What about opening a different type of LYS? Not the type that needs thousands and thousands of dollars of inventory, the main reason LYS's close up shop.
Think about a shop that offers a limited stock of good yarn...and patterns to go with...
and the schtick of the shop would be KNITALONGS.
Offer to teach the knitalong classes (for a fee...aka profit)
Offer to teach a 2-hr Beginner Knitting Class for free when materials are purchased at your shop. (for example: a nice yarn is offered, good for a pretty scarf...you'll teach the person to knit it if she buys the yarn) Minimum class size of at least 4, but no more than 6.
The free Beginner Knitting classes would generate a profit by the sale of the yarn. You also generate customer loyalty. Have 'other classes' ready to sell to them. If someone wants to learn to knit the scarf with their own yarn, then charge a fee for the class.
Another idea is offering to teach knitting in the home, on a party plan basis. If the hostess scrapes together 5 friends for a knit night, you'll come and teach the class at her home. She pays nothing. You might offer her a gift of yarn as well. The 5 friends need prepayment before you come. The hostess collects the cash or money orders before you come. That way you are guaranteed to be paid a minimum amount for your two-hour gig.
At these knitting classes, you could bring yarns for sale, too. (profit for you) Other small accessories, too...depending on what you want to pre-buy. But it certainly wouldn't be on the scale of investment that an LYS has!
Anyway, just saying...
In today's world, as in the past, new businesses need to fill a NICHE. Something that's needed,
but also something that's missing from your area.
Definition of NICHE:
A niche market is the subset of the market on which a specific product is focusing. So the market niche defines the specific product features aimed at satisfying specific market needs, as well as the price range, production quality and the demographics that is intended to impact. It is also a small market segment.
I would never go into business with a friend. Sure fire way to end the friendship, that's for shore!
Family as partners???...naw...don't do it. Ask family to help you set up the Knitting in the Home gigs!