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Build	Your	Video	Game	or	
Related	Business	From	
Scratch
Possuminteactive.us
Topics
• Legal
• Financial
• Team
• Corporate	Insurance
• Contracts
• Taxes
Legal
• Legal	structure
• Sole	Proprietor
• Partnership
• Limited	Liability	Company
• Corporation
• Registered	agent
• Notices	from	the	state,	creditors,	others
• Trademarks
• File	early,	often
Financials
• First	steps
• Separate	personal	expenses	from	business	expenses
• Required	if	you	are	a	corporation
• Good	recordkeeping	helps	defend	you	during	an	audit
• Manage	tax	and	business	bills	more	efficiently
• Accounting
• All	about	what	happened	in	the	past
• How	much	revenue	did	I	earn?	Revenue	Recognition
• Where	did	I	spend	my	cash?		Chart	of	Accounts
• Bookkeeping
• Cash	v.	accrual
Financials	
• Finance	(not	Accounting)
• Looking	into	the	future
• What’s	my	budget	for	2017?
• What’s	my	return	on	investment	for	different	kinds	of	marketing?
• How	much	money	do	I	need	to	build	my	next	game?
• If	you	know	what’s	going	on	day-to-day	in	your	business,	you	can	start	
predicting
• How	things	look	next	month
• How	things	look	next	year
• Even	if	you	don’t	have	historical	data,	having	some	estimates	are	critical
Financials	– Example
• FTP	Game	Example
• FTP	game	on	Android	/	iOS that	will	monetize	via	virtual	goods
• Comparable	game	performance	available	from	many	sources
• Estimate	revenue	based	on:
• Players
• Conversion	to	paying
• ARPPU
• Total	Revenue
• Daily	Ops
• Revenue	&	Expenses	- this	is	your	BUDGET
• Figure	out	your	expected	expenses:
• Cost	per	install	(marketing)
• Art
• Music
• Engineering
• Design
• As	each	month	passes,	see	how	you	are	performing	against	expectations
• Make	smart	operational	adjustments
Team
• Employees
• Contractors
• Health	insurance
Team	- Employees
• Recruiting
• Job	postings	and	interviews
• Plan	for	what	you	want	to	learn	about	the	candidate
• Prepare	for	topics	candidates	care	about
• Recruiting	- legal
• It’s	illegal	to	discriminate	on	the	basis	of:	
• Race	/	Gender	/	Religion	/	Age	/	National	Origin	/	Physical	/	Mental	disability
• Don’t	say	you’re	looking	for	a	“young”	person	to	join	your	staff
• Tax	forms	and	taxes
• You	will	need	to	fill	out	tax	forms	for	each	new	employee
• Pay	taxes	each	payroll
• Employers	and	employees	each	must	pay	Social	Security	and	Medicare	tax	- 7.65%
• Employers	may	also	need	to	pay	federal	unemployment	tax
• May	need	to	pay	6%	of	the	first	$7000	in	wages	for	each	employee
Team	- Employees
• Protect	your	business	just	in	case
• Have	employees	sign	an	invention	disclosure	and	assignment	agreement
• Makes	sure	that	when	employees	make	content	for	your	game,	it	belongs	to	you
• Non-competes	are	non-trivial	to	enforce	but	may	be	appropriate	for	key	leadership	personnel
• Enforcement	of	non-compete	is	tied	with	theft	of	trade	secrets
• Payroll
• Making	sure	your	employees	get	paid	is	the	most	important	job	in	a	small	company
• Not	making	payroll	is	the	classic	event	of	collapse	of	a	small	business
• Use	a	professional	service	to	make	this	as	simple	and	automatic	as	possible
• Termination
• In	most	states	- employment	is	at	will
• Make	sure	departing	employees	get	last	paycheck	ASAP
• Some	states	require	you	to	give	the	last	paycheck	as	they	leave
• Cut	off	access	to	systems	and	remove	company	property
• Employees	may	have	rights	to	COBRA
• Employees	may	also	file	for	unemployment
Team	- Health	insurance	
• Americans	have	to	have	insurance	or	face	a	fine	under	ACA
• Employers	with	less	than	50	employees	don’t	have	to	provide	insurance	but	are	
permitted	to
• Types
• Health	Maintenance	Organization
• Preferred	Provider	Organization
• Point	of	Service	Plan
• High	Deductible	Health	Plan
• Disability
• Dental	and	Vision
Team	- Contractors	
• Contractors	are	not	employees
• They	work	under	a	Contract	or	Consulting	Agreement
• Paid	for	deliverables	or	hours	worked
• Contractors	pay	all	their	own	taxes
• W-9	form	at	start,	file	1099	each	tax	year
• Contractors	can’t	be	treated	same	as	employees
• Otherwise,	risk	being	reclassified	by	Dept.	of	Labor	as	employees
• Results	in	big	tax	consequences	for	you
• IRS	Criteria	for	considering	someone	as	employee
• Uses	your	tools,	equipment,	or	materials	instead	of	their	own
• Receives	on-the-job	training
• Must	follow	hours	you	set
• Is	told	not	just	what	must	be	done	but	how	the	work	must	be	done
• Hires	or	supervises	your	workers
• Receives	health	insurance,	sick	pay,	vacation	pay
• Gets	a	regular	paycheck
Corporate	Insurance
• E&O
• Errors	and	omissions	insurance
• Essential	if	you	are	doing	work-for-hire
• Protects	companies	against	claims	made	by	clients	for	inadequate	work	or	negligent	actions
• Often	covers	court	costs	and	settlements	for	amounts	specified	on	insurance	contract
• D&O
• You	may	add	advisors	or	investors	as	company	grows
• D&O	is	liability	insurance	payable	to	directors	and	officers	of	a	company
• Covers	losses	or	defense	costs	in	the	event	of	legal	action	brought	for	wrongful	acts	in	their	
capacity	as	directors	and	officers
• Intentionally	illegal	acts	not	covered
• Hired	Auto
• In	event	of	an	accident,	protects	your	company	if	employee	has	an	accident
• Supplements	the	driver’s	own	auto	liability	coverage
• If	an	employee	has	a	serious	auto	accident	while	on	company	business	and	their	personal	
insurance	is	not	enough	to	cover,	company	be	held	responsible
• Non-owned	Automobile	Coverage
Contracts
• Leases
• Vendors
• Work	for	hire
• Contractor
• Joint	ventures
• Publishing
Contracts	- Leases	
• May	make	you	seem	like	a	“real	business”
• Big	risks
• Often	for	long	periods
• Highly	restrictive
• Contain	pages	of	microprint
• Watch	out	for:
• Restrictions	on	ability	to	sublet	space	in	case	you	need	cash
• Early	termination	rights
• Amount	of	“free”	improvements	you	get	on	signing	and	move	in
• Whether	landlord	can	bump	you	for	another	client
• Covenants	that	restrict	what	you	can	do
• E.g.	Covering	windows	to	keep	out	sunlight	interfering	with	art	development
Contracts	- Vendors	
• Make	sure	you	know	who	owns	the	rights
• Any	restrictions	on	your	ability	to	further	transfer	anything	you’ve	bought
• When	do	you	have	to	pay?
• Watch	your	cash	flow
Contracts	- Work	for	hire	
• If	you	are	working	for	someone	else,	they	will	likely	use	their	contract	
paperwork
• Most	important	provisions
• What	you	have	to	deliver
• When	and	how
• When	you’ll	get	paid
• Watch	out	for	warranty	provisions	for	“bug	free”	code
• Who	gets	ownership	of	the	work?
Contracts	- Contractor
• Non-disclosure	agreement
• Non-disclosure	obligations
• Definition	of	confidential	information
• Return	/	destruction	of	confidential	information
• No	announcements
• Ownership	of	confidential	information
• Consulting	agreement
• Explanation	of	services	to	be	provided
• When
• Compensation
• “Independent	contractor	relationship”	- not	an	employee
• Confidential	information
• Non-disclosure	and	non-use	provisions
• Term	and	termination
• No	conflicts	of	interest
• Non-solicitation
• Ownership	assignment
Contracts	– Final	Note	
• Once	you	start	signing	agreements,	you	are	creating	on-going	costs
• These	will	continue	whether	the	game	makes	money
• Consider	the	total	costs	and	whether	you	can	terminate	a	contract	early
• Consider	how	much	money	you	have	to	make	to	pay	the	bills
Taxes
• Impact	of	taxes
• EIN
• Types	of	taxes
• Deductions
Taxes	- Impact	of	taxes	
• Can	make	the	difference	between	profit	and	loss
• Don’t	pay	unnecessary	taxes	- take	your	deductions
• Know	if	you	are	paying	business	taxes	as	an	individual	or	paying	business	
taxes	separately
• Penalties	are	potentially	large	for	trivial	infractions	like	filing	late
• Federal	and	state	rules	apply	BUT	terminology	is	different
Taxes	
• You	will	need	a	taxpayer	ID	number	or	employer	ID	number	(EIN)
• You	can	apply	for	one	online
• Types
• Income	tax
• Estimated	taxes
• Self-employment	taxes
• Sales	tax
• Excise	tax
• Franchise	tax
Taxes	- Income
• Income	tax
• All	businesses	must	file	annual	income	tax	return
• Partnerships	file	an	information	return
• Depends	on	how	business	is	organized
• Federal	income	tax	is	pay	as	you	go
• Must	pay	the	tax	as	you	earn	income	during	the	year
• May	need	to	pay	estimated	tax
• Estimated	tax
• Must	pay	taxes	on	income
• May	need	to	pay	self-employment	tax	by	making	regular	payments	during	the	year
• Self-employment	taxes
• When	you	have	employees,	you	must	cover	their:	SS	and	Medicare	taxes,	income	tax	
withholding,	and	Federal	unemployment	tax
• When	you	are	reporting	your	own	revenue	for	tax	purposes,	you	can	deduct	the	taxes	that	
your	employer	would	otherwise	pay
Taxes	– Sales	Tax
• Sales	tax
• Certain	platform	providers	cover	sales	tax,	iOS
• You	must	pay	the	sales	tax	on	revenue	from	other	platforms,	Android
• Only	pay	sales	tax	on	sales	in	the	same	state	as	a	major	nexus
• Nexus	- if	your	company	has	sufficient	physical	presence	in	a	state
• Excise	tax
• Must	be	paid	if	you	do	the	following:
• Manufacture	or	sell	certain	products
• Operate	certain	kinds	of	businesses
• Use	various	kinds	of	equipment,	facilities,	or	products
• Receive	payment	for	certain	services
• Likely	only	applies	to	game	developers	if	you	have	real	money	wagering
Taxes	- Franchise
• Franchise	tax	and	other	state	fees
• Texas	has	a	state	franchise	tax
• This	is	really	just	a	fee	for	operating	a	business	in	Texas
• Other	states	may	have	similar	fees
Taxes	- Deductions
• Home	office	deductions
• If	you	use	part	of	your	home	for	business,	you	may	be	able	to	deduct	expenses
• Available	for	homeowners	and	renters
• Requirements
• Regular	and	exclusive	use
• Principal	place	of	business
• Based	on	percentage	of	home	devoted	to	business	use
• Travel
• Commuting	expenses	not	deductible
• Side	trips	to	customers	or	suppliers	are	deductible
• Only	covers	transportation	expenses,	not	repairs
• Allowed	deductions	for	food	and	lodging	only	if	you	are	staying	away	from	home	(your	
place	of	business)	overnight
Taxes	- Deductions
• Meals
• Regular	meals	not	deductible
• Meals	with	customers	are	50%	deductible
• Only	if	business	is	discussed	at	meal
• Expense	is	not	“lavish	or	extravagant”
• Must	have	a	receipt	and	write	who	you	took	and	why
• Tips	are	50%	deductible
• Meals	while	traveling	away	from	home	on	business	are	50%	deductible

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SXSW Mentor Session 2017

  • 2. Topics • Legal • Financial • Team • Corporate Insurance • Contracts • Taxes
  • 3. Legal • Legal structure • Sole Proprietor • Partnership • Limited Liability Company • Corporation • Registered agent • Notices from the state, creditors, others • Trademarks • File early, often
  • 4. Financials • First steps • Separate personal expenses from business expenses • Required if you are a corporation • Good recordkeeping helps defend you during an audit • Manage tax and business bills more efficiently • Accounting • All about what happened in the past • How much revenue did I earn? Revenue Recognition • Where did I spend my cash? Chart of Accounts • Bookkeeping • Cash v. accrual
  • 5. Financials • Finance (not Accounting) • Looking into the future • What’s my budget for 2017? • What’s my return on investment for different kinds of marketing? • How much money do I need to build my next game? • If you know what’s going on day-to-day in your business, you can start predicting • How things look next month • How things look next year • Even if you don’t have historical data, having some estimates are critical
  • 6. Financials – Example • FTP Game Example • FTP game on Android / iOS that will monetize via virtual goods • Comparable game performance available from many sources • Estimate revenue based on: • Players • Conversion to paying • ARPPU • Total Revenue • Daily Ops • Revenue & Expenses - this is your BUDGET • Figure out your expected expenses: • Cost per install (marketing) • Art • Music • Engineering • Design • As each month passes, see how you are performing against expectations • Make smart operational adjustments
  • 8. Team - Employees • Recruiting • Job postings and interviews • Plan for what you want to learn about the candidate • Prepare for topics candidates care about • Recruiting - legal • It’s illegal to discriminate on the basis of: • Race / Gender / Religion / Age / National Origin / Physical / Mental disability • Don’t say you’re looking for a “young” person to join your staff • Tax forms and taxes • You will need to fill out tax forms for each new employee • Pay taxes each payroll • Employers and employees each must pay Social Security and Medicare tax - 7.65% • Employers may also need to pay federal unemployment tax • May need to pay 6% of the first $7000 in wages for each employee
  • 9. Team - Employees • Protect your business just in case • Have employees sign an invention disclosure and assignment agreement • Makes sure that when employees make content for your game, it belongs to you • Non-competes are non-trivial to enforce but may be appropriate for key leadership personnel • Enforcement of non-compete is tied with theft of trade secrets • Payroll • Making sure your employees get paid is the most important job in a small company • Not making payroll is the classic event of collapse of a small business • Use a professional service to make this as simple and automatic as possible • Termination • In most states - employment is at will • Make sure departing employees get last paycheck ASAP • Some states require you to give the last paycheck as they leave • Cut off access to systems and remove company property • Employees may have rights to COBRA • Employees may also file for unemployment
  • 10. Team - Health insurance • Americans have to have insurance or face a fine under ACA • Employers with less than 50 employees don’t have to provide insurance but are permitted to • Types • Health Maintenance Organization • Preferred Provider Organization • Point of Service Plan • High Deductible Health Plan • Disability • Dental and Vision
  • 11. Team - Contractors • Contractors are not employees • They work under a Contract or Consulting Agreement • Paid for deliverables or hours worked • Contractors pay all their own taxes • W-9 form at start, file 1099 each tax year • Contractors can’t be treated same as employees • Otherwise, risk being reclassified by Dept. of Labor as employees • Results in big tax consequences for you • IRS Criteria for considering someone as employee • Uses your tools, equipment, or materials instead of their own • Receives on-the-job training • Must follow hours you set • Is told not just what must be done but how the work must be done • Hires or supervises your workers • Receives health insurance, sick pay, vacation pay • Gets a regular paycheck
  • 12. Corporate Insurance • E&O • Errors and omissions insurance • Essential if you are doing work-for-hire • Protects companies against claims made by clients for inadequate work or negligent actions • Often covers court costs and settlements for amounts specified on insurance contract • D&O • You may add advisors or investors as company grows • D&O is liability insurance payable to directors and officers of a company • Covers losses or defense costs in the event of legal action brought for wrongful acts in their capacity as directors and officers • Intentionally illegal acts not covered • Hired Auto • In event of an accident, protects your company if employee has an accident • Supplements the driver’s own auto liability coverage • If an employee has a serious auto accident while on company business and their personal insurance is not enough to cover, company be held responsible • Non-owned Automobile Coverage
  • 13. Contracts • Leases • Vendors • Work for hire • Contractor • Joint ventures • Publishing
  • 14. Contracts - Leases • May make you seem like a “real business” • Big risks • Often for long periods • Highly restrictive • Contain pages of microprint • Watch out for: • Restrictions on ability to sublet space in case you need cash • Early termination rights • Amount of “free” improvements you get on signing and move in • Whether landlord can bump you for another client • Covenants that restrict what you can do • E.g. Covering windows to keep out sunlight interfering with art development
  • 15. Contracts - Vendors • Make sure you know who owns the rights • Any restrictions on your ability to further transfer anything you’ve bought • When do you have to pay? • Watch your cash flow
  • 16. Contracts - Work for hire • If you are working for someone else, they will likely use their contract paperwork • Most important provisions • What you have to deliver • When and how • When you’ll get paid • Watch out for warranty provisions for “bug free” code • Who gets ownership of the work?
  • 17. Contracts - Contractor • Non-disclosure agreement • Non-disclosure obligations • Definition of confidential information • Return / destruction of confidential information • No announcements • Ownership of confidential information • Consulting agreement • Explanation of services to be provided • When • Compensation • “Independent contractor relationship” - not an employee • Confidential information • Non-disclosure and non-use provisions • Term and termination • No conflicts of interest • Non-solicitation • Ownership assignment
  • 18. Contracts – Final Note • Once you start signing agreements, you are creating on-going costs • These will continue whether the game makes money • Consider the total costs and whether you can terminate a contract early • Consider how much money you have to make to pay the bills
  • 19. Taxes • Impact of taxes • EIN • Types of taxes • Deductions
  • 20. Taxes - Impact of taxes • Can make the difference between profit and loss • Don’t pay unnecessary taxes - take your deductions • Know if you are paying business taxes as an individual or paying business taxes separately • Penalties are potentially large for trivial infractions like filing late • Federal and state rules apply BUT terminology is different
  • 21. Taxes • You will need a taxpayer ID number or employer ID number (EIN) • You can apply for one online • Types • Income tax • Estimated taxes • Self-employment taxes • Sales tax • Excise tax • Franchise tax
  • 22. Taxes - Income • Income tax • All businesses must file annual income tax return • Partnerships file an information return • Depends on how business is organized • Federal income tax is pay as you go • Must pay the tax as you earn income during the year • May need to pay estimated tax • Estimated tax • Must pay taxes on income • May need to pay self-employment tax by making regular payments during the year • Self-employment taxes • When you have employees, you must cover their: SS and Medicare taxes, income tax withholding, and Federal unemployment tax • When you are reporting your own revenue for tax purposes, you can deduct the taxes that your employer would otherwise pay
  • 23. Taxes – Sales Tax • Sales tax • Certain platform providers cover sales tax, iOS • You must pay the sales tax on revenue from other platforms, Android • Only pay sales tax on sales in the same state as a major nexus • Nexus - if your company has sufficient physical presence in a state • Excise tax • Must be paid if you do the following: • Manufacture or sell certain products • Operate certain kinds of businesses • Use various kinds of equipment, facilities, or products • Receive payment for certain services • Likely only applies to game developers if you have real money wagering
  • 24. Taxes - Franchise • Franchise tax and other state fees • Texas has a state franchise tax • This is really just a fee for operating a business in Texas • Other states may have similar fees
  • 25. Taxes - Deductions • Home office deductions • If you use part of your home for business, you may be able to deduct expenses • Available for homeowners and renters • Requirements • Regular and exclusive use • Principal place of business • Based on percentage of home devoted to business use • Travel • Commuting expenses not deductible • Side trips to customers or suppliers are deductible • Only covers transportation expenses, not repairs • Allowed deductions for food and lodging only if you are staying away from home (your place of business) overnight
  • 26. Taxes - Deductions • Meals • Regular meals not deductible • Meals with customers are 50% deductible • Only if business is discussed at meal • Expense is not “lavish or extravagant” • Must have a receipt and write who you took and why • Tips are 50% deductible • Meals while traveling away from home on business are 50% deductible