T Nation

Business Question for Ya

nutshell:
I’m trying to open up my own hardcore gym…ie one that caters to combat athletes, hardcore bodybuilders/figure, power lifters, strong man…basically people that are serious about meeting their goals.

Anyways, I found a building that needs some serious loving but the area has potential, decent visibility, on a corner of a mildly decent intersection and the like. The building appraises at 47k even though it looks pretty run down on the outside. To make it presentable, I’d prolly have to put in more than the building is worth. It hasn’t been occupied in at least 5 years since the only businesses that thrive in my city are restaurants. Do you guys think it would be unreasonable to make repairs to the building in lieu of a monthly rent payment if I were to lease it? Buying it is out of the question unless I can talk them down to like 10-20k…its just not worth what it appraised at to me.

There hasn’t been anyone in it in quite some time. Its costing them a couple G’s/year in property taxes. I’ve called the company that owns the building a few times on Fri and left voice mail so I haven’t even begun negotiating with them. Ideally, what I think is reasonable:

A. I pay property taxes on the building + make the repairs with an option to buy after 3-5 years

I can live with:
B. monthly rent payment around 300-500 bucks + I make repairs

or
C. monthly rent about 1200 and make no repairs

Is this unreasonable?

I wanna start small cause I have to compete with about 10 gyms in my city. Three franchise gyms, Golds, GymX, and YMCA which cater to bro-tards and cardio bunnies. I go to one of them on occasion. On any given 5-6pm, there will be a couple hundred people there and the 2 squat racks they have are empty.

[quote]admbaum wrote:

Is this unreasonable?

[/quote]

More than likely, yes. But in this economic climate, and how long they have moth balled it, they might talk.

You will need a lawyer to review the lease. Do not think you can review it on your own. Pay a fucking professional to do it.

As far as the business is concerned, contact an insurance agent sooner rather than later. Because you may have to pay sizable deposits seeing as you are new to the game. These are going to slap the shit out of your wallet, so you need to plan for the expense.

You also need to consider form of ownership. I recommend an S-Corp, and keep this shit off a Schedule C unless you want to risk losing everything you have ever or will ever have. DO NOT RUN A GYM AS A SOLE PROPRIETORSHIP. Texas has to have a department of revenue page you can search for the proper paperwork to fill out. Or go to a local small CPA firm and pay them to do it for you. You are going to need them to do your 1120S & 1040 at the end of the year anyway. So figure 3,000-5,000 for a decent accountant.

Also either learn to use quickbooks, or find a bookkeeper to work 40ish hours a month to do your books and use a payroll service like ADP.

‘Buisness Question for Ya’

Well, if you DO succeed in opening a gym, be sure the sign is spelled correctly.

lol

About the repairs, if they think your business will succeed, they may be willing to work out a deal where they pay a portion of the fitup and you pay a portion. Or they might just say fuck it, and do the fitup themselves. I’ve seen crazier shit.

But seeing as it has been moth balled this long, and you said the location is good, I would be wary of the people that own the property. Get a lawyer.

I believe the stats are 16% of the population uses a gym, and that typically comes from a 5-10 mile radius (I’d have to look it up).

Find out how many people live within that zone and crunch the #s.

Then you have to account for how many of that 16% do you really think you’ll get with all those other clubs competing, and your place being a small niche facility.

not sure if that helps, but something to think about

[quote]countingbeans wrote:

You also need to consider form of ownership. I recommend an S-Corp, and keep this shit off a Schedule C unless you want to risk losing everything you have ever or will ever have. DO NOT RUN A GYM AS A SOLE PROPRIETORSHIP. Texas has to have a department of revenue page you can search for the proper paperwork to fill out. Or go to a local small CPA firm and pay them to do it for you. You are going to need them to do your 1120S & 1040 at the end of the year anyway. So figure 3,000-5,000 for a decent accountant.
[/quote]

What exactly does this mean?

[quote]admbaum wrote:
nutshell:
I’m trying to open up my own hardcore gym…ie one that caters to combat athletes, hardcore bodybuilders/figure, power lifters, strong man…basically people that are serious about meeting their goals. .[/quote]

Gyms, in general, are money losers. They make money on the fat housewife who pays monthly and never comes in.

Hardcore places – the ones we love – have to be very, very lean to survive. Money is made on training — and, typically, drug sales.

Start by figuring out what will be your realistic cash flow, then work backwards.

I doubt a TRUE “hard core” gym will have more than 100 members per 100,000 people in a town.

[quote]OsakaNate wrote:

[quote]countingbeans wrote:

You also need to consider form of ownership. I recommend an S-Corp, and keep this shit off a Schedule C unless you want to risk losing everything you have ever or will ever have. DO NOT RUN A GYM AS A SOLE PROPRIETORSHIP. Texas has to have a department of revenue page you can search for the proper paperwork to fill out. Or go to a local small CPA firm and pay them to do it for you. You are going to need them to do your 1120S & 1040 at the end of the year anyway. So figure 3,000-5,000 for a decent accountant.
[/quote]

What exactly does this mean?[/quote]

Which part? I could write multiple chapters on that paragraph.

[quote]OsakaNate wrote:

[quote]countingbeans wrote:

You also need to consider form of ownership. I recommend an S-Corp, and keep this shit off a Schedule C unless you want to risk losing everything you have ever or will ever have. DO NOT RUN A GYM AS A SOLE PROPRIETORSHIP. Texas has to have a department of revenue page you can search for the proper paperwork to fill out. Or go to a local small CPA firm and pay them to do it for you. You are going to need them to do your 1120S & 1040 at the end of the year anyway. So figure 3,000-5,000 for a decent accountant.
[/quote]

What exactly does this mean?[/quote]

I don’t know what the hell it means, but I would recommend a single member LLC (so there is no seperate tax return) and keep as little as possible with value in the LLC.

The LLC would be your liability shield. Just make sure there are no assets in it, so in case something shitty happened and you got sued, they’d get some used gym equipment, proably rented.

Yes, I am a lawyer.

[quote]OsakaNate wrote:

[quote]countingbeans wrote:

You also need to consider form of ownership. I recommend an S-Corp, and keep this shit off a Schedule C unless you want to risk losing everything you have ever or will ever have. DO NOT RUN A GYM AS A SOLE PROPRIETORSHIP. Texas has to have a department of revenue page you can search for the proper paperwork to fill out. Or go to a local small CPA firm and pay them to do it for you. You are going to need them to do your 1120S & 1040 at the end of the year anyway. So figure 3,000-5,000 for a decent accountant.
[/quote]

What exactly does this mean?[/quote]

Beans is discussing the various ways in which an individual can own/operate a business. The corporate structures allow you to own a business and have less potential personal liability. A sole proprietorship will mean that if something bad happens, rather than the corporation getting fucked, you’ll be taking it in the ass, no lube.

Might be the Secretary of State that has the business info, OP.

[quote]Jewbacca wrote:

[quote]OsakaNate wrote:

[quote]countingbeans wrote:

You also need to consider form of ownership. I recommend an S-Corp, and keep this shit off a Schedule C unless you want to risk losing everything you have ever or will ever have. DO NOT RUN A GYM AS A SOLE PROPRIETORSHIP. Texas has to have a department of revenue page you can search for the proper paperwork to fill out. Or go to a local small CPA firm and pay them to do it for you. You are going to need them to do your 1120S & 1040 at the end of the year anyway. So figure 3,000-5,000 for a decent accountant.
[/quote]

What exactly does this mean?[/quote]

I don’t know what the hell it means, but I would recommend a single member LLC (so there is no seperate tax return) and keep as little as possible with value in the LLC.

The LLC would be your liability shield. Just make sure there are no assets in it, so in case something shitty happened and you got sued, they’d get some used gym equipment, proably rented.

Yes, I am a lawyer.[/quote]

You guys sure have a hard on for fucking single member LLC’s these days. I have more clients over complicating things by adding useless layers than I can shake a stick at.

An LLC has less legal precedence than a corporation, and I would imagine they will pierce the FUCK out of an LLC if you leave it bare bones. A properly capitalized corp with shield you better.

[quote]countingbeans wrote:

[quote]Jewbacca wrote:

[quote]OsakaNate wrote:

[quote]countingbeans wrote:

You also need to consider form of ownership. I recommend an S-Corp, and keep this shit off a Schedule C unless you want to risk losing everything you have ever or will ever have. DO NOT RUN A GYM AS A SOLE PROPRIETORSHIP. Texas has to have a department of revenue page you can search for the proper paperwork to fill out. Or go to a local small CPA firm and pay them to do it for you. You are going to need them to do your 1120S & 1040 at the end of the year anyway. So figure 3,000-5,000 for a decent accountant.
[/quote]

What exactly does this mean?[/quote]

I don’t know what the hell it means, but I would recommend a single member LLC (so there is no seperate tax return) and keep as little as possible with value in the LLC.

The LLC would be your liability shield. Just make sure there are no assets in it, so in case something shitty happened and you got sued, they’d get some used gym equipment, proably rented.

Yes, I am a lawyer.[/quote]

You guys sure have a hard on for fucking single member LLC’s these days. I have more clients over complicating things by adding useless layers than I can shake a stick at.

An LLC has less legal precedence than a corporation, and I would imagine they will pierce the FUCK out of an LLC if you leave it bare bones. A properly capitalized corp with shield you better.

[/quote]

“I would imagine they will pierce the FUCK out of an LLC if you leave it bare bones.”

Depends on the state, I suppose. They’ve been around for 2 decades now. Get with the times.

“A properly capitalized corp with shield you better.”

Not really. S-corps have to have a lot more formalities, tax returns, etc. Stuff that a gym owner probably won’t do and are more likely to F-up.

Single member LLCs need a good Company Agreement, quicken books, and a seperate bank account.

Lot less expensive, long term, and less likely to be f-ed up.

[quote]countingbeans wrote:
About the repairs, if they think your business will succeed, they may be willing to work out a deal where they pay a portion of the fitup and you pay a portion. Or they might just say fuck it, and do the fitup themselves. I’ve seen crazier shit.

But seeing as it has been moth balled this long, and you said the location is good, I would be wary of the people that own the property. Get a lawyer.[/quote]

Thx CB, exactly the direction I was hoping to get.

My business coach did try to convince me to go Sole Prop. but I’m very against it. I’d file it as a non-profit if it want such a hassle. I’m not looking to get rich on it or anything. Just looking for it to sustain itself plus be able to update and upgrade the equipment as needed. I have a career, just dont have a decent place to train and my home gym is getting a bit crowded.

I have the misfortune of being very intimate with Quickbooks. I work for an accounting software company that integrates with Quickbooks so I got book keeping covered. My sister works for the State Attorney’s office and my cousin is a CPA (who hates quickbooks with a passion) in Houston. I’m fortunate to have them as a resource to help guide me.

I’m thinking I can use repairs and the fact that its been vacant so long as leverage when we negotiate the deal. I’ll buy the building if I have to, but I’d rather lease it since the market is what it is here. There’s 7k men and around 12k women in the market but the niche I’m targeting is much smaller unless I market to the high school athletes too.

I’ll try to take and post some pics of the place to give you guys an idea of what the repairs are gonna be like. I’ve swung my share of hammers so I can do anything you dont need a license for. The things you do, I got buddies in industry that can help me out.

[quote]Jewbacca wrote:
“I would imagine they will pierce the FUCK out of an LLC if you leave it bare bones.”

Depends on the state, I suppose. They’ve been around for 2 decades now. Get with the times.[/quote]

? 20 years? Are you seriously putting 20 years of case law against corporate precedence?

[quote]“A properly capitalized corp with shield you better.”

Not really. [/quote]

You don’t know what you are talking about.

You still technically file a return for the LLC is is just attached to the 1040, and it in not necessarily going to cut down on complication.

What about the fact he can’t take a salary out of an LLC?

What about the self employment tax on his individual? You just caused him to pay more tax.

You are advising him to underfund a business. That is illegal and will put him at risk of criminal charges.

If he isn’t going to pay a professional to file his returns, he is an idiot and deserves to lose everything. Just like he should hire a lawyer to review the lease. “Home brewing” shit like taxes and legal matters is straight moronic.

[quote]Single member LLCs need a good Company Agreement, quicken books, and a separate bank account.

Lot less expensive, long term, and less likely to be f-ed up.[/quote]

I’m not going to argue this further with you. But you aren’t giving him good advice, particularly in such a litigious environment.

I implore you to discontinue advising him to under protect himself, and to put himself in an unfavorable tax position.

[quote]admbaum wrote:
my cousin is a CPA (who hates quickbooks with a passion) in Houston.

[/quote]

So he knows what he is talking about.

Good. There, now you can file your returns on the cheap.

Countingbeans gave some great advice, though I would add be careful about the lawyer you choose. Ask around, as not all lawyers will admit to being inexperienced or unknowledgeable in specific areas. I have seen a few instances where their inexperience has hurt the client, and there was little recourse for them.

Also, have you got an idea about how long the lease would be for? I know it can vary quite a bit depending on the location.

What would you estimate the payback period on the repairs to be? 2, 4, 8 years?

You need them to agree to a lease long enough to pay back the repairs you would put in.

After the initial lease expires, they could royally screw you by selling the building, significantly alter the terms, or not renew the lease altogether. It appears that you have a bit of leverage now, which is good for getting what you want.

Good Luck!

[quote]countingbeans wrote:

[quote]Jewbacca wrote:
“I would imagine they will pierce the FUCK out of an LLC if you leave it bare bones.”

Depends on the state, I suppose. They’ve been around for 2 decades now. Get with the times.[/quote]

? 20 years? Are you seriously putting 20 years of case law against corporate precedence?

[quote]“A properly capitalized corp with shield you better.”

Not really. [/quote]

You don’t know what you are talking about.

You still technically file a return for the LLC is is just attached to the 1040, and it in not necessarily going to cut down on complication.

What about the fact he can’t take a salary out of an LLC?

What about the self employment tax on his individual? You just caused him to pay more tax.

You are advising him to underfund a business. That is illegal and will put him at risk of criminal charges.

If he isn’t going to pay a professional to file his returns, he is an idiot and deserves to lose everything. Just like he should hire a lawyer to review the lease. “Home brewing” shit like taxes and legal matters is straight moronic.

[quote]Single member LLCs need a good Company Agreement, quicken books, and a separate bank account.

Lot less expensive, long term, and less likely to be f-ed up.[/quote]

I’m not going to argue this further with you. But you aren’t giving him good advice, particularly in such a litigious environment.

I implore you to discontinue advising him to under protect himself, and to put himself in an unfavorable tax position. [/quote]

I do know what I am talking about. Bought and sold over a billion dollars of service companies last year.

LLCs (again, state dependant) provide the same legal protection as any corporation — better, if you suspect the corporate formalities won’t be perfect. I don’t see this guy having annual meetings and minutes.

The LLC would have self-employment tax, but shareholder-employees are paid a salary, with their wages reported on a W-2 and with Social Security and Medicare taxes already withheld. Yeah, you can try to cheat the IRS and over-report profits (which don’t have FICA) and under-report salary, but talk about doing something stupid and illegal. Typical accountant advice.

There is nothing illegal about a thinnly capitalized company. It’s a weight factor in piercing the corporate viel on tort (and tort only) matters only. If he carries a CGL policy (which he will probably have to under his lease), this is irrelevant.

Piercing only matters when there are assets behind the entity to get to. It sounds like he does not have 50k cash to plunk down, so most of his assets are probably in his house and retirement, for the most part neither of which you can get to in Texas, either in tort or contract, unless the contract is a mortgage with the house listed as a security.

If there are attachable assets, they can be gotten to, regardless of the form he chooses, in the case of a tort. And he is going to have to kiss any note or lease he signs, so the form won’t matter in a contract case either. I’ll leave it to you guys to argue about tax consequences (I don’t do tax), because, for the most part, that is all that really matters in choosing the form (unless he has partners or investors, or wants the shield this particular asset from other creditors, which is a whole other ball of wax).

Also, I agree insurance is a very good idea, and that it would be required in a commercial lease, but if the shit really hits the fan, that’s when the insurance company pulls out the coverage lawyers and he finds out how all those little exclusions work–I can tell you right now they don’t work in his favor.

Frankly, unless he is experienced or has good representation, where he is really going to get b-fu*ked is negotiating a commercial lease with a bunch of sharks, not in the form of entity he chooses.

Good luck, opening a business is risky. :slight_smile:

[quote]jjackkrash wrote:
Piercing only matters when there are assets behind the entity to get to. It sounds like he does not have 50k cash to plunk down, so most of his assets are probably in his house and retirement, for the most part neither of which you can get to in Texas, either in tort or contract, unless the contract is a mortgage with the house listed as a security. If there are attachable assets, they can be gotten to, regardless of the form he chooses, in the case of a tort. And he is going to have to kiss any note or lease he signs, so the form won’t matter in a contract case either. I’ll leave it to you guys to argue about tax consequences (I don’t do tax), because, for the most part, that is all that really matters in choosing the form (unless he has partners or investors, or wants the shield this particular asset from other creditors, which is a whole other ball of wax). Also, I agree insurance is a very good idea, and that it would be required in a commercial lease, but if the shit really hits the fan, that’s when the insurance company pulls out the coverage lawyers and he finds out how all those little exclusions work–I can tell you right now they don’t work in his favor. Frankly, unless he is experienced or has good representation, where he is really going to get b-fu*ked is negotiating a commercial lease with a bunch of sharks, not in the form of entity he chooses.

Good luck, opening a business is risky. :slight_smile: [/quote]

I love insurance. “Man, my life went to hell, but at least I have insurance!”

Then you look at the coverage terms: “In the event your Life goes to hell (an “Incident”) we will pay to you enough money to repair the damage caused by the Incident, provided such Incident is not an Excluded Incident”

“Definitions: ‘Excluded Incident’ - any event in which your Life goes to hell.”

[quote]jjackkrash wrote:
Piercing only matters when there are assets behind the entity to get to. It sounds like he does not have 50k cash to plunk down, so most of his assets are probably in his house and retirement, for the most part neither of which you can get to in Texas, either in tort or contract, unless the contract is a mortgage with the house listed as a security. [/quote]

I was thinking long term, and assuming a going concern. Why not protect yourself now, rather than end up fucked when you do have money 10-15 years from now?

I was also considering tax consequences and how this would fit into the rest of his life, if it really was a success, bringing in new investors, etc.

If it really has been moth balled this long they might not be too aggressive. And in this market, at least my real Estate client, is more than willing to negotiate.

But in general, I agree with you, and like I said needs a lawyer.