need honest opinions about a possible business plan

vlagrl29 · January 2014

I may have mentioned that DH is wanting to open an event space with his photography studio sometime very soon. Currently he rents a studio and we both feel it would be better financially if he paid to own one. He's been in business for 13 years on his own has shot weddings for the same amount of time and knows exactly what a bride would want at her wedding space. The spaces in the location he is wanting to build in are booked solid for the year and it would definately happen. He has been talking to architects right now and they have honestly told him that he is looking at $125 a sq foot for new construction. He was hoping he could stay at $75/sq ft but it's not looking good now that he's gotten confirmations from 2 reputable architects now who have talked to their contractors. So basically he is $100,000 short of what we would be comfy with as a monthly mortgage. he has saved for a down payment and has less than $5k on his business card. he is not the kind of guy that likes to wing it....it's all planned out in his mind and he likes to go for it. we both think that it would help us tremendously because he would only have to book 1 event a month to pay for the mortgage and anything extra goes in our "pockets". we could retire really well off.

Knowing he is that much short and we wouldn't be comfortable taking out more than you can chew, our tax guy has mentioned getting an "investor" which would in turn give us the extra money he needs and of every wedding DH would book the investor would get a set percentage. Our CPA also mentioned that with my paid off house we could take some of the equity out....I about had a heart attack when he said that. he said it's a way of making your property work for you. I can't say I feel comfortable with it.

What do you guys think? Regardless if this plan works out, DH can still have a photography studio built, just not a big enough space for events. I can't really talk to my parents about it because my mom and dad would probably list all the negatives and say he is "using" my house. I need to post and run so I can pick up DD but will be back later today.

brij2006 · January 2014

I wouldn't build it unless he can pay 50% cash for it to be built (money he's saved from the business and not personally). That way he isn't in the red during the winter months when weddings are slow.

Also keep in mind that with a wedding venue he will need to employ people to help staff the facility before, during, and after the events. So there would be much more overhead than just the mortgage.

However, I'm not going to sit here and say "don't do it." It sounds like there's definitely a need in the area, and it would be a great opportunity for growth. But if it means waiting a couple of years to begin and having one hell of a plan in place before you do, then go for it.

hoffse · January 2014

I love the idea of owning an event space, particularly since your H is a photographer. Having just been through the wedding thing myself, I know these can be cash cows if the space is oriented well.

I really dislike the idea of taking this equity out of your house. Like, I really really hate that idea. I think your reaction was about right with regard to that suggestion

An investor is a safer bet, but I would caution you to make sure it's somebody you know you can do business with. I've seen a lot of good relationships sour over business, and it needs to be somebody you can be honest with and really talk numbers with. I would also consider the split carefully - it really shouldn't be just a percentage of cash you are putting in; your H's efforts in running the business should also be considered.

**Not legal advice**

Regardless of whether you get an investor involved, I would find yourself a decent corporate attorney and ask them about setting up a legal entity to actually own the building and run the business - that way if somebody breaks their leg on the premises or whatever you aren't personally liable for it. With that many events and that many people, something like that WILL happen eventually - especially if they can serve alcohol on the premises. If it were me, I would probably do an LLC because they're generally the most flexible. They basically just serve to shield you from liability. Your attorney can talk you through this and will help you to consider the pros and cons of various types of entities (LLCs, C-corps, S-corps, etc.) I set up LLCs all the time, and it's not that expensive in the grand scheme of things.

I would also consider some good umbrella insurance coverage for you and your H if you decide to open the event space. It's pretty cheap, and it would protect you in case you DO get personally sued. LLCs and corps can protect you against a lot, but they don't shield you against everything. Most attorneys won't sue for more than the insurance pay-out, so it's good to have it available just in case. And frankly, we should all carry umbrella coverage once we have real assets that we could lose through a lawsuit.

vlagrl29 · January 2014

hoffse said:

I love the idea of owning an event space, particularly since your H is a photographer. Having just been through the wedding thing myself, I know these can be cash cows if the space is oriented well.

I really dislike the idea of taking this equity out of your house. Like, I really really hate that idea. I think your reaction was about right with regard to that suggestion

An investor is a safer bet, but I would caution you to make sure it's somebody you know you can do business with. I've seen a lot of good relationships sour over business, and it needs to be somebody you can be honest with and really talk numbers with. I would also consider the split carefully - it really shouldn't be just a percentage of cash you are putting in; your H's efforts in running the business should also be considered.

**Not legal advice**

Regardless of whether you get an investor involved, I would find yourself a decent corporate attorney and ask them about setting up a legal entity to actually own the building and run the business - that way if somebody breaks their leg on the premises or whatever you aren't personally liable for it. With that many events and that many people, something like that WILL happen eventually - especially if they can serve alcohol on the premises. If it were me, I would probably do an LLC because they're generally the most flexible. They basically just serve to shield you from liability. Your attorney can talk you through this and will help you to consider the pros and cons of various types of entities (LLCs, C-corps, S-corps, etc.) I set up LLCs all the time, and it's not that expensive in the grand scheme of things.

I would also consider some good umbrella insurance coverage for you and your H if you decide to open the event space. It's pretty cheap, and it would protect you in case you DO get personally sued. LLCs and corps can protect you against a lot, but they don't shield you against everything. Most attorneys won't sue for more than the insurance pay-out, so it's good to have it available just in case. And frankly, we should all carry umbrella coverage once we have real assets that we could lose through a lawsuit.

totally glad you confirmed my thoughts. A paid off house is the only thing we for sure have in life. LOL. I always think the worst (what would happen if DH died or we got divorced). For one thing we would HAVE to book at least 1 event a month if we took out equity where as if it was with DH's original numbers the mortgage was really close to what he pays now in rent so anything extra would be bonus as far as profits.

There are only 2 people he would feel comfortable asking, his dad and a really well off client/friend that already thinks its a great idea.

Regarding legal entity, his CPA already has told him there would be a separate business name that would be responsible for if anything happened. He already has thought of a name for it.

He also knows there would be employees as he has employees now when he shoots his weddings. He actually has a photographer friend renting his current studio for a little bit of money each month so it makes DH's rent less money/month. He actually has it all figured out. A girl he has worked with would be the event space coordinator and would deal with all the brides. At first she would be paid commission only. As it got more popular he would love to hire her part time. DH has sooo many contacts he would hire some of his interns to tear down or flip the rooms. It's crazy, he already has the design figured out. He has already went to a bank with his idea and they were all impressed. they said they needed more information before they would qualify him though. it's just a lot more expensive than we both thought it would be.

need honest opinions about a possible business plan

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