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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.
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:
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.
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.
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.
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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