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Partial Ownership of a company?

  1. Jan 14, 2005 #1
    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?
     
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  3. Jan 14, 2005 #2

    chroot

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    Step 1. Hire a lawyer.

    - Warren
     
  4. Jan 14, 2005 #3

    JasonRox

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    ...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!
     
  5. Jan 14, 2005 #4
    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.
     
  6. Jan 14, 2005 #5

    Moonbear

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    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.
     
  7. Jan 14, 2005 #6

    Evo

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    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".
     
  8. Jan 14, 2005 #7
    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!
     
  9. Jan 14, 2005 #8

    Evo

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    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?
     
    Last edited: Jan 14, 2005
  10. Jan 14, 2005 #9
    why is it for sale?
     
  11. Jan 14, 2005 #10

    JasonRox

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    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 similiar 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.
     
  12. Jan 14, 2005 #11

    JasonRox

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    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?
     
  13. Jan 15, 2005 #12

    Evo

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

    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.
     
  14. Jan 15, 2005 #13

    Moonbear

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    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 in to 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.
     
  15. Jan 15, 2005 #14

    Ivan Seeking

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    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. :frown:
     
  16. Jan 15, 2005 #15

    JasonRox

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    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
     
  17. Jan 15, 2005 #16

    JasonRox

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    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...
     
  18. Jan 15, 2005 #17

    Evo

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    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.
     
  19. Jan 15, 2005 #18

    JasonRox

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    An audit will not tell you if the owner owes $200,000 in gambling debt. Personal items are not included. BUSINESS ONLY.
     
  20. Jan 15, 2005 #19

    Evo

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    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.
     
  21. Jan 15, 2005 #20
    Don't lie to your shareholders about earnings and then secretly sell your share letting the stockholders absorb the losses.
     
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