starting a dive business

Question
QUESTION: Hi Mike, I'm looking into starting a dive instruction business (I'm a PADI OWSI) in California and I'm wondering what type of business structure I need to manage the liabilities. I would like choose the right structure to later expand into retail sales, rental,s and service aspects too.

thanks for your comments,
Robin

ANSWER: Hi Robin!!

I'm not quite sure what you mean by "business structure" but I'll assume that you want to know about how to set up a business plan with the opportunity for later expansion into the areas you mentioned in your letter.  As for the plan, itself, I've covered basic business plans in great detail in many of my previous answers so I invite you to browse those answers for some general ideas on how to set one up and things to consider.

However, your question gives me the opportunity to address something I don't think I've covered in my previous answers and will be happy to address here.  That has to do with my own personal experience in getting started in scuba instruction.

You mentioned that you have your OWSI and I'll assume that you've already got a "day job" doing something other than dive instruction.  That's the same situation I found myself in many years ago.  

I had some business cards printed advertising myself as a PADI scuba instuctor and offering private scuba lessons.  I'd pass the cards out during social events, at work and during casual conversations.  

I converted one of the empty bedrooms in my house to a classroom (chairs, tables, audio-visual stuff, dry erase board, wall posters, etc).  I purchased 10 used BC's of assorted sizes and 10 regulator sets.  Then I made arrangements with a local dive shop to provide tanks and air in exchange for sending my students to their shop to check out their masks, snorkels and fins.  I had an outdoor pool at my house but I also made arrangements with a local YMCA to use their indoor pool when needed.  All of this qualified as a Home Business so I got lots of business deductions for pool expenses, utilities, repairs and any improvements which benefited my students.  Robin, I think you get the idea.

As for the liabilities, you probably have your professional liability policy as a requirement to maintain your OWSI teaching status.  That will cover you for your scuba-related activities both at your house and various pools.  It will also cover you when leading dive related activities and conducting open water dives.  Check with your insurer for specific details.

I also made arrangements with the YMCA mentioned above to use their classroom and would run special classes for their members at a reduced price.

Of course, you'll need to tailor this to work in your particular situation.  One of the big advantages you'll have over the dive shops is that your overhead expenses are very low and you can adjust your teaching schedule to fit the needs of your students.  I kept my classes small so rearranging a schedule was easy to do.  You can offer more convenience and highly personalized service.  Those qualities are difficult to find in a large dive shop. My students were happy and my classes grew.

Later, I decided to expand my business to cover retail sales, trips, rentals, gear repairs and air fills.  At that point, I leased a building, got the proper business licenses and opened the shop.  I simply moved the dive school to the business location.  I had a following from former students so my customers were eager to come to the new shop.

Robin, this same technique may work for you. You can grow as much as you like or keep it small and teach as a "hobby".  You may also be able to make arrangements with local dive shops to teach for them on a part-time basis if that's more to your liking.

Take advantage of the internet.  Set up a web page for your scuba instruction and note the web address on your business cards.

Robin, I hope this gives you some food for thought and some ideas on how to proceed.  If I've missed anything, please write back and I'll try again.

Best wishes!!

Mike Giles
Mike's Dive Center
mikescuba.com

---------- FOLLOW-UP ----------

QUESTION: Thanks Mike, that's very helpful. My question about busines structure is asking whether it is best to form the business as an LLC , C Corp, S Corp, etc. I will look at your previous answers to see if it's covered there.

thanks again, Robin

Answer
Hi Robin,

I hope you haven't spent too much time looking for incorporation information in my previous answers because I haven't addressed that subject before.

I'm really not qualified to advise you on the advantages or disadvantages of incorporation.  As I understand it, the primary reason for incorporation is to protect the principals from culpability as a result of real or perceived negligence on the part of the corporation.  It separates the assets of the corporation from the assets of the individual members.  If a judgement were to be rendered against the corporation, it would protect the assets of the individual members.

To put it another way, if your dive shop were to be sued and a judgement rendered against it, incorporation would protect you from personal liability.  However, If you are named in the same lawsuit, then incorporation would not help you.  It's all very confusing and open to rampant abuse.

As a sole proprietor, as would be the case if you are a private instructor, you ARE the business so incorporation would not be of benefit to you since your assets cannot be separated.

Once again, this is really outside my area of expertise and I would consult with a trusted attorney or do some internet research before making a decision.  I don't know of any private instructors who have incorporated themselves.

Instructors and divemasters working through my shop are considered to be private contractors and, as such, are not on the payroll and are not considered to be a part of the shop.  Depending on the laws in your state, this may not be possible for you.

Keep in mind that your liability insurance will also come into play if you find yourself facing a lawsuit over something you did, or failed to do.  All instructors and divemasters will be required to maintain their liability coverages in order to perform the duties of their position.

Once again, Robin, I apologize for not being able to give you a more concrete answer on this subject.  Corporate law is just not my thing!!

Thanks for writing back and I hope this helps!!

Mike