Delivered at Casual Connect USA 2016. You’ve made a great game, now make a great game company! Join other indie studios in a workshop setting to learn the ins and outs of starting, growing and running a business. Key topics include corporate formation, accounting, taxes, employees and contractors, licensing, insurance, contracts, real estate leasing and more. Walk away with a game plan to get started or with a new understanding of critical topics.

1. Building and Growing Your
Game Business
Quoc Tran
CTO
Possum
www.possumbooks.com

2. I made too much money
• Closed previous startup because we made too much money
• Work-for-hire firm saving up money from contracts
• Cut contracts and focus on internal product development

3. Key mistakes
• Stopped taking owner’s draw - no salary to owners
• Still got taxed on revenue!!!
• Would have been better off spending money instead of saving

4. Never again
• Mission - make sure this didn’t happen to other startups
• Quoc Tran’s background - technical director
• Frank Coppersmith’s background - COO and CFO

5. Today’s goals
• Intended audience: experienced game developers interested in
entrepreneurship
• Basics of company formation and operations

6. Topics
• Legal
• Financial
• Team
• Corporate Insurance
• Contracts
• Taxes

7. Legal

8. Legal
• Legal structure
• Registered agent
• Trademarks

9. Legal - Legal Structure
• Sole proprietorship
• Partnership
• Limited Liability Company
• Corporation

10. Legal - Legal Structure
• Sole proprietorship - pros
• Easiest to run for a business with a single owner

11. Legal - Legal Structure
• Sole proprietorship - pros
• Easiest to run for a business with a single owner
• Sole proprietorship - cons
• Owner is personally liable

12. Legal - Legal Structure
• Partnership - pros
• Easiest to run for a business with multiple owners

13. Legal - Legal Structure
• Partnership - pros
• Easiest to run for a business with multiple owners
• Partnership - cons
• Both partners are personally liable

14. Legal - Legal Structure
• LLC - pros
• Legal protection from liability
• Some tax benefits

15. Legal - Legal Structure
• LLC - pros
• Legal protection from liability
• Some tax benefits
• Partnership - cons
• Formalities and fees
• Costs to close

16. Legal - Legal Structure
• LLC - pros
• Legal protection from liability
• Some tax benefits
• Partnership - cons
• Formalities and fees
• Costs to close
• Added bonus
• Tax as S-Corp
• Save 16-20% in federal taxes each year!

17. Legal - Legal Structure
• Corporation - pros
• Maximum liability protection
• Can issue stock
• Can raise money

18. Legal - Legal Structure
• Corporation - pros
• Maximum liability protection
• Can issue stock
• Can raise money
• Corporation - cons
• Headaches of running a separate business
• Shareholder meetings
• Separate tax return
• Corporate formalities

19. Legal – Registered Agent
• Receives official notices from state the business is incorporated in
• Mandatory
• Usually must have physical address in state that business is incorporated in

20. Legal – Trademarks
• Protects your company name, game, and key game elements like character
names
• Avoid using similar names within entertainment industry
• Search and file online - uspto.gov

21. Financials

22. Financials
• First steps
• Accounting
• Finance

23. 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

24. Financials – Accounting
• All about what happened in the past
• How much revenue did I earn?
• Where did I spend my cash?

25. Financials – Accounting
• Bookkeeping - the act of tracking all of the financial information about your
business
• Tracking and paying bills
• Following up with customers
• Sending out invoices
• Paying contractors

26. Financials – Accounting
• Bookkeeping - the act of tracking all of the financial information about your
business
• Tracking and paying bills
• Following up with customers
• Sending out invoices
• Paying contractors
• $50-100/hr for competent bookkeeping services
• More if tied into CPA or tax prep firms

27. Financials – Accounting
• Chart of Accounts
• Allocate expenses into categories that let you understand how your business is
performing

28. Financials – Accounting
• Chart of Accounts
• Allocate expenses into categories that let you understand how your business is
performing
• Categories help you understand where you are spending money
• Meals
• Engineering
• Travel

29. Financials – Accounting
• Chart of Accounts
• Allocate expenses into categories that let you understand how your business is
performing
• Categories help you understand where you are spending money
• Meals
• Engineering
• Travel
• Classes let you know which product is costing the most or making the most money
• Different games
• Different customers

30. Financials – Accounting
• Revenue
• Getting paid is important!
• Work-for-hire - how are you invoicing clients?
• Product revenue - are you downloading and reconciling reports from platform
providers?

31. Financials – Accounting
• Cash accounting
• Just like your pocketbook
• Record revenue when you receive the cash
• Record expenses when you make a payment

32. Financials – Accounting
• Accrual accounting
• Necessary for some corporations if you make over $5 million
• Necessary if you have inventory

33. Financials – Accounting
• Accrual accounting
• Accounts receivable
• When you send an invoice to a client and they have a number of days to pay
• Time between invoicing and payment is tracked as an account receivable

34. Financials – Accounting
• Accrual accounting
• Accounts payable
• When you receive bills, you may not pay them right away
• Net 30 or Net 60 - you have 30 or 60 days to pay before bill is delinquent
• Time between bill and payment is tracked as an account payable

35. Financials – Accounting
• Paying bills
• Set up regular cadence of reviewing bills, tracking, and paying them
• CHECK RUNS are a good time to check health of business

36. Financials – Accounting
• Why so much detail?
• Amount of detail you put into your financials is up to you
• In a perfect world, you will have many games on many platforms

37. Financials – Accounting
• Why so much detail?
• Tracking revenue and expense information in detail
• By game
• By platform
• By category (e.g. art)

38. Financials – Accounting
• Why so much detail?
• Tracking revenue and expense information in detail
• By game
• By platform
• By category (e.g. art)
• Insight into:
• Which games are most profitable?
• Which platforms am I most successful on?
• How can I best reduce development costs to increase profitability?

39. Financials – Finance
• Looking into the future
• Finance is all about 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?

40. Financials – Finance
• 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

41. Financials – Finance
• Projections
• If you understand your product, you can understand
• How your product will make money
• How much it will cost

42. Financials – Finance
• 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

43. Financials – Finance
• Example:
• Figure out your expected expenses:
• Cost per install (marketing)
• Art
• Music
• Engineering
• Design

44. Financials – Finance
• Example:
• Revenue & Expenses - this is your BUDGET
• As each month passes, see how you are performing against expectations
• Make smart operational adjustments

45. Financials – Finance
• Investment
• Bigger projects delivered faster means you’ll need money
• Investors are looking for return on their investment
• Kickstarter / crowdfunding another option

46. Team

47. Team
• Employees
• Contractors
• Health insurance

48. Team - Employees
• Recruiting
• Job postings and interviews
• Plan for what you want to learn about the candidate
• Prepare for topics candidates care about
• Salary
• Equity
• Bonuses
• Vacation
• PTO
• Sick time

49. Team - Employees
• 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

50. Team - Employees
• Recruiting - legal
• There are things you are not supposed to ask job candidates
• Are you married?
• Do you have kids?
• The only purpose of the info is to discriminate

51. Team - Employees
• 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

52. Team - Employees
• Tax forms and taxes
• Depending on the amount of payroll tax you pay, you may need to file quarterly or
annual returns
• Pay your paytoll taxes on time!
• IRS moves very quickly when companies are late on payroll taxes

53. 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

54. Team - Employees
• 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

55. Team - Employees
• 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

56. 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

57. Team - Contractors
• 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

58. Team - Contractors
• IRS Criteria
• 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

59. Team - Contractors
• May be beneficial for contractors to incorporate as LLC
• Clients do not need to file a 1099
• Removes any ambiguity that independent contractor is an employee

60. 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

61. Team - Health insurance
• Types
• Health Maintenance Organization
• Preferred Provider Organization
• Point of Service Plan
• High Deductible Health Plan
• Disability
• Dental and Vision

62. Corporate Insurance

63. Corporate Insurance
• Corporate liability
• Types
• E&O
• D&O
• Hired Auto
• Non-owned Automobile Coverage

64. Corporate Insurance
• Corporate liability
• Types
• E&O
• D&O
• Hired Auto
• Non-owned Automobile Coverage

65. 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

66. Corporate Insurance - 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

67. Corporate Insurance - Hired auto and Non-
owner automobile coverage
• 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
• Claims can be catastrophic
• Cost of insurance is less than $150 / year

68. Contracts

69. Contracts
• Leases
• Vendors
• Work for hire
• Contractor
• Joint ventures
• Publishing

70. Contracts - Leases
• May make you seem like a “real business”
• Big risks
• Often for long periods
• Highly restrictive
• Contain pages of microprint

71. Contracts - Leases
• 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

72. 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

73. 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

74. Contracts - Work for hire
• Watch out for warranty provisions for “bug free” code
• Who gets ownership of the work?

75. Contracts - Contractor
• Non-disclosure agreement
• Consulting agreement

76. Contracts - Contractor
• Non-disclosure agreement
• Non-disclosure obligations
• Definition of confidential information
• Return / destruction of confidential information
• No announcements
• Ownership of confidential information

77. Contracts - Contractor
• 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 insterest
• Non-solicitation
• Ownership assignment

78. Contracts – Joint Ventures
• Work with another company to jointly build a product you share
• Crazy complex - make sure to get legal advice immediately!

79. Contracts – Publishing
• Incredibly complex
• Crazy complex - make sure to get legal advice immediately!

80. 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

81. Taxes

82. Taxes
• Impact of taxes
• EIN
• Types of taxes
• Deductions

83. 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

84. Taxes - EIN
• You will need a taxpayer ID number or employer ID number
• You can apply for one online

85. Taxes - Types of Taxes
• Income tax
• Estimated taxes
• Self-employment taxes
• Sales tax
• Excise tax
• Franchise tax

86. Taxes - Types of Taxes
• Income tax
• All businesses must file annual income tax return
• Partnerships file an information return
• Depends on how business is organized

87. Taxes - Types of Taxes
• Income tax
• 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

88. Taxes - Types of Taxes
• Estimated tax
• Must pay taxes on income
• May need to pay self-employment tax by making regular payments during the year

89. Taxes - Types of Taxes
• Self-employment taxes
• When you have employees, you must cover their:
• SS and medicare taxes
• Federal income tax withholding
• Federal unemployment tax
• When you are reporting your own revenue for tax purposes, you can deduct the taxes
that your employer would otherwise pay

90. Taxes - Types of Taxes
• 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

91. Taxes - Types of Taxes
• 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

92. Taxes - Types of Taxes
• 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

93. Taxes - Deductions
• Home office deductions
• Travel
• Meals

94. 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

95. Taxes - Deductions
• Home office deductions
• Requirements
• Regular and exclusive use
• Principal place of business
• Based on percentage of home devoted to business use

96. Taxes - Deductions
• 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

97. 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

98. Q&A
• Contact us:
• quoc@possuminteractive.us