Starting a Club: business stuff

[Babs the Cat]

I am thinking of starting a fencing club. It seems to me that there are 3 likely options:

(1) not-for-profit
(2) sole proprietorship
(3) LLC - limited liability company

I would like something fairly easy. If possible, I would prefer to avoid hiring a lawyer. On the other hand, I also want to protect myself just in case one of my students gets hurt, and his parents decide to sue.

Would anyone care to offer their insight, opinion, or experience on this? I have never started my own business before.

[Allen Evans]

A non-profit is almost by definition a Limited Liability Corporation. I would say your choices are more likely to be:

1. Corporation (either organized for profit, or a non-profit).

2. Sole Proprietorship

3. Partnership (either with limited liability, or a straight venture).

There seems to be a continued urban myth that no one makes any money in a non-profit corporation, which is distinctly NOT true. A non-profit is simply prohibited from distributing profits to shareholders, and -- in the case of a dissolution of the corporation -- is require to distribute its assets to another non-profit. Salaries can be paid, and earnings retained for use by the corporation much like any other business.

A non-profit does, however, require a significant amount of paper work best done with the assistance of an attorney. Once the corporation is set up, other filings and reports must be made yearly, but they aren't too onerous as long as you stick to simply doing business as a fencing club.

A corporation simply doing business on a for profit basis is relatively easy to establish. Almost every state has some simple guidelines which vary from state to state and can be found on the relevent website for your state of residence.

Keep in mind that an LLC only protects you so far. If you personally engage in dangerous or criminal actions, you are not shielded by the corporation.

You may need to consult with a tax expert in choosing between an LLC and a sole proprietorship. Working as a sole proprietor may put you on the hook for additional self-employment taxes.

Please note that I am not an attorney, or a tax expert. I offer this advice solely based on my own experience as the owner of a small fencing club. Your mileage may vary, depending on your business plan and your place of residence.

AE

[Beloit Fencer of Old]

Allen provided some very good information. I would also get guidance from the USFA, as their mission is furthering the sport, and I would solicit the advice of Chris Pullo. Chris is the founder/owner of the Seacoast Fencing Club in New Hampshire. He now owns two freestanding fencing facilities in two cities. In addition, he is an attorney. His insights are invaluable.

[jfarmer]

Originally Posted by Babs the Cat

I am thinking of starting a fencing club. It seems to me that there are 3 likely options:

(1) not-for-profit
(2) sole proprietorship
(3) LLC - limited liability company

I would like something fairly easy. If possible, I would prefer to avoid hiring a lawyer. On the other hand, I also want to protect myself just in case one of my students gets hurt, and his parents decide to sue.

Would anyone care to offer their insight, opinion, or experience on this? I have never started my own business before.

Starting a business is fun! Just be prepared to have it cost 3 times what you think it will to get it going, take twice as long to get established than you expected, and eat up 150% of your time...

When you say not-for-profit are you talking about wanting to own one? I'm not a lawyer, but I'm not certain of how you could do so. All non-profits, I've been involved in have been owned by no-one but are operated by a board of directors... Bear in mind that you can participate in a non-profit as an employee, trustee, director, etc. and be paid for such duties. There are also different levels of non-profits. We re-organized our club last year as a state chartered non-profit after 50+ years as a private group operating out of an individuals pocket. Paperwork was simple, a couple of state forms to setup, one form to re-new each year, and we're required to meet at least once a year & keep minutes. The club is operated by the members through a group of officers and it contracts with coaches and instructors for training, etc.

Note that this form works when you have a group of interested and motivated members to build on. If you want to be the one in control of a non-profit, then you're heading off into the setting up foundations, boards of directors, and trustees, etc. and you will need to do a fair amount of research & fork over chunks of money to lawyers.

Now in terms liability for sole proprietorship vs. an LLC, there really isn't that much difference. Yes, the LLC does shield you to some extent in terms of financial and legal liability, but I'm told that it's overrated. The LLC gets sued, usually the officers, etc. also get sued.

Regardless of what you want, you will have to deal with lawyers. It's better that you find one that understands small business (or non-profits) and pay his fees now than to later pay 10 times the amount to sort out a mess... Even if you go with something like a sole proprietorship, there really isn't anyway to setup a functioning and enduring business that's "easy"...

Also, if you haven't, sit down and write up what it is that you want. Are you simply looking for a place to fence, or a way to make money? Do you want to do the work required to run a business? Running a business can and will take up 150% of your time. So will teaching and coaching. So will your family and friends. Where do you want to put your time and efforts and what are you willing to give up? Once you've decided what your goal is, then explore ways to get there and the associated costs, etc. All of this will feed into your business plans and help you decide what you can, or want, to do.

John Farmer
Coach, Oak Ridge Fencers Club

[Capt. Slo-mo]

Originally Posted by jfarmer

All non-profits, I've been involved in have been owned by no-one but are operated by a board of directors... Bear in mind that you can participate in a non-profit as an employee, trustee, director, etc. and be paid for such duties.

If you go the 501C3 non-profit route, you can be the director, manager, Dictator-for-Life and be paid for it. You avoid some tax issues this way, but not all. Of course, as some people who ram-rodded a non-profit into existence have found, the required board of directors sometimes develops a spine (or a differing agenda) and takes control of the club away from you.

If you structure as an LLC or one of the corporation flavors (C, S-corp, etc) you can retain much more control, but at the price of total responsibility.

A lot of it depends on what you want out of the club. But like everyone above has advised, much better to sit down with an attorney who specializes in corporation forming first, and have him/her/it run you through the pros and cons of each type.

It's much easier to get it right from the beginning.

[dcmdale]

Originally Posted by Babs the Cat

I am thinking of starting a fencing club. It seems to me that there are 3 likely options:

(1) not-for-profit
(2) sole proprietorship
(3) LLC - limited liability company

I would like something fairly easy. If possible, I would prefer to avoid hiring a lawyer. On the other hand, I also want to protect myself just in case one of my students gets hurt, and his parents decide to sue.

Would anyone care to offer their insight, opinion, or experience on this? I have never started my own business before.

This question is virtually impossible to answer as a general rule that fits every circumstance.

As has been said on several other threads, the first step in starting a club (or any other business) is the Business Plan. While corporate structure should be a piece of your Plan, it is a relatively small piece. Much more important are the sections relating to how you intend to make the business go and how you are going to live and pay the rent until it does go. (You should be aware that one of the most important reasons for doing a business plan is to talk you out of it if you are about to do something stupid.). At the end of the day, the plan just walks you through the process of starting your business as an intellectual exercise before you commit real time and money into it. It also organizes your thinking so that you can get intelligent help from others.

If you search, there are several threads on F.net about business plans that have good thinking in them. Somebody should probably put them together into an FAQ.

Once you have a Business Plan, run it past: first, some people who have startup experience--ideally with fencing clubs; second, your CPA (who will have advice about the corporate form from a tax perspective); third, your attorney. If your business plan doesn't have the money for the CPA and attorney, you probably need to rework the plan. Even if you do the actual filing yourself, the few hundred dollars spent on getting the right answer is a good investment. Getting it wrong can be expensive.

Can you make a go of it without a Business Plan? Absolutely. There are a lot of successful businesses / fencing clubs out there without a Business Plan. However, for every successful one, there are 10 unsuccessful attempts.

As you are putting together your plan, assume that the corporate form that your CPA/attorney will recommend is a for-profit corporation, possibly a Subchapter S.

[jjefferies]

In agreement with the chorus of voices that have spoken out before I suggest sitting down and laying out what it is you want to do and from what position are you starting? Are you a coach, fencer, parent? And the degree to which you want to exercise control. As background research I would suggest going to NOLO press <www.nolo.com> and seeing what books they offer in whichever direction you are attracted to go. For instance I found a very good one on "Form a Partnership" which dissuaded me from the LLC route. For a fairly low price you get some degree of real legal insight. <And from what we learned the LLC offers little real protection in things like leases, accident liability, etc.>

j.

[fluidfencer]

I wrote a long article about this for American Fencing about 2 years ago. We are a non-profit corporation (not an LLC), which was established in anticipation of becoming a 501c3 at some point. Like others already said, you need to decide what you want to do. All options have pros and cons. If you can give a very specific description of what you are planning, our collective advice can be a lot more specific, although that might not be possible yet. We are actually reviewing our status with a CPA.

[Philistine]

I agree with fluidfencer's statement that you probably need to be more explicit about your situation and your goals to get more specific advice.

Different business entities have different pros and cons. Also, there are some variations between states in the availability and details of different options.

--Philistine

[Babs the Cat]

OK, for starters, some stuff about me. I have been fencing for about 15 years, but was never a really serious competitor. I have been teaching beginners for quite a while, and have been working with more intermediate fencers for a few years as a coach. I also know how to fix stuff fairly well, and have a fair amount of free time (no kids yet).

My short term goals: get a place to teach beginners and mostly grow a program from the ground up. Work with some intermediate fencers who have some experience. Cater to anyone who wants to fence. Start with recreational but see who wants to be more serious. Any age: kids or teens or adults or retirees.

Long term goals: Hire an experienced coach or coaches to work with fencers as they get better. This will free up more of my time to handle increased business and management stuff. Also want to host tournaments. I don't want to make money, I just don't want to go broke either.

I know that, on paper, the models I listed are very different. In practice, though, I have seen many clubs that all function the same way on the surface even though one is an LLC one is a sole proprietorship and one is a not-for-profit. Call them what you want, draw up the paperwork or whatever, bend the rules, find your puppets, but it all comes down to "one person running a fencing club."

[dcmdale]

The "starting a club/fencing business" question comes up a lot on fencing.net. And the first thing out of most of the people who regularly answer (including myself) typically is, "Make a business plan!" If you look at some of the other threads, you will find some good resources and, as frequently as this question comes up, it would probably be good if we consolidated some of the wisdom onto the Fencing.net Wiki so that it was all in one place.

One thing that I want to point out is that there are really two (maybe even three) types of business plans. The first, which is the one that find most of the templates for, is really a resume of your company. It is a marketing piece that you use to convince banks, investors, etc. that you are serious about the business and that you have the resources and planning to make it go.

The second type of business plan is the more serious one. Essentially, it is walking through how you expect the business to develop on paper before you commit yourself and your money to the real thing. What do you expect/want this business to look like in 5 years? Then, how do you get from where you are at to that point? Part of that is an evaluation of where you expect to be personally in 5 years. Do you expect to have an income at that point? If so, what kind of lifestyle do you want? Lots of questions around this point. Also, what do you want from this club and how do you expect it to look in 5 years. Is it more of a community thing where you hope others will step up and help or do you envision a franchise chain of "Babs Fencing Gyms" sprouting across the country?

Once you have a clear idea of where you want to be, think through how you get there. This is the actual plan. There are some transitions that you need to specifically think through because many business fail at these points: how do you get to your first "real" facility? how do you get to the point of your first real employee? Both of these are tough points for many businesses because you generally need the money (and assurance of future money) before you can make the leap. But getting enough money is tough without having the location/first employee first. (Each subsequent employee is easier, BTW). This plan is really only for your purposes. You certainly aren't going to show this to anybody who you are trying to impress because it should be about all of the problems and should be brutally honest and detailed. Just because you have planned something doesn't mean that you are locked into doing it that way, but simply that you are planning to do it. If things change, and they will, your plan will change (whether on paper or in practice). For instance, if you expect to market your business initially by twice weekly ads in the sport section (which implies that you have thought through the cost of artwork and cost of placing the ad and as well have expectations about effectiveness) and find that it is cheaper/more effective to give after-school demos as a means of building your business, then, hey, it is your plan. The plan doesn't need to be quite that detailed, but it should be fairly fine grained around the problem areas.

The potentially third business plan represents the results of your thinking. *That* is the plan that you need for getting professional input. With what you have given us, we can give some general principles, but we can't tell you what's right for you.