Need financial advice for starting a new school.

Discussion in 'School Management' started by reddraggon, Jan 24, 2017.

  1. reddraggon

    reddraggon White Belt

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    Hi,

    I am a martial arts gym instructor for 3 years now. I am planning to start a martial arts school of my own. I have so many friends and contacts who would join my gym. Also, I have talked with an experienced teacher to train at my gym.

    What's bothering me is the Capital required. I am confident that I can run the school to success. My initial thought is to apply for a loan. I have eyed a perfect spot for my gym. I have about 25% of the cost of purchasing the property. I have a doubt whether to go to a broker or directly a bank. I read a blog on this on the benfits of seeing a broker. Bank Vs Broker | Canada's Mortgage Website It is true that brokers may be able to provide a lot of options, but a Bank is a trusted place.

    What would you recommend me? Will I be able to get a loan for a business as this will be my first loan of any time.

    Please, help me make my dream.

    Thanks in advance.
     
  2. jks9199

    jks9199 Administrator Staff Member

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    I would suggest that you need to be talking to someone familiar with running a business and probably a financial/business advisor. Nothing you've given here -- or should give here! -- tells me whether a bank will give you a loan at all...
     
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  3. Tony Dismukes

    Tony Dismukes MT Moderator Staff Member

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    Some of the other members here can give you advice on important considerations for running a martial arts school as a successful business. The issue of whether you can get a business loan and for how much is a different matter. That will come down to matters like your credit history, available collateral, existing income (not projected income from your theoretical school), and possibly any history of running a profitable business in the past. If those don't look good to the bank, you're unlikely to even get to the point of being able to sell them on your business plan.

    I will note that new instructors starting a new school for the first time do not begin by actually purchasing property, with all the complications that entails. I would strongly encourage you to start out by renting space for your initial location. I can almost guarantee that you have a lot of mistakes ahead of you in the process of learning how to establish a business. Working with a rental location gives you a lot more flexibility in recovering from those mistakes.
     
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  4. Buka

    Buka Sr. Grandmaster

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    Can't give any advice about business in Canada, don't really know.
    If, however, it's similar to the U.S, I have some professional experience in running commercial Martial Arts schools, and also in Law Enforcement dealing directly with banking.

    The businesses that open and close the quickest (fail) here in the U.S, are restaurants, followed by Martial arts schools and gyms. As such, they are very risky, especially to a bank.

    Banks, on the whole, are as crooked as a dog's hind leg. And the bigger the bank, the crookeder it gets. A bank will probably turn you down, but if they don't, you might consider running away quickly. They won't be lending you money to help you, they'll be lending you money to break you, own you, take everything you have now and will have for years going forward. (think about that a bit)

    What I suggest - you said "you have so many contacts and friends who would join your gym." Time to work those friends and contacts, work them hard. Find out who has an older, experienced family member who knows business, knows banks, knows real estate. You need to have them sit down with you. Beg if you have to. This is far more important than anything having to do with your dream of teaching (and I'm with you, bro, it's awesome, it really is) Opening a business is a big deal, buying a commercial property is a really big deal. If you go into it with a smile, listening to the seller, the broker, the banker, and don't have an seasoned and experienced advisor, you be walking into a gunfight with nothing but a fist full of fingers and a dream, neither of which reload well.
     
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  5. jks9199

    jks9199 Administrator Staff Member

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    Another note... There's an old joke that's sticks around because it's got a lot of truth...

    Do you know how to make a small fortune in the martial arts?

    Start with a large fortune...

    As Buka noted -- martial arts schools close, a lot. All too often, they're opened by people who know all about the martial art side of things, and are clueless about the business side. It's like all those shows where some celebrity chef (like Robert Irwin) goes in to help a failing restaurant. In a lot of cases -- the first problem is that, no matter how much they knew about cooking, they don't know how to run a restaurant. Like buying food for a restaurant at the grocery store... Same thing happens with martial arts schools. You've got Black Belt Joe, who opens a school. He doesn't know how to market it, he doesn't know how to figure rates, what he needs to take in each month to keep the lights on, and so on.

    If this is something you really want to do -- start with the research and learning how to run a school. Be ready and able to show a bank a solid business plan. DO NOT back up your business loan with equity from your home! Don't set yourself up to crash and burn in the personal world if the business fails...
     
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  6. JowGaWolf

    JowGaWolf Grandmaster

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    In my world, this doesn't mean anything to me. In terms of a martial arts school, I wouldn't factor any of the people who would join. If they aren't training with you now in some shape or form, then don't count on them as someone who would join if you got your own school. The most you should consider is that they are people you can market your school to.
     
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  7. WaterGal

    WaterGal Master of Arts

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    We did, too. Only a few of them actually joined, and fewer stayed. Be glad if they join, but don't count on them to sustain your school.

    I don't know much about what resources exist in Canada for people looking to start a business. In the US, we have the Small Business Administration, which has local offices that can help prospective small business owners out with different things, like how to write a business plan, how to apply for a loan, how to use Quickbooks, how to do some basic online advertising, etc. If there's something like that in Canada, I'd recommend seeing what help they can give you.

    Do you have any experience running or owning a commercial business? If not, you'll need to a LOT of studying and research if you want to be successful. Believe me, it's much better to do it now, before you've started, than to be six months into your business and be starting into a box full of receipts and bank statements, trying to teach yourself how to do accounting from a book.

    Before you worry about buying property (anyway, you shold rent for now, if possible) or the bank, you need:
    - A brand
    - A business plan
    - Curriculum and lesson plans
    - A series of processes for everything that happens in your school
    - Knowledge about how to run a business
    - A business license/certificate of incorporation
    - A website
    - A tax person, a lawyer, a marketing person

    Before considering whether to give you a loan, the bank will want to see your your resume/CV, your finances, and a business plan that includes things like an analysis of the local market, a list of your projected costs, and some growth projections.

    Basically, they'll want to see, a write-up that says, for example: "Within 3 miles there are 5,000 children and the average household income is $60,000. There is only one martial arts school in the area. My monthly expenses will include $3,000 in rent and fees, $500 in utilities, $3,000 in payroll, $500 in advertising, $500 in supplies and equipment, and $500 in taxes and insurance. I will charge $100/mo, and I project that I can grow the school by a net of 4 students per month, so in 20 months I'll be breaking even, and in 20 + X months I'll have paid back the loan. I have 5 years of experience teaching martial arts, and 10 years of experience running my own business as a solar panel installer, so I have the experience needed to start this business and run it successfully."
     
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  8. Andrew Green

    Andrew Green Grandmaster

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    Until they sign a membership contract don't count them as anything. If everyone that said they are going to join did every school in the world would be overflowing.

    I don't know your situation, but the fact that you are looking at purchasing right off the go seems off to me. I might be wrong, and would recommend you talk to a consultant that has far more experience then me.

    But... you are going to have a lot of expenses that are not part of purchasing a building and are taking a big risk. Leasing is far more common when starting out. If you are sure you are capitalized well enough to cover the other expenses for a while and know how to market and sell it might be the right call.

    I suspect that you might be better off putting that initial capital into advertising and staff though... but my advice would be talk to a consultant that has seen the business side of a lot of schools.
     
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  9. JR 137

    JR 137 Grandmaster

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    I know this may seem odd and it goes against what everyone else has said, but I look at it differently and admittedly perhaps wrongly...

    Wouldn't buying a building be a good risk, because
    It could be multiple units, helping cover expenses
    It could become income property if it's a single unit and the school doesn't work out

    I've never opened a business nor bought property like this, so I'm just asking opinions that perhaps the OP is contemplating yet hasn't indicated. If the OP has the capital or access to it, and can find the right building for the right price it doesn't seem unreasonable to me.
     
  10. Tez3

    Tez3 Sr. Grandmaster

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    Do you have Limited Companies in the US? Small businesses here are always recommended to become limited companies to limit their liabilities if anything goes wrong.
    Set up a private limited company - GOV.UK
     
  11. gpseymour

    gpseymour MT Moderator Staff Member

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    Good points, if the OP can cover the payments without the MA school (during down time). I do like the multi-unit approach. The first NGA dojo I attended was a 2-unit space owned by the instructor, for the reasons you mentioned.
     
  12. gpseymour

    gpseymour MT Moderator Staff Member

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    In the US, it's an LLC (limited liability company). Canada likely has one or the other.
     
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  13. jks9199

    jks9199 Administrator Staff Member

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    There are several different types of incorporation, with different types of protection. I can't go into specific pros and cons 'cause that's not something I do all the time. That's why I suggested a business advisor early on...
     
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  14. Tez3

    Tez3 Sr. Grandmaster

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    Is that to keep business advisors' businesses in business? :)
     
  15. gpseymour

    gpseymour MT Moderator Staff Member

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    I think it's to keep lawyers and CPA's in business. At least that's what it seems like in the US.
     
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  16. WaterGal

    WaterGal Master of Arts

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    If the OP is interested in becoming a landlord, that's a good point. Buying a strip mall or a multi-unit warehouse that has a unit available and teaching out of the open unit might be a good way to both make some money and open a school.

    But being a landlord isn't something to jump into either. There's a lot of stuff they have to deal with, like managing the property, negotiating contracts, dealing with the government, etc. So either way, the OP will need to do their homework.
     
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  17. WaterGal

    WaterGal Master of Arts

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    That will limit your liabilities if, say, your student gets hurt and sues you. Which is useful.

    But, at least in the US, the bank can still demand that you put down personal assets as collateral for a business loan, and a commercial landlord can still demand that you, as an individual, co-sign the lease with your corporation. If you're a new business, they'll do that kind of stuff, because to them you're just a giant walking risk.
     
  18. gpseymour

    gpseymour MT Moderator Staff Member

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    Agreed. It's a good business move, if one wants to get into the landlord business. It has distinct advantages. It also has some needs and requirements.
     
  19. gpseymour

    gpseymour MT Moderator Staff Member

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    Can, and in the case of an LLC, nearly always will, at least in the US.
     
  20. reddraggon

    reddraggon White Belt

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    Thanks a lot for all your inputs. It was very helpful.123
     
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