From Business to Club

[peregrinerose 0]

Any of you guys have experience with the conversion of an established DZ into a Club DZ? My home DZ has proposed this, as the DZOs want to get out of DZ management, and this is a way for the DZ to continue without them having to run it. Any thoughts or suggestions would be wonderful.

Do or do not, there is no try -Yoda

[JerryBaumchen 1,050]

H rose,

I 'think' that this place is a club operation even though they are a corporation:

http://skydivect.com/

Contact them and see what happens.

There used to be a rather large, successful club operation in St. Louis but I know nothing about it today.

JerryBaumchen

[peregrinerose 0]

They are a club, as is Maytown, but both started as a club. We're looking at the possibility of converting an existing dropzone business (ten years) into a club, so wondering what the pros/cons of that kind of transition is, as we are in the exploration/information gathering process now.

Do or do not, there is no try -Yoda

[DBCOOPER 1]

You mean like taking it from a place where you sit around all day waiting for the students and tandems to be jumped and then told there aren't four people left around waiting for the load so its going to cost you 36 bucks to go to 10k in a 182 to a place like Maytown where you can get on a load in less than an hour, to 10k for 18 bucks? Sorry Jen, it ain't going to happen.

Replying to: Re: Stall On Jump Run Emergency Procedure? by billvon

If the plane is unrecoverable then exiting is a very very good idea.

[nigel99 144]

No experience in transitioning, but I have jumped at a club (first few years of jumping) and then at commercial dz's.

For a club to work you'll need a good proportion of fun jumpers, rather than being a student/tandem dz from what I have seen.

Experienced jumper - someone who has made mistakes more often than I have and lived.

[skydived19006 4]

You might touch base with the Des Moines Skydivers (Couch Freaks). They're a fairly large and successful club. They even make a large regional boogie happen on an annual basis! Hell, that boogie starts tomorrow, you should just drive out to Ft Dodge IA and do a little research!!

Edit to add; it might be a good thing to have a lawyer and accountant as members who are willing to donate their expertise.

Experience is what you get when you thought you were going to get something else.

AC DZ

[DougH 270]

Clubs are a lot of work and you really need a dedicated base of fun jumpers who are going to help manage the operation. Otherwise one or two people get stuck being the DZO without the benefits of owning the business.

"The restraining order says you're only allowed to touch me in freefall"
=P

[peregrinerose 0]

I've been a member of Maytown for years and jump there when we can around our work schedule, so do know the basics of club setup and how important it is to have plenty of people pulling their weight. I love Maytown, it's an amazing club and I love being a part of it. I'm just helping with the information gathering component for KSC current jumpers who are interested in converting a business to a club, which is a little different.

Do or do not, there is no try -Yoda

[DougH 270]

So your wondering more about how to turn the existing sole proprietor business into a club?

Is the club going to be buying the business from the existing DZO?

How do you plan on funding the initial start-up expense of the club?

Do you want this to be a non profit 501(c)3 type organization?

It sounds like you want more specific information, but you are asking a really broad question.

"The restraining order says you're only allowed to touch me in freefall"
=P

[peregrinerose 0]

I"m looking more for the red flags, things we need to look out for. Yes, it would be a non profit. No actual purchase of the business, but lease to own on all the equipment with DZO as only rigger for the gear (no others allowed), lease the plane from DZO ($150/tach hour plus fuel... what is standard lease?), take over rent payments to the airport ($650/month), pay our own slip/fall insurance ($2000/year).

Since this is kind of an atypical way to set up a club, I just want to make sure that I'm not overlooking anything major. We have some financial gurus, a web person, etc, so the basics are covered.

Do or do not, there is no try -Yoda

[DougH 270]

You are going to need a good lawyer and a good accountant.

The first step is going to be setting up the organization as a legal entity.

You need to determine the bylaws of the club: Who are the initial officers. How does the club elected new officers, what are the rules that apply to them, what are the term lengths. Does an entire board get elected at once, or do you want certain positions to come up for vote at different years so you have some overlap and continuity between different boards.

You are going to need to apply for tax exempt status with the IRS.

There is going to be state and federal registration for indirect taxes (sales tax, payroll tax). You need good guidance in this area to make sure the organization is doing the required things.

The club will need to have regular club meetings with minutes recorded.

Club needs its own bank accounts. Contributions to the club need to be given consideration to avoid liability to the contributors. You can't be paying club expenses out of club members funds, it blurs the lines.

Pitfalls besides all of the above:

Is the DZO's lease assumable, or will you be subleasing from the DZO? What is the length of his lease, do you have a renewal option that is in your favor.

Need a good lease agreement on the aircraft to make expectations clear between the club and DZO.

Will the current insurance company offer slip and fall insurance to the new club.

My biggest concern would be doing all of this substantial setup only to have the airport not renew the lease to the club in year 2. I would want a multi year lease to protect the initial investment of time, effort and money.

You can get a new plane, but getting a new DZ is a different story.

"The restraining order says you're only allowed to touch me in freefall"
=P

[Fast 0]

Quote

You are going to need to apply for tax exempt status with the IRS.

There is going to be state and federal registration for indirect taxes (sales tax, payroll tax). You need good guidance in this area to make sure the organization is doing the required things.

There are substantial issues here all around. Depending on the sport to tandem gross income ratio, there can be problems with the IRS accepting a tax exempt status. (This is where that tax accountant helps).

The club I am a part of is actually a for profit corporation that is run in a non-profit manner (ie. no one takes home the profit, it gets re-invested into stuff for the club to be nicer) because we have too much tandem income to qualify as tax-exempt.

~D
Where troubles melt like lemon drops Away above the chimney tops That's where you'll find me.
Swooping is taking one last poke at the bear before escaping it's cave - davelepka

[peregrinerose 0]

You guys brought up great points, I will be adding them to my notes for the next meeting! Thank you!

Do or do not, there is no try -Yoda

[peregrinerose 0]

Oh, at this point... nothing is in writing...

The DZ has no written lease with the airport. As a club, that seems to be a terrible way to go, nothing in writing. No discussion has taken place with airport at this time, waiting to see if this is even possible or not.

There is no guarantee the airport will stay open. They have received state funding, which locks them in for some time to stay an airport, but I have heard anywhere from 2-5 years on that, nothing in writing on this either.

No written lease on aircraft or gear at this time. DZO will have exclusive rigging rights on gear during lease to own time period. There are volunteer riggers willing to do the work at no charge, but it will be in gear lease that DZO is rigger for duration of lease/own.

No Tandem Instructor at this time, which significantly limits income.

Tandem rigs are privately owned and presently owners are paid per use ($25-35/jump). No written contracts there either as far as I know.

I am trying now to get things in writing before the next club meeting as nothing can happen without written protection.

Do or do not, there is no try -Yoda

[riggerrob 558]

Yes. I understand leasing the airplane, but in the long run, your club will end up owning an airplane. Then the big challenge is setting aside financial reserves for engine overhaul, propeller overhaul, etc.

I don not know the finer points of American tax law, but under Canadian tax law, no-profit parachute clubs are not allowed to accumulate surpluses. Which meant that when they broke a propeller, they were forced to rely on a "sugar daddy" to counter-sign the loan for a new propeller ($15,000).

[Andy9o8 0]

Quote

The DZ has no written lease with the airport. As a club, that seems to be a terrible way to go, nothing in writing. No discussion has taken place with airport at this time, waiting to see if this is even possible or not.

You may already know this, but as a general-rule default (in most states), since it's strictly an oral lease, that probably means it's effectively a month-to-month lease as to both tenant and landlord - meaning either party can terminate the lease on a month's notice, at any time. You should consult a local lawyer to explore (among MANY other things) whether there are any fact-specific factors that might give rise to an exception to this general rule.

Good write-ups in Posts #s 9, 11, 12 & 15, BTW. In the meantime, I agree: you really need a lawyer and an accountant who know their shit about this.

Hope the both of you are healing well, BTW.

[DougH 270]

Quote

You may already know this, but as a general-rule default (in most states), since it's strictly an oral lease, that probably means it's effectively a month-to-month lease as to both tenant and landlord - meaning either party can terminate the lease on a month's notice, at any time.

That is a common law concept right, statute of frauds or something of that description?

All contracts greater than 1 year in length, or dealing with real estate, need to be in writing.

"The restraining order says you're only allowed to touch me in freefall"
=P

[ZigZagMarquis 8]

Prose,

Have y'all talked to anyone at the USPA and/or your regional director to see if they have any advice / guidance? Just a thought.

Anyway, I was in the K-town area here a couple of weeks ago and thought of y'all.

Hope it works out that you can keep your DZ going one way or the other.

I'm no expert, but one thing I'd think y'all would want to understand is if y'all convert over to the operation being a club, what can or you can't do as far as running a student operation? I may be wrong, but I thought I've heard of "clubs" getting cross-wise with their non-profit status (if that comes into play) with also running a "business", i.e. offering Tandem or AFF jumps to the general public, but I'm sure I don't know what I'm talking about, just something y'all may want to look into.

[peregrinerose 0]

We do have a jumper who can get us free legal advice from his sis/brother in law, so that will help out on answering those kinds of questions.

Frankly, I don't think we have enough people to get it off the ground. The only real option I see is if a small club is set up, no facilities, just a willing airport, pilot, etc., and build from there. Taking over a full scope operation seems to be far more than is reasonable at this point. We'll see how things go.

Do or do not, there is no try -Yoda