaayy more enough to survive with that. I also teach at the college, so that's a little more income. This is mostly something new and interesting to try. The nature of the business doesn't require me to be there full time. Think of it as an Anytime Fitness for games. I mean, it would be cool if it made a profit but it really isn't that big of a deal. As long as it basically supports itself I will be happy. That will mean only bringing in $2200 - $2500/month gross.

JohnnyCache

Figuring this stuff out is reliant on estimating, and estimating well, your overhead vs demand, and accurately and fairly setting your prices.

How many people can you accommodate in the space you can afford, and what assumptions can you make about occupancy? That is what keeps most membership based businesses going, is they can sell memberships based on the assumption not everyone shows up to lift weights or learn karate or whatever at once.

Get a good read on your overhead, and divide it by a few price points and see where that puts in you terms of what you would have to recruit in customers....see if the figure seems practical.

You have two "break even" points. Point one is where you are making more money than you are spending (expenses are covered every month, positive cash flow) and point two is where your initial investment is recouped - net ROI - and that can take a lot longer.

Thanatos

Rent on a commercial property is expensive as shit. Have you looked at the costs for renting in your area?

I mean, I'm certainly no expert on running a business in Texas, but $10,000 for 4-5 months seems like a pretty low estimate. And again, most of the experts recommend having at least a year's worth of operating expenses in the bank.

Cogliostro

The area I want to rent in isn't terrible and it's in a more upscale area near the freeway. I'm looking at between $9 - $13/sq ft/yr.

Cogliostro

So I have been looking at loans and decided they aren't entirely terrible. The repayment terms are usually quite fair and the payments decent. I can probably borrow a year's worth of operating costs and pay it back fairly quickly. I already am writing a business plan for myself, I can tweak it a little to make it more friendly for a bank.

supabeast

Cogliostro wrote: »

Well, I plan on having the money in the next year.

That means you have lots of time to spend reading books, Entrepreneur magazine, checking out potential competition and customers, taking classes on business and accounting in your state, finding an attorney and accountant (or at least finding out if you even need them, and most importantly, writing up your business and marketing plans. If you plan on having any employees that’s a whole other can of worm-infested-legal-shit you need to read up on.

ceres

If you are going to have a bunch of gaming equipment up ins, you may want to consider if you haven't the cost of some pretty hefty security, especially if you don't plan to be there all the time. You may have thought of that already, but I didn't see you mention it so I thought I'd bring it up. A non-zero percentage of your target audience is probably going to be people who either get angry enough at games to throw controllers through monitors or steal/vandalize for fun or profit.

JohnnyCache

Cogliostro wrote: »

The area I want to rent in isn't terrible and it's in a more upscale area near the freeway. I'm looking at between $9 - $13/sq ft/yr.

Per year? As in a 1000 square feet would cost you 9000 a year? ....that's not bad at all

Invisible

Just make sure you thoroughly investigate all the expenses you might incur. Insurance, utilities, licenses, permits, taxes, etc. There are things that will change depending on city, county and state and each one could cost you money. Even if you're not planning on making it your main gig or even having profit, just make sure you don't find yourself in something that is going to drain more and more of your funds through hidden expenses.

MagicToaster

Dont forget about marketing costs! If your ads look cheap, people will perceive you as cheap.

tarnok

If you're looking at a year before you get started I'd highly recommend a community college course in managerial accounting. You may have to take their entry-level financial accounting class first, but the managerial accounting would be intensely useful to you, particularly so as you say you don't have any business experience.

Managerial accounting deals with things like how to create a budget, how to calculate your costs and how to price your product. All of these things are almost certainly more involved than you would think at first.

kaliyama

I'm guessing you're being coy with your actual business plan because you don't want us stealing it or something, but I am fairly confident we would think it would be a bad idea if you did tell us.

If you are unwilling to bear scrutiny from a wide cross section of people it is unlikely that you will be able to think through your business plan well enough to succeed or obtain a loan without a personal guarantee, which is what you said was your goal above.

ceres

Yeah, but to be fair we think most things are a bad idea at some point.

Darkewolfe

Have you taken into account whatever liability insurance you're going to need? If you're going to have people on your site using any kind of materials you provide, you'll be liable if they injure themselves with it. That insurance will probably be pricier than you expect.

useless4

I am guessing it's a membership gaming setup, thinking he will buy a couple ps3s xboxs etc put them on tables and have people coming to play. this is based on "it's like a gym" "gamers" comments and the initial low estimate of operating cost. (Wonder if utilities has come into his budget?)

Void Slayer

Please look at your costs again, there are a lot of possible costs that could come up, if you have not managed a retail business before you may be surprised by the expenses you can have to pay.

I am guessing this very much echos other posts, but I would like to say that whatever your doing, if you think you can make money at it, go for it. But you need to look realistically at the costs.

I have heard that for new retail businesses the rule should be expect to make a loss the first two years or more. You really need more then 6th months operating costs, even if it is a business loan you can access. I do not have any experience on the financing side though.

Donovan Puppyfucker

useless4 wrote: »

I am guessing it's a membership gaming setup, thinking he will buy a couple ps3s xboxs etc put them on tables and have people coming to play. this is based on "it's like a gym" "gamers" comments and the initial low estimate of operating cost. (Wonder if utilities has come into his budget?)

I think it's going to be members-only tabletop gaming club. Warhammer 40k over there, in that corner some pen and paper D&D, and over there some dudes playing the Battlestar Galactica boardgame.

zepherin

Also keep in mind that alot of things can be profitable by offering secondary and tertiary services. Selling Soda and tshirts are rediculously profitable endevers especially in that sort of environment. Bust out some deals, soda and a hotdog 5 dollars or something like that. 15 dollar t shirts with catchy logos. That kind of thing is often the profit that a business needs. Tournements are a good idea, free for subscribers 10 dollars etc for non subscribers.

There are lots of little things to bulk up revenue. Any business that has people sitting down for more than an hour and doesn't sell them some kind of drink or snack items is missing out. At a gym bust up some gatorade or smoothie bar, who cares if it isn't really healthy, at a gaming place, get a machine that dispenses soda. Or if that up front cost is too munch, do bottled sodas. You make more on the dispensors though, like a lot. 2 dollars of soda, 20-25 cents worth of cup and 9-13 cents worth of syrup. On bottled pops it's usually a 40-60 percent markup. Still good but not as good as a soda machine.

bowen

chrishallett83 wrote: »

useless4 wrote: »

I am guessing it's a membership gaming setup, thinking he will buy a couple ps3s xboxs etc put them on tables and have people coming to play. this is based on "it's like a gym" "gamers" comments and the initial low estimate of operating cost. (Wonder if utilities has come into his budget?)

I think it's going to be members-only tabletop gaming club. Warhammer 40k over there, in that corner some pen and paper D&D, and over there some dudes playing the Battlestar Galactica boardgame.

If this is the thing, keep in mind, comic book stores do this. A lot. If you have a comic book store within 20 minutes of you, chances are you're going to compete with them. And they're going to be doing it better.

As for the business. Recommendations are at least 1 year of operating costs. That means, rent, utilities, equipment, insurance, and employee pay (yours). Best recommendations I've seen are 3-5 years of this, this gives you a cushion to get your business actually running and making profit (something like this will probably be one of those that takes 2 years to turn a profit). And one of the biggest "GOTCHAs" is that the person doesn't pay themselves. So when profit comes around, whoops, I'm actually $50,000 a year in the hole!

Also you'll want to file an LLC or a corp to protect your liability from coming after shit you own. Self proprietor? Well, they can sue you if they get hurt on the site. LLC should protect you from legal liabilities but financial (if you take out a loan) can still take all your shit if you default. Things like S-corp protect you from both, but you're going to be getting hit with corp taxes and all that.

Cog, what do you plan to do? I can probably give you some reasons you may reconsider. It may be a niche market but niche markets tend to need near 100% customer base from the area in order to break even (comic book shops).

schuss

Yeah, first step should be setting up an LLC. This way you can walk away without having your life ruined.

zepherin

schuss wrote: »

Yeah, first step should be setting up an LLC. This way you can walk away without having your life ruined.

LLCs are one way to handle risk management, however there are rules and tax issues that LLCs have to deal with. For some people, it may be more fiscally advantageous to take out insurance against such things. Having proffessional insurance and an umbrella policy for your business is generally pretty cheap, and will keep you safe from lawsuits as well, and has the added advantage of not protecting your business and you. Often times even when your not at your business.

Also these days most rentals and banks make you personally co-sign with your business. At least from what I have seen.

Dr. Frenchenstein

honestly, i don't know how you are planning on keeping a small business up and running while working 2 jobs as well. not only do you not making any money for a while, you also need to be pretty hands on if you want any chance of success. once the business is up and running, that's when you can hire on some staff and take more of a backseat.

Hevach

Something I want to suggest for your idea: Plan to have stock. Just like salons sell hair stuff and gyms sell fitness stuff, sell related stuff. Some salesmanship goes a long way on this, too - somebody loses a few games, try to hook them with one of those premade decks. Oh, and the premade decks are usable but not great. Which is ok, booster packs are on sale. It's the way the owner of the comic book store I used to hangout in for stuff like this did things, and if you get the right guy you can pretty much just take his wallet.

Basically, everybody has stock. My business mainly does repairs and networking for businesses, and in the shop it's mainly antivirus for home computers, but we've still got a rack of refurbished systems, parts, a few custom cases, some repos from people who didn't pay their bill.

Oh, and snacks. People will be hanging out in this place, so have refreshments. The markup on single drinks or small chip bags or king size candies is crazy in supermarkets, and it's no secret everywhere else charges even more. Even if you allow outside food (most places won't), people will run out and you'll be ready. There's a reason why every single business in the world seems to have some candy, chips, and pop by the register no matter how far removed it is from the rest of the store. The markup is just unethical, and they sell themselves.

Stock's money. The whole reason comic book stores often have something like what you describe is that they can attract a captive audience, surround them with marketing and merchandise, and highlight ones vulnerable to a sales pitch.

Thanatos

zepherin wrote: »

schuss wrote: »

Yeah, first step should be setting up an LLC. This way you can walk away without having your life ruined.

LLCs are one way to handle risk management, however there are rules and tax issues that LLCs have to deal with. For some people, it may be more fiscally advantageous to take out insurance against such things. Having proffessional insurance and an umbrella policy for your business is generally pretty cheap, and will keep you safe from lawsuits as well, and has the added advantage of not protecting your business and you. Often times even when your not at your business.

Also these days most rentals and banks make you personally co-sign with your business. At least from what I have seen.

This is really, really, really something you need to talk to a lawyer or accountant about who knows about the laws in your locality. No one here has a fucking clue what the specifics are for where you live, Cog, so you need to talk to someone who does.

CelestialBadger

It might be best to do into some detail. No-one will steal your idea, and it sounds like it might be a gaming space, which are notoriously hard to even break even on.

For a start, you think it will run on its own. No it won't. People will arse around, break things, foul up the toilets, whatever. So you need to employ someone to keep an eye on things and act as a gatekeeper.

bowen

Thanatos wrote: »

zepherin wrote: »

schuss wrote: »

Yeah, first step should be setting up an LLC. This way you can walk away without having your life ruined.

LLCs are one way to handle risk management, however there are rules and tax issues that LLCs have to deal with. For some people, it may be more fiscally advantageous to take out insurance against such things. Having proffessional insurance and an umbrella policy for your business is generally pretty cheap, and will keep you safe from lawsuits as well, and has the added advantage of not protecting your business and you. Often times even when your not at your business.

Also these days most rentals and banks make you personally co-sign with your business. At least from what I have seen.

This is really, really, really something you need to talk to a lawyer or accountant about who knows about the laws in your locality. No one here has a fucking clue what the specifics are for where you live, Cog, so you need to talk to someone who does.

At the very least a small business association run by the state which should be cheap/free in comparison.

But you may want to have a lawyer on retainer even.

JohnnyCache

An LLC isn't always the way to incorporate - some states have something called an S-Corp or a Family Corporation that are better for a single operator.

zepherin

Also for the lazier of us, you can buy a corporation, already filed, with all the papers and a phone number. It costs extra, but buying a canned corp is a pretty easy way to get a corporation, and it'll have some age to it.

Again I would like to parot the idea of talking to an attourney, accountant or local trade group. Learn from others mistakes, and there is no reason to be so secretive, good ideas are not worth very much. Good execution is. Hell good execution of a bad idea can make money, bad execution of a good idea, well bankruptcy courts are filled with examples of that.