Partial Ownership of a company?

[KingNothing]

Hi...my dad who is simply amazing at the game of pool wants to go into business with a few friends of his and invest in a pool hall. It'd cost him about 20K to start...the thing is, he doesn't know anything about business. I want to help him by putting together a list of questions and things he should make sure he knows before doing this. I don't know much, so...

What are some thigns he should find out about before investing in this?

 

[chroot]

Step 1. Hire a lawyer.

- Warren

 

[JasonRox]

Step 1. Hire a lawyer.

- Warren

...if you live in America.

The first thing, I would do is find out the total fixed cost to run the place.

Wages, Bills, etc... (including interests and all)

Second thing, guestimate the amount of money you can bring in. I'd recommend underestimating just to be safe. After that, add up variable costs, and if you make enough to cover the variable costs, that is a good start.

Third, don't forget about the fixed costs from the beginning. Again, guestimate how much you would make in the future, like 6-12 months from now. At the beginning, you might make very little and just cover variable costs, but that's ok as long as your future plans later cover it.

Basically look at costs!

They give away business advice all over the net.

NOTE: WRITE A BUSINESS PLAN!

 

[tribdog]

Hi...my dad who is simply amazing at the game of pool wants to go into business with a few friends of his and invest in a pool hall.

1. are you kidding? I'm amazing at making an ass of myself, but I'm not going to open a proctology clinic.
2. think twice before going into business with friends only thing worse than friends is brothers.
3. Pool Hall? How many friends are you talking about? $100,000 (just a guesss) a year divided by 5 is what? 15,000 after taxes? New business's WILL take up about 80-90 hours a week to get going. Minimum wage job will pay this much with a lot less stress, work and liability.

 

[Moonbear]

In addition to all of the above, all of it good advice (no, this time tribdog isn't kidding around, his points are good ones), if they're planning on getting a liquor license for the pool hall, keep in mind those can take a long time to get, during which time you have no draw to get people in the door, and when they do get the license, there are a LOT of losses with liquor (all those beers the bartender pours and "accidentally" pours the wrong one or gets too much head on it, so gives it away free to his buddy sitting at the end of the bar, the free shots to the pretty women, etc.)

Will they all share in management decisions, hiring, firing, etc, or are they just investors and one person is going to run the show?

What's their plan for dissolving the business if it doesn't work out? What if there are losses involved in this?

How soon do they expect/need to see a return on their investment? Is this realistic given expected profits/losses/operating expenses? Can they all afford to lose their investment entirely if things get really bad?

Definitely get a lawyer right up front and include as much as possible in a contract in the event they don't end up friends by the time they are done trying to run a business together. Find out about what's involved in getting incorporated as well. I think this protects them from individual liability if things go south, and all the liability lies with the corporation if it goes bankrupt, etc.

 

[Evo]

The first thing to do is go here... http://www.sba.gov/starting_business/

Investing with friends is rarely a good idea. You need to go into this like a business and treat them as if they were complete strangers. Get everything done with the assistance of a good business attorney, set up an L.L.C (limited liability company). It might not be a bad idea to run a background check on his "friends".

 

[KingNothing]

No, not all his points are good ones. For example I didn't say anything about opening a pool hall. It's already open. He's thinking about investing in it because diabetes prevents him from doing his normal job. And don't think it's a huge joke, of the 4 pool halls in town, none of the 4 owners got any business training whatsoever. There already is a liquor liscense.

Thanks for the questions on hire/fire and the others. Keep em coming!

 

[Evo]

No, not all his points are good ones. For example I didn't say anything about opening a pool hall. It's already open. He's thinking about investing in it because diabetes prevents him from doing his normal job. And don't think it's a huge joke, of the 4 pool halls in town, none of the 4 owners got any business training whatsoever. There already is a liquor liscense.

Thanks for the questions on hire/fire and the others. Keep em coming!

If he's going to be an investor

1)Hire an accounting firm to audit the books, there are firms that specialize in this

2)Investigate the owner/owners

3)Get an attorney to draw up papers, one that specializes in investing to be certain your father's investment is protected.

Why is the current owner/owners wanting outside investors?

What kind of return is your father guaranteed?

How often will business records be audited so your father can verify the business is remaining profitable?

What is your father's liability?

 

[tribdog]

why is it for sale?

 

[JasonRox]

These people are probably thinking along the lines of a huge full-time running business.

If I was older, I'm sure my friends and I would start a business similar to that. It just would be open on certain nights, like Friday, Saturday and one weekday. I don't know how it goes down south, but up here the places that are open 2-3 times a week are the busiest up here. Why open up on a deadbeat day?

So, if your opening for just 2-3 nights a week, you can still work another job.

A business like this should be for fun, and not for money. Make enough to live and that's good enough.

Don't approach this like it is some sort of big business thing, like getting an Accounting Firm, which is ridiculous.

Note: Still make a business plan.

 

[JasonRox]

Also, I'm not the only one who thinks it should be for fun.

Because of the NHL lockout most players went overseas, and the owners over there can't afford the players either, but they pay up anyways. Most owners are millionnaires, and they say that owning the hockey team is the fun part of their life and they don't care if they lose a few million dollars to watch great CANADIANS play hockey.

If you are already making enough to live, why try pushing it?

 

[Evo]

These people are probably thinking along the lines of a huge full-time running business.

You didn't understand his last post did you? He said his dad was just going to invest.

Don't approach this like it is some sort of big business thing, like getting an Accounting Firm, which is ridiculous.

You don't think the entire firm is going to go out to audit one pool parlor do you? :uhh: They'll send out one accountant, you're only charged per hour for the accountant and it would be stupid not to have the books audited.

 

[Moonbear]

A business like this should be for fun, and not for money. Make enough to live and that's good enough.

Don't approach this like it is some sort of big business thing, like getting an Accounting Firm, which is ridiculous.

Why is it ridiculous to hire an accountant before sinking 20K into a business? That's a lot of money, and if they're looking for investors, it might be because they're having trouble keeping the profits coming into pay the bills. On the other hand, they could be looking to expand a thriving business, or maybe another investor dropped out for one reason or another leaving an opportunity. An audit will help determine whether it's a wise investment.

Anyway, KingNothing asked for advice about questions to ask, so that's what we're offering. Whether his father is interested in doing it for fun or for money is entirely his father's decision, and we can only suggest the questions he should ask before getting into a business venture; he'll decide which ones he wants to ask and are important relative to his reasons for getting involved. Basically, anytime you get involved with monetary deals, loans or investments involving more than you can afford or want to give as a gift, you need to take it seriously and protect yourself legally and financially. Obviously, KingNothing realizes this and is asking for suggestions.

 

[Ivan Seeking]

Hi...my dad who is simply amazing at the game of pool wants to go into business with a few friends of his and invest in a pool hall. It'd cost him about 20K to start...the thing is, he doesn't know anything about business. I want to help him by putting together a list of questions and things he should make sure he knows before doing this. I don't know much, so...

What are some thigns he should find out about before investing in this?

I can't think of a better recipe for disaster; well maybe if it was a restaraunt it could be a little worse. Forget about partners or, in addition to the suggestions made, make sure that your dad has complete control. Also, don't expect your dad and his friends to remain friends.

 

[JasonRox]

I can't think of a better recipe for disaster; well maybe if it was a restaraunt it could be a little worse. Forget about partners or, in addition to the suggestions made, make sure that your dad has complete control. Also, don't expect your dad and his friends to remain friends.

Very true.

For the comment on Accountants. I spent two years studying Accounting before switching over to Physics and Math. An accountant can only help if you don't know nothing about reading the books, and if you know nothing about readings the books, you shouldn't be investing.

Note: People shouldn't invest if they know nothing about finance. i.e. Stock Market

 

[JasonRox]

To correct the above a little.

You should still invest if you know nothing, but not in RISKY investments. They become less risky if you know something about finance because you will understand how they make money and how they control costs, etc...

 

[Evo]

You should still invest if you know nothing, but not in RISKY investments.

How do you know that an investment is not risky unless you investigate/audit it first?

They become less risky if you know something about finance because you will understand how they make money and how they control costs, etc...

You can understand EVERYTHING there is to know about finance, but unless you find out that the owner's brother-in-law has been embezzling all the profits or that the owner has $200,000 in gambling debts and is looking for "investors" as a way to come up with some quick cash, etc..., all that knowledge will do you no good. It is never wise to invest blindly.

 

[JasonRox]

How do you know that an investment is not risky unless you investigate/audit it first?

You can understand EVERYTHING there is to know about finance, but unless you find out that the owner's brother-in-law has been embezzling all the profits or that the owner has $200,000 in gambling debts and is looking for "investors" as a way to come up with some quick cash, etc..., all that knowledge will do you no good. It is never wise to invest blindly.

An audit will not tell you if the owner owes $200,000 in gambling debt. Personal items are not included. BUSINESS ONLY.

 

[Evo]

An audit will not tell you if the owner owes $200,000 in gambling debt. Personal items are not included. BUSINESS ONLY.

That's why I also suggested having them investigated. You may not uncover everything, but you may find enough to raise some eyebrows. Perhaps the owner goes to gambling casinos regularly, or he's been spending beyond his means.

 

[FulhamFan3]

Don't lie to your shareholders about earnings and then secretly sell your share letting the stockholders absorb the losses.

 

[JasonRox]

That's why I also suggested having them investigated. You may not uncover everything, but you may find enough to raise some eyebrows. Perhaps the owner goes to gambling casinos regularly, or he's been spending beyond his means.

I know what you're saying, but you get to see the books yourself. You don't need an Accountant to go in there and ask for it. They may help, but if you know what you are doing, then any Accountant will say that it would be a waste of money to do it, but at the same time advise you to (for obvious reasons). You can ask for the books yourself, since you are being offered to invest.

Personally, I would look at EVERYTHING. All the way down to how many cars on average drive by, cars who pull in, etc...

In this case, I wouldn't do it because, like mentionned above, he's probably going downhill and looking for someone to share the loss.

 

[JasonRox]

Don't lie to your shareholders about earnings and then secretly sell your share letting the stockholders absorb the losses.

There is no shareholders. It is a going to become a partnership.

Shareholders?

You don't have to lie to your shareholders about earnings. I know enough on how to make an income statement look pretty where any idiot would fall for it, without lying. Yes, you can get away with these filthy tricks in the Proprietor and Partnership business world, but not so easily in the Corporate business world.

 

[FulhamFan3]

There is no shareholders. It is a going to become a partnership.

Shareholders?

You don't have to lie to your shareholders about earnings. I know enough on how to make an income statement look pretty where any idiot would fall for it, without lying. Yes, you can get away with these filthy tricks in the Proprietor and Partnership business world, but not so easily in the Corporate business world.

I was making an extemely high brow joke in reference to the Enron's and Worldcom's of the world. Although one of your statements is self-contradictory.

I know enough on how to make an income statement look pretty where any idiot would fall for it, without lying.

How would they fall for it? Are you putting anything false on it? If you are then you are lying.

 

[JasonRox]

I was making an extemely high brow joke in reference to the Enron's and Worldcom's of the world. Although one of your statements is self-contradictory.



How would they fall for it? Are you putting anything false on it? If you are then you are lying.

I won't bother explaining. You can do it with no false information. It's actually pretty easy if you know what you're doing.

If you have an Accountant friend, ask her/him.

Note: I put her in front of him in her/him because for some reason the male term is always put in front. I thought I'd change it up.

 

[FulhamFan3]

I won't bother explaining. You can do it with no false information. It's actually pretty easy if you know what you're doing.

If you have an Accountant friend, ask her/him.

Note: I put her in front of him in her/him because for some reason the male term is always put in front. I thought I'd change it up.

The only way I know of is not disclosing everything. Which I believe is also lying.

 

[JasonRox]

The only way I know of is not disclosing everything. Which I believe is also lying.

The keywords are "that you know of", which does not imply that it is the only way possible.

I can disclose everything, but that does not imply that you will know what I'm disclosing. That's why a lot of investors get burned. It is because they think they see what they are seeing, but in reality they aren't. Of course, everything is disclosed.

Put it this way:

Some companies are honest and disclose everything, but in fashion that favours them. This is common sense. If companies disclosed everything that would easily reveal everything, there wouldn't be insurance for investments because even a fool can invest.

Note: I am not saying a fool can't invest. I'm just using the word to describe someone who knows nothing to everything.

 

[Moonbear]

The keywords are "that you know of", which does not imply that it is the only way possible.

I can disclose everything, but that does not imply that you will know what I'm disclosing. That's why a lot of investors get burned. It is because they think they see what they are seeing, but in reality they aren't. Of course, everything is disclosed.

Put it this way:

Some companies are honest and disclose everything, but in fashion that favours them. This is common sense. If companies disclosed everything that would easily reveal everything, there wouldn't be insurance for investments because even a fool can invest.

Note: I am not saying a fool can't invest. I'm just using the word to describe someone who knows nothing to everything.

Then, by this argument, you're saying that it's possible to work the books in a way that could easily fool an investor into thinking things were better than they really are. So, why then were you earlier arguing against getting a professional accountant to look over the books and make sure they're on the up and up? Wouldn't someone who does this for a living and has a lot of experience looking at different companies' records be able to detect this far more quickly and easily than someone who has little business experience? The two arguments are inconsistent.

 

[JasonRox]

Then, by this argument, you're saying that it's possible to work the books in a way that could easily fool an investor into thinking things were better than they really are. So, why then were you earlier arguing against getting a professional accountant to look over the books and make sure they're on the up and up? Wouldn't someone who does this for a living and has a lot of experience looking at different companies' records be able to detect this far more quickly and easily than someone who has little business experience? The two arguments are inconsistent.

I said that because I don't recommend investing into companies if you don't know much yourself. You must maintain the business and realistically when it comes to running a bar you may not have the money to have an accountant to check it up all the time.

In my opinion, I think it would be wise to use the money to take night courses in Accounting/Finance related course. I don't recommend enrolling in Starting a Business type of course because they teach so very little and they aren't quantitative.

Yes, my arguments are wishy-washy.

Most businesses fail because the owners don't bring any skills to the business at all. If you must have someone keep track of your finance, that isn't so good. Sometimes in an area like that, you can have trust problems. What if the person says its good, but that is her/his opinion. You might not agree, but we don't know if you would because you have no knowledge of what is on that piece of paper. A one-year course in Accounting/Finance can help wonders.

When you know a little bit about accounting, you will get to learn how cutting costs, etc... can affect your business (Income Statement, Balance Sheet, etc...) This is really good because you get to decide whether or not it is wise to do so. Realistically a small business can't afford an accountant to check every budget idea you have. That costs too much, which isn't good.

Starting a business is not as easy as TV or pamphlets make it out to be. You should be well-rounded in all aspects of the business. You don't have to know everything, but enough to know when something is not right.

Like I said a million times, make a business plan.

Note: I have worked with a small business, but stopped for the following reason. The finances weren't organized and the owner didn't know where the money was coming or going. It would have taken me several months to get it all organized, or maybe even longer. Do you really think you have the money to pay an accountant for a few months of wages?