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Smart Things We Did With Starting a Fitness Business: Part 1

Written on August 23, 2013 at 7:42 am, by Eric Cressey

This blog is a unique blend of fitness advice, baseball training discussion, nutritional information, and a host of other health and human performance concepts.  That said, while I never really set out to do so, as Cressey Performance has grown year after year, this website has also become a business development resource for those in the fitness industry who would ultimately like to have their own training facilities.  So, that's the direction that today's post (and the follow-up in a few days) will take.

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Typically, when a writer covers "lessons learned," it's based entirely on mistakes one has made – and we've certainly had our fair share of business blunders that become "teachable moments" at Cressey Performance.  However, I thought I'd use this two-part article to highlight a few things we've actually done correctly over the years. I think you'll be surprised to find that none of these points have anything to do with training; they are actually largely applicable to just about any business, regardless of industry.

I should preface these points with the note that I'll discuss my financial situation in a small amount of detail. I do this only to illustrate the importance of understanding opportunity cost and long-term financial planning, not to toot my own horn. When you start talking money, things always get awkward, and I don't want to come across that way.  I'm not looking for applause by talking about myself; I'm just utilizing my own experiences to make some very important points.

1. I made sure I didn't get buried under student loans and other debt.

I've spoken a bit in the past about how I actually started out at a business-oriented university with the intention of becoming an accountant.  After two years there, it was clear to me that my passion was actually in the fitness industry, and I wanted to shift my business credits into a Sports Management program while double majoring in Exercise Science. While there were several options available to me, I opted to attend the University of New England.  It was a program that had grown by leaps and bounds, but perhaps the biggest appeal to me was that my total tuition and fees bill would be about $15,000 lower each year – and I could live at home and commute to campus. Just as importantly, I could work to make money and gain experience (I worked at a gym) all through my last two years of undergraduate education.  I had a full-time summer job all four years, and never spent a penny on alcohol in my undergraduate career.  Very simply, I knew what I wanted – and over the course of the four years, these collective decisions probably amounted to a $60,000 "swing" in the direction of not beind buried in debt.

I opted to go to the University of Connecticut for graduate school thereafter, and there was not graduate assistant funding available for me in the first year.  As such, I paid out-of-state tuition and got my own room and board for the first year.  To cancel it out, I worked as a personal trainer and bartender on nights and weekends – all while volunteering in the human performance laboratory and in varsity strength and conditioning while taking a full course load. My hard work was rewarded with a graduate assistantship in year 2, and that included a tuition waiver and stipend for the year. I dropped the personal training, but continued to bartend. This two-year period was also the time where my writing career took off. When all was said and done, I left graduate school with more in the bank than when I arrived – and had a Master's Degree and countless valuable experiences under my belt, too. Had I not worked like I did, it would have been another $60,000 swing toward debt.

In spite of this apparent $120,000 swing, I still finished graduate school with student loans waiting for me – a lot of them.  Where I think I'm different than a lot of kids nowadays (besides the fact that the cost of college have skyrocketed since 1999-2005) is that I worked hard to minimize the accumulation of loans and had a firm plan of attack for how to address them.  I saw this picture yesterday and had to laugh at how brutally honest it is:

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If you're going to take on a quarter-million dollars in student loans, you better be damn sure that the education you receive gives you a competitive advantage in the workforce. I've written about this at length in Is an Exercise Science Degree Really Worth It – Part 1 and Part 2.

The University of New England gave me a competitive advantage because I wanted a school that offered gross anatomy in its curriculum, was close to my home, enabled me to double major at very limited added costs, and put me in a position to work during my undergraduate career. I'd also had some health problems around this time, and wanted to be closer to some of the professionals to whom I'd become accustomed over the previous years. The University of Connecticut also gave me a competitive advantage because I had exposure to high level athletes, great coaches, cutting-edge research, and professors with tremendous expertise and professional networks – as well as the opportunity to receive a graduate assistantship.

If you can't name the competitive advantage your school provides, then you need to think long and hard about why you're there.  And, even if you can find the competitive advantage, with today's college costs, you better make like Cressey and start personal training and mixing up Cosmopolitans at the bar so that you're not buried under student loans in a few years.

2. I got out of debt early.

Here's a quick and dirty lesson on debt: there is good debt and bad debt.

Mortgages can be good debt (if you can afford to pay them) because of the mortgage interest tax deduction, and the fact that if it's at a low enough rate, you can get a greater return on investing your money, as opposed to paying down the mortgage.  Don't worry about that; you're looking to start a fitness business, not buy a house.

Credit card debt is bad.  If you're not paying them off in full each month, it's a pretty good indicator that you're spending money you don't have – and paying super high interest rates on that amount.  Taking it a step further, the interest isn't tax deductible.

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Somewhere in the middle is student loan interest. You can write it off if you earn below a certain amount, so that's good.  However, a lot of people exceed that income threshold quickly (sorry, doctors and lawyers), so it can also be bad debt that you want to pay down quickly, especially nowadays, with the rates being super high.

What does all this have to do with starting a fitness business? Two things:

a. I always tell people that if you're going to start a fitness business, you should have three months operating expenses handy in cash.  Alwyn Cosgrove taught me this, and I remember him being really surprised when I told him I had it kicking around.  Apparently, very few fitness professionals he'd encountered to that point had any savings – so they were a long ways from being in a position to start a gym up.

b. If you're carrying student loans – and certainly credit card debt – it's going to be virtually impossible to get a business loan.  Banks aren't loaning money as easily as they used to do so; lots of financially stable folks with good credit scores get turned down for mortgages every single day in light of our current economic climate.  So, if you think you're going to get a $50,000 bank loan when you're showing a balance sheet with $100,000 in student loans and $10,000 credit card debt – and no assets to back the loan – you'd probably be better off going back to school to sit in on some finance courses. Or, you'll need to have that awkward conversation with a spouse or other family member about putting your house up as collateral for the loan.

I was lucky to have approximately 5,897 accountants in my immediate family.  Seriously, at our family reunions, they play cornhole with calculators instead of beanbags, and my first toy was an abacus.  Those are mild exaggerations, but it would be an understatement to say that I had excellent financial advice handy whenever I needed it. I learned about good vs. bad debt at a young age, and resigned myself to getting rid of all of it as soon as possible. 

In the year that followed graduate school, I worked absurd hours, had no social life, and lived well below my means.  It was worth it, though, as on my 25th birthday, I wrote a check to clear my student loans – roughly one year after I'd finished graduate school.  That was May 20, 2006.  Cressey Performance was founded on July 13, 2007. In those 419 days, I trained athletes over 70 hours per week, published my first book, co-created a DVD set with Mike Robertson, and continued to save – which was easy, since all I did was work. And, as a single guy, I really didn't have any major expenses.

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What did this mean?  When the time came to open Cressey Performance… 

3. I didn't have take out any loans.

This is a huge deal.  Historically, when fitness professionals want to start gym and don't have the capital to do so, they do one of three things:

a. Try to get a business loan (generally problematic for the reasons above)

b. Ask family members for money (this couldn't possibly go wrong, right?)

c. Get supportive personal training clients to invest

I had the capital handy to start our gym because I knew this day would come at some point and therefore had years of financial preparation under my belt.  That said, it didn't prevent five separate clients from approaching me about investing in me (which is a variation of "c"). It was absolutely flattering, as these were very business-savvy people who were effectively saying that they trusted in me as a fitness professional, business owner, and person.  I politely declined in all five cases, though, for three primary reasons.

First, you never want to give away equity in your business unless you absolutely have to do so. It always muddies the water long-term, particularly in the case of a silent partner.  It's easy to forget the initial financial risk an individual put forth when you may be cutting him/her a check 4-5 years later for double or triple what that initial investment was, so resentment can build. Plus, the more you dilute the ownership, the less long-term profitability you have the potential to attain. You never want to kill your upside entirely just to protect against the downside.

Second, when someone has an equity stake, he/she will obviously have suggestions on your business. You need to be prepared for the relationship to go from client to advisor – and an established friendship can often be a complex part of that interaction.  Nobody will ever understand your business as well as you do, so it can be difficult to take outside perspectives from those who weren't there putting in the long hours from Day 1.

Third, as I noted, I didn't need the funding. You might not be in this situation, but there is still an important lesson to learn: only borrow as much as you need, not as much as you want.

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Part 1 Wrap-up

Now that you've finished reading this piece, I'll clue you in on something: none of this is information that is "exclusive" to starting a fitness business.  This is just 100% solid business advice that should demonstrate for you that being financially responsible and independent is of paramount importance to starting any successful business – and that includes one in the fitness industry.  It doesn't matter how good a trainer or strength coach you are; if you don't have your financial ducks in a row, you're playing from behind the 8-ball from the start. 

Sadly, very few fitness professionals who approach me for business advice have put themselves in this position and are therefore much further away from their dream facilities than they realize. It's unfortunately quite the coincidence, as fitness professionals are constantly working to make clients aware of how each and every choice they make in terms of training, nutrition, sleep, and other factors impacts their fitness progress.  Meanwhile, they may be overlooking the fact that their own short-sighted financial decisions and inability to manage debt and save money effectively are taking away from the long-term success of their fitness businesses.

I'm incredibly proud of what we've been able to accomplish at Cressey Performance, with six straight years of double-digit growth that was undoubtedly fueled in large part by our training expertise and the culture and environment we've created.  However, I'm also very proud of the fiscal responsibility, hard work, patience, and focus that my business partners and I demonstrated in the initial planning stages six years ago.

With all that said, I apologize for rambling on with stories about myself.  I hope that it came across not as narcissistic, but rather as a case study you can use to help guide your path to fitness business success. In part 2, I'll discuss some of the more fitness-oriented topics we managed well during the start-up period.

In the meantime, if you'd like to learn more about starting a fitness business, I'd encourage you to check out the Fitness Business Blueprint.

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24 Responses to “Smart Things We Did With Starting a Fitness Business: Part 1”

  1. jessephysio Says:

    This was an excellent view into your story Eric. I think you are unique in more ways than you think. How many undergrads spend NO money on booze, contemplate the cost-reward ratio of their educational institution, and have such a clear goal. I would consider myself to be fairly successful thus far in my short career, but I know I wasn’t as disciplined as you. The one thing you didn’t even make mention of in your piece is the amount of time you must have spent investing in your continuing education during the early years of CP…articles, books, seminars etc…they comes on top of the 70/hr work weeks.
    Bravo man, bravo!

  2. Dan Sherman Says:

    Eric:

    As the father of 4 children, including one starting high school — I could not have done any better than you (to educate young people about how to formulate a viable plan) in discussing the pitfalls with financing college and a start-up business.

    Keep up the good work — and I will continue to enjoy your essays and training videos.

    Dan Sherman
    Self-employed lawyer/consultant
    Committed Youth Sports Coach
    Valparaiso, IN

  3. Chong Xie Says:

    That’s really good story. I would love to learn more

  4. Joel Smith Says:

    Eric,

    Great article! When I have 18 year old kids someday, I am going to make them read this (if college still exists as we know it then).

    Joel

  5. C. Smith Says:

    Eric – I’m a retired accountant who spends almost 7 days a week at my club doing fitness training or playing tennis. The views you express on how to deal with debt and the value of hard work are just right on the money. If just a few young adults take to heart your message above, you’ll have done a great service to your audience. Best regards.

  6. Scott Gunter Says:

    EC,

    Well if that wasn’t the most motivational and inspiring life career tale, I don’t know what is. Hard work pays off and glad it this rings true for you. Also, phenomenal advertisement for the Fitness Business blueprint. You’ve convinced me it’s a worthy investment when the time comes.

    SG

    (If you put that much effort into the diligence of your goal pursuit, I’d love to have tried your drinks as a bartender!)

  7. Michael Rapoza Says:

    Excellent write-up, Eric. It took me just under 10 years to pay down my $60K of student loan debt. I was quite resentful of taking on that debt and paid it off as aggressively as I could. I now have a small facility in NYC that I took on with no assistance. DIY facilities and basic equipment, I call it my “hot dog stand” approach to the business. I’ve resolved to never make the mistake of debt again and am working slow and steady to earn the funds for our phase. I look forward to part 2.

    Mike Rapoza

  8. Brent Says:

    Great article. The problem I think is people see success, want to replicate it, but don’t want to work for it. They have a hard time deferring gratification. I have a ton of grad school debt to pay off still (I too am a Husky alum….but the better Huskies…UW :) HA! but sure as hell am not planning on opening a facility right now. Most small businesses fail for a reason and this article sums it up well as to why they fail.

  9. Luka Hocevar Says:

    Eric,
    great post and right on the money.

    Building the right foundation to open a fitness business is crucial and even though it doesn’t mean it can’t be done other ways and successfully, it definitely is the best way.

    Took a different rout but followed many of the same principles, which I’d recommend to anyone looking to open any business really.

    Keep the great info coming!

  10. Shane D Says:

    Eric your story is really inspirational. I turn 25 tomorrow, so this is coming at a pretty perfect time.

    Thanks for sharing :)

    -Shane

  11. Ryne Gioviano Says:

    I really liked the article. After having recently graduated from grad school, and shortly afterwards, opened a facility, I couldn’t agree with your points more. Very well said.

  12. Adam Scott Thompson Says:

    Since I started working as a personal trainer in 2011, I’ve used you as a reference countless times and point others to your website whenever I can. I’m actually an amateur screenwriter looking to go pro. I wrote a spec screenplay recently about a fictitious sport in the future. When I needed a name for a grizzled trainer who’s wise beyond his years, I decided to name him Bill Cressey in your honor. I only hope that I can sell it so it can be produced one day and you can hear your (last) name on the big screen! Had to share that.

  13. Eric Cressey Says:

    Awesome!  Thanks, Adam!  Very cool.

  14. Chris Says:

    Eric, I think having all those accountants in your family gave you a leg up. You never had to learn this lesson the hard way and started out your adult life with the right approach (in addition to realizing what you wanted to do for a career early on). So many people just fall in line with the culture of today’s students and spend too much money, go out and drink, and don’t want to miss out on social experiences (aka don’t work as much). Having a career direction early on in life and having a good example of fiscal responsibility would have gone a long way to minimizing my college debt. Being a college athlete didn’t help either. Oh well…we all learn life’s lessons at different times.

  15. Aravind Says:

    Hey Eric,
    As someone who is pursuing their MBA and also made a choice based on the cost of education, as well as working part time in the bank, I can say that I agree wholeheartedly with all of the above from credit cards to equity protection to in general being prepared.

    I could go into a rant here but it would only say the same as you already have so all I can say is mad props and anyone who doesn’t take this advice seriously is well…an idiot.

  16. Mike T Nelson Says:

    Awesome stuff EC! I think this should be required reading for everyone looking to get into fitness as a business. I am going to send it to my students in my Fitness Marketing class today!

    This line is sooooo key “You never want to kill your upside entirely just to protect against the downside.”

    Congrats again on your well earned success.

    Rock on
    Mike T Nelson

  17. Craig Kinsey Says:

    Great read Eric
    I had a load of time for you and your work before I read this and even more now that I have. In many ways your situation mirrors mine. although I wasn’t as focused as early on as you were I was lucky I didn’t have quite as much debt. I still however realised early after uni that if I wanted to have choices throughout my career in terms of a change in direction for example, then I had to pay off all debts. I even worked out the 3 months funds thing by myself lol! Worked 5 years as an accountant and owned my facility for 7 years since, built slow and steady without too much debt.
    Your drive and discipline are an example to anyone. Keep up the great work Eric ;)

  18. she-ra Says:

    I’d like to make a point that hasn’t been mentioned. I started following Eric’s comments in the T-Nation reader mail (prior to the forum) while he was still a grad student. He always demonstrated a high level of expertise based on his education, experience and his own research. When he started his website and began marketing his initial DVDs, he already had a lot of credibility with me and I’m sure a lot of other people.

  19. Eric Cressey Says:

    Thank you very much, EVERYONE, for the kind words!  I appreciate you all chiming in.

  20. Lee Anderson Says:

    Thank you so much for this post Eric, I have bought the books by Thomas Plummer about starting my own business and read them cover to cover more than 10 times to make sure I’m not doing anything wrong before I start my business…how ever this blog post was more helpful in the financial aspect of things cause Plummer always talks about how you should just kick in the door at the nearest bank and demand a
    $100.000 loan like it is no problem. Love it and I’m sharing this with all my fitness friends!

  21. Greg Says:

    Eric,

    All this advice is solid and limiting my debt is something I have done all through my bachelor’s and doctorate. Still working on the student loans, unfortunately. The insight you provide related to your decisions is what I really appreciate, especially regarding the consequences you tried to avoid. I admire your work ethic now and as you described it going through school. I feel like I work 1/2 as hard as you and twice as hard as the average “Joe.” Thanks for the inspiration.

  22. Dave Corsi Says:

    Very timely Eric. Great lesson on economics and equity financing ve debt financing.
    Your story also shows the truth that the “Austrian School of Economics” has tried so hard to impart; namely savings creates longterm wealth and growth.

    Washington and Wall Street should heed those lessons.

  23. Eric Cressey Says:

    Thanks, Lee.  Keep in mind that Plummer’s books on that front are several years old – when it was a much more friendly economic environment for entrepreneurs.  Those loans are much tougher to come by these days.

  24. Nicole G Says:

    I wish someone had given me all this advice before I went to college.

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