So, we're still pulling the numbers together...

[Deleted]

I have no business advice (or sense!) but I wish you all the luck in the world!!

[shanendoah]

Actually, if you form an LLC, you can help indemnify yourself against loss, even using personal money to fund the business. The point of an LLC is that the company never has any money of it's own. All money that comes in is either instantly reinvested in the business or divided among shareholders, who can then put money back in the business if they want. Since you're in CA, you may also want to look into S-corp instead of LLC. I know S-corp is what my brother has with his new business.
As long as you do your accounting properly to show that all money is being reinvested or distributed to shareholders, you should be good. You get into trouble if you raid the cash register to buy your kids lunch or fill your car up with gas. As long as you make sure not to spend any of the business's money on personal purchases, you should be fine. Courts don't go after people who spend their personal money on the business, they go after people who spent the business's money on personal stuff.

As Dark said, numbers for this industry are notoriously hard to come by. I've never known any independent game store (of the sort Dark and Loop are talking about) to be able to get a loan simply because the independently verified numbers don't exist. I've known a lot of game stores that have gone under, and I've known a lot that have succeeded. To me, the biggest keys are making sure your store, while being a place the kids want to come, remains a place the moms are willing to shop at.

Exit strategies are hard, especially since most retail businesses lose money their first year. I would set a threshold of how much money you can afford to lose, period. (Say triple the start up costs). Once you're at that point, you're out.
Or treat it like project management- we will achieve this goal by this timeframe, if we don't, these are our contingency plans. Contingency plans can last up to X amount of time, and if we have still not met that goal, then we're out.

[Sum Dum Gai]

Dark - Can't you indemnify against debt/loss by incorporating?

Yeah, as long as you keep your personal money and the corporations money distinct. If you comingle money you can be held personally liable for corporate debts.

We have to use a C corp anyway. It's the only way to invest my personal IRA money into a business that I have a 33% or greater ownership stake in. The way the law was originally written you aren't allowed to do it all, but there was a loophole put in for C corps. It's a really squirrely arrangement too. My IRA custodian creates the C corp for us, and manages that corporations 401k. As long as I'm an employee of the corporation they can use my IRA money to buy shares in the corporation through the 401k, which means the business is owned by my IRA. That money then goes into the corporate bank account to be used for whatever business expenses we have. The business can then use profits buy back the shares if we wish, so the money would flow back into my IRA, and the business would be owned by Loop and I. If we don't buy back the shares any profits that paid out as dividends would go into my IRA. If we buy back the shares the dividend payments would go to Loop and I, as the owners of the C corp. Or something pretty close to that anyway.

The bottom line was I can use my self directed IRA money to start a business that I own, thanks to some legal loopholes that were put in place by big business. The process is a little complicated, but it's doable, and I can over time buy myself back out of the business to put the money back into my IRA. It'll be more expensive up front for the legal setup than an LLC would have been though.

Setting it up this way will have the added benefit of making it easier to sell later. Whoever owns the shares owns the business. And we'll have a 401k available from the start, so if we're making money we have the option of paying ourselves in the form of 401k matching contributions in addition to salaries, to avoid some taxes.

And don't forget to use Doxie math!

I still haven't found the Doxie math setting in Quickbooks, so I do things the old fashioned way.

[Sum Dum Gai]

Exit strategies are hard, especially since most retail businesses lose money their first year.

That's the tough part. Right now we aren't expecting to actually make any money in the first year. The plan is to reach break even at the 12 month mark. If we hit that, and our sales are still growing we're good. If we're a little short, but month to month sales are still growing, we're a little behind, but probably still good. If we're way under, that's probably the trigger point where we'd have to decide to close. I just need to quantify way under... somehow.

[The J]

May 30, 2012 10:49:36 GMT -5 shanendoah said:

Actually, if you form an LLC, you can help indemnify yourself against loss, even using personal money to fund the business. The point of an LLC is that the company never has any money of it's own. All money that comes in is either instantly reinvested in the business or divided among shareholders, who can then put money back in the business if they want. Since you're in CA, you may also want to look into S-corp instead of LLC. I know S-corp is what my brother has with his new business.
As long as you do your accounting properly to show that all money is being reinvested or distributed to shareholders, you should be good. You get into trouble if you raid the cash register to buy your kids lunch or fill your car up with gas. As long as you make sure not to spend any of the business's money on personal purchases, you should be fine. Courts don't go after people who spend their personal money on the business, they go after people who spent the business's money on personal stuff.

There is pretty much no way that Dark and Loop would be able to operate this business, at least initially, without personally guaranteeing any lines of credit.