Chris Cooper's Blog, page 138

The SmallTown Founder

If you open your business in a small city or town, you have a huge advantage.

 

Product businesses need a big audience. Service businesses need a connected audience. And in a small town, everyone is connected.

 

I joke that my city of 65,000 is a “great big small town”. It often feels like we have one degree of separation between citizens: if I don’t know you personally, I know one of your friends or family members. That means reputation spreads FAST. It means stories stick around. And in smaller towns of less than 10,000 people, everyone knows everyone.

 

In the Founder Phase of entrepreneurship, that’s a huge advantage. If you run a great business, local people really WILL talk about you. If you run a poor business, local people really WILL talk about you. You have a huge opportunity to succeed, and help your community. But you have to proceed with more caution than you would in a big urban center.

 

Opening a business in a small town means that retention is more important than sales.

 

A gym in Manhattan can afford to lose 20 members every month, because they’re drawing from a huge pool: they can attract 20 more to take their spot, no problem. And if the ten clients they lost had a bad experience, the new clients probably won’t hear about it.

 

In a small town, that’s not the case. In a city of 65,000, you can’t afford to have unhappy local clients.

 

I opened my second gym with a “hardcore” attitude that attracted very few people. Most of my early clients left pretty quickly, and told their friends that CrossFit was crazy, or dangerous, or both.

 

Conversely, Kaleda Connell opened a very similar gym (CrossFit Degree) in a smaller town of 7,500. She provided a beautiful, positive experience right from the start, and achieved in 3 years what took me 10. Same gym, same clientele, same program; different approach. You don’t need a bigger pool of potential clients; you just need to keep the ones you get.

 

Staffing can also be easier in a smaller center than a large one. Most great hires are made through connection: your best staff might have friends or families who are looking for work. These candidates share the same values, work ethic and background as your best staff. That’s much harder to root out in a big pool of strangers.

 

Overhead is also usually much lower in a small town. Rental space and taxes are cheaper for you AND your staff. Cost of living is generally lower, meaning you and your staff can have a great lifestyle for less money. Self-satisfaction and happiness scores are generally higher in small towns.

 

Finally, competition in smaller centers is probably far less. The fear of market saturation paralyzes many new entrepreneurs. Instead of opening the best new spa, they think “This town can’t support any more spas” and move away or work for someone else. This fear is unfounded, but actually prevents competition.

 

In Founder Phase, it’s easier to open in a small town. Rent prices are lower; early sales come from personal connections. In Farmer Phase, it’s easier to build a business in a small town, but ONLY if your client turnover rate is small. And in Tinker Phase, it’s easier to build a platform of wealth in a small town, because real estate prices and taxes are generally lower. I own three commercial rental properties with a total value of around $1.25M. It would be hard to buy one property for that price in a city with over 500,000 people.

 

In our mentorship practice, we frequently speak with small-town founders who think they’re at a disadvantage. “There are only 5000 people in my town!” is a pretty common complaint on our free help calls. But a small town can be a huge advantage if you focus on strong connections instead of high volume.

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Smalltown, Inc.

Why We Need Entrepreneurs More Than Ever

 

Industrial jobs are fragile.

 

Fifteen years ago, this was my city. The three industries marked with A, B and C employed a big percentage of the local workforce. Secondary jobs were produced at service companies, suppliers and postproduction facilities. Schools and banks and dental offices were filled with industry workers’ kids, money and health insurance plans.

 

 

Now they’re all gone.

 

 

Two out of three are bankrupt. One is operating a skeleton crew on heavy government subsidy. The trickle-down effects are becoming obvious: less disposable income, empty buildings, fewer kids. And the pool of skilled labor is gone, so there’s no new industrial replacement coming to save us.

 

The industrial economy lasted a long time. But it’s fragile: when steel tariffs went up, or the cost of labor increased, or supplies dwindled, or energy costs rose, the industry lost a bit more of its protective margin. And when enough of these occurred over time, the industry moved elsewhere. And it’s not coming back.

 

What will save our small towns? Entrepreneurship.

 

It’s safer to make dozens of small bets than to make one big bet.

 

Entrepreneurs aren’t as susceptible to international economic conditions. They don’t rely on non-renewable resources that will eventually run out. They use a specialized labor pool instead of a replaceable one.

 

When one entrepreneurs small business fails, it doesn’t affect the city in a measurable way. And the entrepreneur usually opens a different business, because that’s their career. They’re not specialists; they’re generalists. And that makes them less fragile.

 

When a steel mill closes down, does the CEO start a new business in the same plant? Never. The buildings and infrastructure are usually left to rot.

 

If a city attracts a new car plant, its government celebrates. But what happens when that car plant inevitably moves to Mexico or China? Usually, the town is left in a worse state than before the plant arrived:

Bureaucracy is larger, because of the increased tax revenues
Infrastructure load is far larger, and must be maintained with fewer resources
Expanded development and territory makes the town square undesirable, and “downtown” implodes
Emergency services are downsized
Property values drop, and pull tax revenues with them
Youth perceive a lack of opportunity, and leave.

 

It’s a downward spiral for any small town. But entrepreneurship can turn it around.

 

Young entrepreneurs bring money into the city from outside. They use the internet; they use niche specialization; they sell ideas. Sometimes they fail, and start from scratch.

 

Thirty years ago, opening a business in Sault Ste. Marie meant selling a product to steelworkers or paper mill employees. That market is gone. But the old town line is no longer the limit to making a living.

 

Sure: the big employers might provide 3000 jobs. That means we need 300 small businesses to take the place of one steel mill. But our schools were built to train these 3000 employees. Why can’t they train 300 entrepreneurs?

 

My mission is to make 1,000,000 entrepreneurs wealthy. That means mentoring them to Tinker stage and beyond. The beating heart of our mentorship practice is in our suffering steel town for a reason: we want to bring it back. And I believe the way to do that is to create entrepreneurs. So we teach entrepreneurship to kids; we speak about it at book clubs; we show up at high schools. We encourage future entrepreneurs and mentor those who want to start their first business.

 

Tomorrow, I’ll tell you why–and how–entrepreneurs should build their businesses in small communities.

 

 

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Ralph Waldo Emerson, Apples, and “Who” Luck

Heartily know, when demigods go, the gods arrive. – Emerson

 

I’ve always had great “Who Luck”. The right people seem to find their way into my life at precisely the right time.

 

I met one of my mentors, Dan Martell, at the Archangel Summit. He was speaking at lunch time; my wife and I stood up to get a sandwich, but his first two minutes were so compelling that we didn’t leave the auditorium. Here’s the crazy part: my phone died before his presentation. When I charged it up a few hours later, I found texts from Dan on it. It turned out that he was a CrossFitter, and his CrossFit coach told him I was in the audience. I missed his invitation to come backstage, but I enrolled in his mentorship program less than 48 hours later.

 

My next mentor, Marcy, showed up at a dinner Dan hosted in San Francisco. My seat was across the table from hers.

 

I met Mike Warkentin through CrossFit, Inc. I was hired as a one-time writer at a competition. He was their Editor-In-Chief. We were fast friends, and now he’s my partner in Two-Brain Media.

 

The list goes on and on. Last night at a book signing, one attendee asked me, “Do you attribute a lot of your success to just showing up and meeting everyone you can?”

 

A year ago, I’d have said “Yes, that’s definitely it.” But now I think differently.

 

According to Dunbar, we can all maintain around 150 relationships. Not all of those relationships are positive. Some are negative (but we hold on to them anyway!) and most are just neutral. We keep up relationships out of a sense of duty, or just for the sake of keeping the 150 seats filled.

 

But, as Emerson wrote, “when demigods go, the gods arrive.” He meant that some mediocre people are probably sitting in the seats of great people. And until they’re gone, the amazing people won’t sit at your table, because there are no vacant seats.

 

The same is true for your attention–and your money. If you’re spending all of your money on stuff that won’t help you, you won’t have any to spend on things that WILL. I can’t tell you how many times gym owners have chosen to buy 2 rowers instead of hiring a mentor. Rowers are nice, but they won’t make a difference in your gym. Acquaintances are nice, but they won’t make you happy. Coworkers fill chairs that could hold friends.

 

In “Founder, Farmer, Tinker, Thief”, you’ll find a section called “Apples”. Apple trees try to feed their own dead limbs. They send water and nutrients to branches that are already dead. This splits the tree’s resources and deprives the living branches from their rightful share. When apple trees are pruned, all of the water and minerals go to the branches that bear fruit–and the tree thrives. The fruit is better, and the tree is more resistant to windstorms and drought.

 

Heartily know, When dead branches go, new branches grow.

 

When demigods go, the gods arrive.

 

Who, at your table, is adding to the conversation–and who is just keeping a seat warm?

 

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The Three Journeys (And How To Survive Them)

There are three important people in your business: you, your clients, and your staff. Each one has a different path to your business; experience with your business; and exit from your business.

We call these “journeys”. And you must plan each one in advance, or people will get lost along the way.

To take control of your business and grow quickly, the three Journeys you must map are:

The Entrepreneur’s Journey

The Client Journey

The Staff Journey

In my new book, “Founder, Farmer, Tinker, Thief”, I provide sample Client Journeys and Career Roadmaps. But the book is really about the Entrepreneur’s Journey from Founder to Farmer to Tinker to Thief. So let’s start there.

 

The Entrepreneur’s Journey

Owners of new businesses are called “Founders”. They do everything themselves–make the bread, buy the flour, stock the shelves, work the till, and pay the rent. They work all hours and embrace the grind. But Founders must quickly move from “self-employed” to “business owner” quickly to avoid burnout and bankruptcy.

Owners who begin to replace themselves in some roles are called “Farmers”. They leverage their time to work ON their business instead of IN their business. They hire staff; they begin marketing; they focus on profit instead of cash flow. Eventually, they need to level up their skill to lead their team and build their own wealth platform.

Owners who have built a business that runs without their attendance on the rudder are called “Tinkers”. Tinkers develop their leadership skills and build their wealth platform. They work toward functional retirement. They develop multiple streams of income, and make cash flow investments. Many start second businesses. Eventually, they think about how to create a legacy for the people coming behind them.

Owners who have created a wealth platform and want to built a legacy are called “Thieves”. Like Robin Hood, they want to distribute their wealth (money, wisdom and time) to those who need it most. They mentor other entrepreneurs; they create cash flow engines for their children; they dedicate their time to helping their communities.

 

How To Travel Farther

To reach each level, an entrepreneur must fully satisfy the requirements of the previous level. There’s no such thing as a part-time Thief.

I wrote a checklist at the end of each chapter in the book (i.e. “Are You Ready To Be A Tinker?”) The checklist isn’t just a scorecard: it’s a guidepost. If you check ten boxes on the “Farmer” checklist, but two remain unchecked, then those are your next priorities. Work on those things with your mentor.

The Client’s Journey

You must have a clear plan for every client. In the fitness industry, that means following the Prescriptive Model for coaching exercise and nutrition. But in any service business, you must have a clear picture of the client’s journey, including:

Where new leads come from
How new leads connect with your business
What happens at the client’s first visit, step by step
What the client’s first purchase will be
What happens when the client makes their first purchase
What the client’s next appointment will be, and when
How you communicate with the client between appointments
Who’s responsible for retaining the client long-term
What happens when a client decides to end their journey
How you communicate (and potentially bring the client back) after they cancel with you.

 

How to Be Their Guide

A clear Client Journey Map will help you spot opportunities for more revenue, a better client experience, and a longer lifecycle. It will also help the owner pass responsibilities on to her staff without worrying about client experience, sales or retention.

Good entrepreneurs guide their clients from one step to the next. Bad entrepreneurs make their clients guess.

For example: a good spa owner will schedule a client for her next treatment at the end of her current treatment.

A bad spa owner will wait for the client to realize they need their hair done.

A good therapist will tell their clients “We need a month of intensive treatment, and then regular visits for X months to build you a margin of health.”

A bad therapist will say “call me if it hurts.”

Clients pay you to solve their problem. That means guiding them to the answers instead of praying they’ll figure it out on their own.

The Staff Journey

Good entrepreneurs create a platform, and allow staff to be “intrepreneurs” on top of that platform. Staff can leverage the business’ resources, knowledge and leadership to build their own services or products. And they can reach their own “perfect day” without taking the risk of opening their own business.

Every staff person should have a Career Roadmap that they build with the entrepreneur. The Career Roadmap should answer the questions:

What’s your Perfect Day?
How much do you need to earn to get there?
How much time do you want to spend working?
What’s on your Love/Loathe list?
What can you improve right now?
What’s the next step for you?
How will we measure success in the next three months?

How to Lead Them Farther

A good entrepreneur will tell their staff, “You’re better at calling our clients than I am. You remember their birthdays. You smile on the phone. They love you. You take over these two steps of the Client Journey.”

A bad entrepreneur will think, “No one can do it as well as I can.”

Good entrepreneurs work through their own Journey with their mentor. They identify roles and tasks that are below their Effective Hourly Rate, and move those to staff. As the entrepreneur grows, the staff follows them up the ladder.

Plan a quarterly Career Roadmap meeting with each of your staff. Work backward from their goals. Draw them a map.

 

The Three Journeys influence each other. They don’t just intersect, they overlap. And each depends on the success of the rest.

 

Mapping the Three Journeys means taking control of your business, instead of just letting everything happen TO you. Strategic planning works even better as a story.

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The Thief Lives Forever

I took my first business course in high school. And I hated it.

 

We were taught how to write checks; how to balance a ledger; how to meet provincial workplace safety requirements. We were never told “here’s why you should open a business!”–but then, we never asked. The teacher was a “business teacher”, not an entrepreneur.

 

I met my first real entrepreneur at the same high school. Invited to speak to our English class, he rode his bicycle to the school; had a long, grey pony tail; and asked, “Who’s going to live to be 200?”

 

We all thought he was nuts.

 

He asked us our life goals. Most were modest; we were a group of farm kids without much context on the world. There was no internet yet. Most of our goals revolved around owning dirt bikes.

 

Then he shared HIS goals: to improve the economy of our nearest city; to create jobs for 500 local people; to build a destination ski resort nearby and inspire healthy living.

 

“The problem is,” he said, “I’m going to need another 150 years to get this all done. So I’m going to have to live to 200.” He was serious.

 

In the Thief phase, an entrepreneur attempts to live forever.

 

The platform of wealth created by a Tinker isn’t for her benefit. That platform creates opportunities for others: her staff, her clients and her community. The Thief asks, “How can I make sure these opportunities continue after I’m gone?”

 

Many in the Thief phase use their wealth to create scholarships or charitable Foundations. Some use their time to mentor others. The Thief’s legacy provides the resources to continue their mission.

 

For example, a Thief might set aside $1,000,000 in a scholarship fund. That fund creates enough passive revenue to pay for one student to attend medical school each year. The Thief can thereby add one new physician to the world each year. Each physician might help 1500 patients per year. And the Thief’s mission continues without them.

Another Thief might donate their time to mentor youth who don’t have good parental support. He might provide free leadership training; in return, his mentees must dedicate two years to mentoring others with the same lessons. The Thief’s mission continues even when he’s not there himself.

Many scientists believe the first human to live to 150 years old is alive today. I’m betting that person is an entrepreneur. Living to 150 will require a platform of financial independence and health. It will require some luck. But it will also require a reason. Most people decline when they no longer have a reason to get out of bed in the morning. But good entrepreneurs are never done; their vision pulls them forward.

But even if the Thief doesn’t live to 200, their legacy can.

The local entrepreneur’s name is JJ Hilsinger. I worked for him for a few years in my early 20s, and learned how to build a platform of wealth. I also learned to love mountain biking. Because the best way to make sure your message is around in 200 years is to deliver it yourself.

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Sprinting

You can do anything, but you can’t do everything. At least not right now.

Luckily, you have plenty of time.

Entrepreneurs in the Farmer and Tinker phases are beset by ideas. And many of them are great ideas. But even the good ones slow you down, because they’re distracting.

Here’s how it goes:

“Today’s the day I build my team playbook, set up an evaluation schedule, and publish it!”

“I’ll just check my email…oh, a sale on t-shirts! I’ll just click through…”

“Oh, I wonder if anyone in my Facebook group has used this shirt vendor before?”

“Hey, that guy just posted a video about member retention. I’ll just watch it…”

“Man, it’s lunch time?!? I can’t believe the morning is already gone!”

 

Multitasking is a myth. Serial single-tasking (doing one thing until it’s done or handed off, and only then starting the next) is the secret of most successful entrepreneurs.

 

So how do you stay focused? How do you sprint ahead on one idea to the exclusion of all others?

Prepare to sprint. Set up an “ideas” file in a place you won’t see it every day. I just use “Notes” on my Mac.

When you have a great idea, write it down immediately. Then forget about it for three months.

It’s important to get the new idea out of your head so you don’t dwell on it.

Our Incubator program is a 12-week sprint. It’s step by step, guided by a mentor, and we tell our clients to take an “idea fast” until they finish.
Remove the time-fat. My friend Shawn Rider is a fellow Tinker. In his new book “The Relentless Pursuit of You: Six Pillars to Take Back Your Life“, he writes:”You have zero control of most of the things that happen around you on a daily basis. But what you read, what you see, what you engage in, and who you follow on social media is 100% within your control.”

Go onto your Facebook account, and quit 50% of the groups to which you belong. Then “unfollow” everyone on your friends list except for the 20% you engage with most.

Do the same on Instagram and LinkedIn (if you use that last platform.)

Finally, create “recess breaks” for Social Media scrolling. Give yourself 15 minutes at 10:30am, and 15 minutes at 2:30pm. Stay off Instagram when you wake up and Twitter right before bed.
Cancel half of your meetings. I use this rule: to get me to attend a meeting, I have to see the agenda in advance. If there’s no agenda, I don’t go.

Keep only the meetings that advance your progress on your current action items, plus ONE more per week for future planning, max.
Set up Key Performance Indicators so you know you’re on track. Have someone else hold you accountable for meeting weekly targets.
For every new suggestion, ask “Does this move me closer to my current goal, or farther away?” If a new idea moves you further away from completing your current task, put it in the Ideas file for later.
Finally, discuss your ideas with your mentor on your monthly or weekly call. Most of my calls with Dan Martell ended with me doing less, not more. We’d spend at least half an hour weighing the value of my time against the value of my ideas, and then deciding where to focus. Then I’d sprint for a few weeks until the new ideas piled up again.

You’re smart. You’re going to have a lot of good ideas. You can’t do all of them right now.

Great entrepreneurs are able to focus on one thing at a time. Most of them lean heavily on a mentor to keep them on track. But progress is made when you move in one direction.

 

For more on this problem, read How To Trap A Mule.

 

 

 

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How to Buy a Building and Retire Early

Want to retire early in comfort? Learn how to buy a building.

In “A New Way To Retire,” I wrote that “Rich Dad, Poor Dad” changed the way I thought about retirement. It gave me a second perspective that was far more appealing than the “save money until you die” strategy. That perspective led me to build and test a third strategy that’s available only to entrepreneurs.

My retirement stocks, bonds and funds are really just a way to defer income and avoid overtaxation now. They’ll start paying me in a decade or so. But my building-asset strategy is the reason I could retire now, at 43, with cash flow for life.

Every month, I collect just over $12,000 in rental income from my three commercial properties. Two have a bank balance owing; those payments total just under $7,000. I could pay those balances off now but don’t for tax reasons. However, when I do, my loan payments will go to $0—but the rental income will keep coming as long as I own the building. In fact, rents go up over time.

Buying a building is far easier than most believe.

Here’s how to do it, how I did it and how I’d do it differently next time.

How to Get the Money to Buy a Building
Rent Payments Vs. Loan Payments

First, you have to start with Kiyosaki’s greatest question: “How can I afford it?”

That replaces the statement “I can’t afford it.”

A building purchase costs less than most believe. In fact, many gym owners pay more as a tenant than they would as the owner. This is because the building owner has done the math I’m about to teach you.

The space I rented in 2012 cost me $5,200 per month. I had 7,200 square feet on a “triple net” or NNN lease—that means I paid for property taxes, power and everything else in addition to rent.

Here’s the loan calculator I used. Because your business will be paying for the building—and not you personally—you should consider the bank’s money a loan instead of a mortgage. That means slightly higher interest rates but a much faster repayment period—much cheaper in the long run.

Use the loan calculator linked above. Start with 6 percent interest and a 10-year repayment period, but play around with it. Change the “how much do you need?” amount a few times. Run it backward: Raise the “how much do you need?” amount until the current rent you pay shows up on the “monthly payment” side. Don’t worry about how much buildings cost in your neighborhood yet. Just figure out what you could own for the amount you’re currently paying in rent.

In my case, I was paying $5,200 a month in rent, plus triple net. I plugged that in, and here’s what I got: For what I was paying in rent, I could buy a building worth $468,400 on a 10-year loan at 6 percent.

Down Payments and Third-Party Lenders

When Kiyosaki raised my curiosity enough to do the calculation above, I quickly realized cash flow wasn’t going to be the hurdle. In fact, owning a building would save me money on a monthly basis. The hurdle was getting the money to buy it. But I started asking questions. I booked an appointment with my banker and simply asked, “How do I buy a building?”

She told me two important things:

1. The bank would lend me 90 percent of the building purchase price. I only had to come up with 10 percent—$46,840—to buy a building priced at $468,400.

2. I could probably borrow the first 10 percent from another lender. Investopedia calls these “third-party lenders”: “A third–party mortgage originator is any third party that works with a lender to originate a mortgage loan.”

In other words, some lenders exist precisely for this specific reason!

I immediately called some third-party lenders in Canada and filled out some applications for pre-approval. These folks really want your business. They make a commission off the sale. To say it was easy to borrow $40,000 for a building down payment was an understatement. One of the third-party lending banks hounded me for months afterward to lend me money!

Keep this in mind: This was 2012. My business had recovered from the low points of 2008 and 2009, but I didn’t have $40,000 in cash on hand. Not by a long shot. We were cash-flow positive, and I was taking home around $52,000 in salary plus some perks in 2012. I was reinvesting heavily into my programs—such as IgniteGym and Spark Rehab—but I didn’t have anything close to $40,000 in my bank account. It didn’t matter.

(If you need help with a loan, fill out our FREE editable copy of the Ultimate Business Plan for Gym Owners!)

How to Buy a Building: Right Property, Right Tenants

With the money question largely answered, I started looking for buildings. It took me two years to find the right combination of space and price. I’ll share those lessons below.

Finding the right building took longer than finding the money. Start looking before you’re perfectly ready to purchase. Get your name in the market. Find a broker who will think of you when a new commercial building comes on the market, because they can flip fast.

If you can’t find real estate near you now, don’t worry about it: New properties show up every day, and many are never even advertised. Find a commercial broker and tell him or her exactly what you want.

A last-ditch option would be to find a partner for the building. I’ll cover that in Corporate Ownership Structure below.

What to Buy

Rule No. 1: The first tenant pays the mortgage.

When I bought my first building, I was only thinking about my current business. I wanted a building for my gym, period. I looked at the building as a 10-year retirement plan: I’d pay off the loan over 10 years, and then the business would just pay me rent forever. So I bought a 6,400-square-foot building and filled it with gym stuff. I became the sole tenant and paid the mortgage instead of a lease.

This was my only mistake, and it wasn’t a big one.

If I had it to do over again, I would have found a building big enough to sublet space to someone else, hedging my mortgage that way. Even a small tenant paying $500 per month helps a lot. But you have to make sure they pay more than the mortgage value per square foot because you’re not in this to break even. Your gym should show a return on every square foot; that includes rent paid by your tenants.

Read more on that here.

Tenants and Risk Management

Here’s the potential downside to being your own tenant: The building next to my new gym was owned by a daycare company. It purchased the building for around $780,000 (I looked at it before buying the building next door). It found a tenant who could pay around $3,000 per month for some of the space in the building, leaving the landlord with around $5,659 per month to pay on the loan. (Put the numbers into the loan calculator to see the specifics.) Then the company used the rest of the space for its day care.

Unfortunately, the daycare business didn’t generate enough money to pay staff, ownership and rent. Then the roof started to leak, and the company didn’t have the cash or credit to fix it.  When the building’s loan payment relies on the owner’s business, and the business isn’t stable, the owner could lose both the business and the building. I’ll explain a better strategy below in Corporate Ownership Structure.

In this case, the building owner had to sell when she closed her daycare. I bought the building in May 2017 (almost exactly two years before writing this article), took out the tiny toilets, painted over the butterflies on the walls and began subleasing space. Six months later, the building was generating revenue above the loan payment. I put that money into a new roof and two new HVAC units, upgraded the flooring, and kept a few offices for Two-Brain staff. Come and visit the Workshop to see it anytime.

The super bonus: I convinced the chef at the daycare to open her own cafe in the same kitchen she’d been using. Now I eat Mary’s food two or three times per day when I work at the Workshop.

Corporate Ownership Structure

Should your gym own its own building?

Catalyst is the sole tenant in its building. It’s still a great investment—the gym pays rent to my holding company, which actually owns the building. But if Catalyst owned the building itself and ever got into trouble, it could fall into the same trap as the daycare next door.

A better plan is to form a holding company that owns the building. The gym owner can own both companies. But a legal separation means that the failure of one won’t pull the other down with it.

It’s also a good strategy to avoid overtaxation. It also helps with liability: What happens if you’re ever successfully sued? Separating the building from the gym business means you won’t lose both in a lawsuit.

Cash Flow

Here’s how cash flows on the Workshop building:

Catalyst Gym pays rent > Holding Co. is the landlord > Holding Co. pays Chris and Robin as employees as needed.

This structure saves us around $7,000 per year in income taxes (Canadian tax laws punish single-earner families, so we split our income) and gives us some other corporate tax benefits.

I mentioned above that some might take a partner or borrow money from a private person to cover the down payment. In that case, it’s even more important to form a separate holding company instead of selling shares in your gym. If the lender wants to own a share of the building in exchange for covering part of the down payment, this is a far better deal for them: They’re not assuming ownership risks in your business. It’s also a better deal for you because you won’t have to give up part of your business to someone who really just wants to own a building.

To sum up: The holding company owns the gym. The gym pays the holding company rent—usually slightly more than the monthly loan payment. You can own both companies. There are tax and partnership benefits to splitting them that are beyond the scope of this article.

But you don’t absolutely have to have a holding company: Your gym can own your building, too.

Build-Outs and Hidden Fees

You’re going to have to deal with some extra fees and bureaucracy when you close on the building. New landlords usually anticipate the money but often don’t foresee the cost of delays.

First, zoning: If your building isn’t zoned for gym use—this zoning type is different in almost every city—you will need at least a month to be rezoned before you can open. My city has a 30-day appeal period, which means rezoning can take 60-90 days.

In the case of my gym, I made my application to change my zoning from “light industrial” to “commercial” in June. We had to wait for city planners to get to the application. We had to wait to get the property on the list for discussion at city council. Then we had to wait for city council to meet, which it does less often in the summer. The approval itself was a snap: a 10-second reading and a unanimous decision and it was done. But the process took months to work through the system.

Red Tape and Bureaucracy

Second, inspection. When you borrowed the money to buy the building, your bank probably insisted on a couple of inspections—foundational, environmental, etc. But now the city is going to do an inspection before they grant occupancy permission.

When we opened Catalyst, our plan was to have a grand opening on Sept. 7. Our work was done before the end of August. But we didn’t realize that we had to schedule a final inspection way in advance, and city inspectors were busy with the opening of a new hospital. We had to beg to get an inspection done as quickly as possible and still wound up holding our workouts in a nearby park on “opening day.”

And we failed that inspection: I left a 20-cent wax seal sitting on top of a toilet, so the inspector knew it wasn’t installed. If I’d hidden the wax seal, we’d have passed. But as it was, he gave us a two-week temporary occupancy permit. If your city won’t grant an occupancy permit, ask for a temporary one so you can open while you make the adjustments.

Our inspector also told us to add a push-button door opener to one of our bathrooms, which cost $2,400. It was an unexpected cost but made life better for our chaired athletes.

Of course, you’re also going to have to submit building plans and have them approved.

My advice is to hire contractors and ask them to include all permits and fees in their quote. Trying to DIY the approvals process might seem like a good way to save a few hundred dollars, but you simply can’t afford the time and frustration. If you’re running back and forth to engineers and city hall in between coaching classes and picking up your kids, you’ll extend the process by weeks. You can’t afford that.

Tell your builder to take care of permits, teardown and cleanup. It’s worth whatever you pay if it means you open sooner.

Long-Term Strategies
Paying off the Building Early

Four years after buying my first commercial building, my greatest temptation is to pay off the loan balance on each of them. I have the money; I could just write a check and erase the debt.

But every single month, my bookkeeper tells me to keep making monthly payments instead. Yes, I’m paying a bit to the bank in interest. But if all the money went straight to me, I’d pay more in income taxes. It’s a crazy system, but until I’m ready to retire and make less income from my businesses, I’m better off riding out the loan payments.

Flipping Vs. Holding

My other great temptation is to sell one of the buildings. Every few months, I get an unsolicited offer on one of them. As our city recovers from its economic depression, real-estate prices are slowly creeping up again. I could sell the Catalyst building for 50 percent more than its purchase price right now, and it’s tempting to do so.

But “flipping” buildings is only a sexy strategy on TV. The real strategy is to buy and hold forever.

For example, let’s say I sold the Catalyst building for $750,000 and made a $250,000 profit. That’s not enough to retire on. But if I held the building for five years and nine months, I’d make that same amount in rental income—and still own the building. I’ll make that same amount again and again every five years. And because I’ll be retired for at least 70 years, I want to keep that rent coming in.

A New Way to Plan for the Future

Current future planning is a thing of the past.

Many retirees who spent their lives saving are now realizing they lost out. Because cost of living compounds, too: inflation, increasing taxes and rising energy costs are forcing people to downsize their dreams.

The best plan is always to remove fragility from age: both in fitness and in finance. But real diversification means more than buying different stocks; it means putting money into cash flow assets, secure investments and–maybe–the market. Constantly varied functional moves at varying intensities.

The most important epiphany I took from Kiyosaki was this:

“If I can generate autonomous cash flow in the next ten years, then why wait? Why can’t retirement happen at age 35, 40, or 45? And why can’t retirement mean continuing to do things I love?”

It’s all changing for the better. Embrace the new functional retirement!

(And if you need help with a loan, fill out our FREE editable copy of the Ultimate Business Plan for Gym Owners!)

The post How to Buy a Building and Retire Early appeared first on Two Brain.

What It Takes To Get To Tinker Phase

In the Tinker Phase, an entrepreneur spends less time working on their company and more time working on themselves.

 

(Not sure which phase of entrepreneurship you’re in? Take the test here.)

 

Many believe that a Tinker is therefore already successful. In my book, “Founder, Farmer, Tinker, Thief”, I give this checklist at the end of the Farmer section.

 

Have you hired an “administrator” to oversee the client journey?

Have you begun managing staff instead of performing frontline duties?

Have you done an energy audit?

Have you launched at least one opportunity for intrapreneurship?

Have you hired at least one replacement for yourself in your primary service?

Have you done the “apples” and “weeds” client exercise?

Have you fired one “weed” client?

Have you started hosting regular staff meetings?

Have you begun to extend your marketing to people you don’t yet know?

Have you started a retention strategy and taught it to your staff?

Have you budgeted for a staff development program?

Have you begun evaluating your staff quarterly?

Have you reached 33 percent gross profit margin?

Have you started tracking your enhanced metrics: leads, conversion rate, and revenue streams?

Have you started doing any paid lead generation?

Have you started attending a coached fitness program?

 

Many entrepreneurs in the Farmer Phase will read that list and think, “Oh, I can tick most of those boxes, but not all. I’m not ready for Tinker-level mentorship yet.”

 

But the test is really there to pull you toward Tinker Phase, instead of stopping you from reaching it.

 

First, the test will reveal your priorities. If you can check off half of the items on the list, that’s a great start. Now use the remaining items to get you some clarity. Where should you focus your CEO time? On the Tinker list boxes you haven’t checked.

 

Second, here’s the real secret of the Tinker group at Two-Brain: most of them can’t tick off everything on the Tinker List above. They’re in the group because they want others to PULL them forward instead of PUSHING themselves all the time.

 

For example, many Tinkers struggle to hire a General Manager for their business. It’s an expensive role, and usually the first managerial hire. So many Farmers will think, “Well, that’s the stuff that I do. If I hire someone for that role, what will I do all day?” But when they surround themselves with Tinkers, the Farmer will quickly see the larger opportunities to grow their company; start a new company; or duplicate what they already have.

 

As a Tinker myself, I can attest to this exact issue. I was checking client payments, reviewing staff calendars, ordering supplies…I was the gear that turned all of the other gears in the machine. My mentor told me to hire a COO. I took the financial leap, freed myself from operational tasks, and focused on writing more. My company literally doubled in size the next year. My Farmer problem was holding me back, but I had to see the Tinker opportunities before I would act to fix it.

 

The best thing you can do to reach Tinker Phase, achieve time and financial freedom, and grow as a leader is to surround yourself with other Tinkers.

 

Our Tinker Group is growing. The next Tinker meetup is in Chicago in June. Want to ask about it? Talk to our Tinker Mentor here.

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Control Your Thoughts, Control Everything (Here’s How)

Here’s the real secret to success:

 

You don’t have to put your dreams out to the world to make them come true. You have to put your dreams into your head, and push your bad thoughts OUT.

 

The “law of attraction” was a hot topic back in the early 2000s. Everyday people began thinking more clearly about what they wanted in life; telling other people about it; and then reaping the rewards. Many of them gave full credit to the book “The Secret“, which taught the “law of attraction”. But the real key to getting what you want isn’t about what you attract; it’s what you repel on purpose.

 

You have to cut rumination and self-defeating language from the thoughts inside your head.

 

Rumination means dwelling on a negative emotion or event. It usually means that you think about something negative, and then exaggerate the event in your brain to make it worse.

 

For example, let’s say that your husband always leaves his socks on the floor. If you ruminate on the topic for years, your reaction will grow; you might begin to believe that your husband doesn’t respect you, because he treats you like his maid. And if you believe he doesn’t respect you, you’ll begin to believe that he is capable of other disrespectful acts, like cheating on your marriage. These leaps don’t happen overnight, but your brain makes these logical jumps as a natural part of learning. And if you picture your husband cheating on you, your brain believes it actually happened.

 

Self-defeating language is a true handicap. At best, it can hold you back from success. At worst, it’s abuse. If you say “I’m bad at math”, your brain will literally alter itself to be worse at math. Your brain believes itself and acts accordingly.

 

If you say “I’m dumb”–well, you certainly won’t get any smarter.

 

If you’re an entrepreneur and say “I’m bad at sales”, you will be. And you’ll get worse.

 

Both of these problems are becoming more common as we spend more time staring at screens instead of talking to people.

Here’s how I control my thoughts:

 

First, acknowledge your feelings. Zoom out and say, “Okay, I see that I am afraid.” I learned this practice of dispassionate observation from many sources, but its roots are in Buddhism.  

Second, tell yourself a different story. Instead of saying, “I’m so nervous”, say “I’m so excited” out loud. Your body responds the same way to stress and anticipation: rapid heart rate, increased breathing, and a surge of adrenaline. But changing the language in your head sidesteps the fight-or-flight reaction in your mind. 

Third, keep score. Most people have no idea how many times they have negative thoughts every day, or how much they ruminate. After reading “DRIVE” by Dan Pink, I began to count. I was astounded: on a single drive to work, I had over 20 negative thoughts about myself, my clients and my business–and no positive ones. How could I possibly win with a 20-0 score? How could I ever be happy, let alone successful? 

Fourth, be happy FIRST. Motivation comes from success, not the other way around. You need to win. Over the years, I’ve learned to make myself happy by doing things to make other people happy. But whatever makes you happy, start your day with it. Even the practice of saying “Good morning!” with a bright and sunny smile will make you happier. 

Fifth, practice Bright Spots. We post our weekly high points (our ‘Bright Spots’) publicly in our Facebook group every Friday. To a newcomer, it might look like bragging. But what we’re actually doing is helping our clients to retrain their brain. I want them to say “I am successful” to themselves. And the only way I know they’re doing it is to have them post their signs of success to everyone in the group. If they tell themselves they’re successful, they will be. They won’t feel pressured to sign up every potential client, because they know they’ll get more prospects in the future. They won’t feel like they have to cut deals or dramatically discount their services, because they’ll live in their own sense of self-worth. 

Now, I’d love to say “Fight against bad self-talk!” but that doesn’t work. Negative self-talk and rumination are addictions. You have to replace addictions with other habits. Start with #1 on the list: acknowledge your negative emotions and self-talk. Keep score. Then replace negative self-talk with positive self-talk. Picture your brain as a jar: take one bad pebble out, and replace it with one good one. Don’t argue with yourself; even recognizing a negative phrase (“My hair looks terrible today”) and replacing it with a positive one (“I’m in a great mood”) will work.

 

This takes practice, but you’re good at practice. Go ahead and lose the battles, but don’t lose the war.

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A New Way To Retire

Until I read “Rich Dad, Poor Dad“, I thought there was only one way to retire.

 

The path to retirement in my house was this:

Save money

Give it to someone to invest for you

Remove choice so you don’t screw it up (set up auto-withdrawals for 10% of your salary)

Work until age 65

Slowly draw funds from your investments. Try not to run out of money before you run out of life.

 

“Rich Dad, Poor Dad” was an epiphany: I learned that purchasing buildings and collecting rental income would give me consistent cash flow without an end. Here’s how it works:

Buy a building

Rent the space in the building

Collect rent

Pay off the mortgage

Continue to collect rent to infinity.

After I finished the book, I immediately began searching for a building to buy. I didn’t have any money, so it took me a few years to get the downpayment together. Now I own three buildings, and the rent I collect from them is over $12,000 per month. To receive that same dividend from investments, I’d need to save $3,600,000. But my buildings cost $900,000 combined; I only needed 1/10 of that amount as downpayment money; and they pay for their own mortgages. I’m 43 and retired.

 

We call this “functional retirement“, because I don’t depend on a “job” to pay me anymore, but continue to work because I love my vocation. Being a mentor to other business owners is part of my legacy.

 

But there’s actually a THIRD way to retire, and ONLY entrepreneurs can do it.

 

As soon as I read “Rich Dad, Poor Dad”, I began to wonder: can a business become a cash flow asset?

 

I was reading both The E-Myth and The Four-Hour Workweek at the time. It seemed crazy to think your job could require only 4 hours of work per week–but I wondered, could it actually go to zero? Could I build systems that would replace me entirely?

 

(The answer is yes, but only for entrepreneurs. And only if your business is completely independent.)

 

For a few years, I thought about how to build a completely autonomous business in the service industry. Was it possible for a business to run completely without the owner’s presence or oversight? Could a business really be a cash flow asset, even in the very-high-touch business of fitness coaching?

 

My initial progress was slow, because I didn’t really WANT to stop coaching. I also kept a very close watch on the money, and didn’t trust my staff to create it. I couldn’t detach, because–well, what if we had a slow month? Someone needed to stay up worrying all night!

 

Of course, that isn’t true. The solution to the panic problem is to not have slow months. Eventually, I began delegating growth, retention and sales to my staff. And in May 2018, I decided that I had to do the ultimate test: a full year without setting foot in my gym at ALL.

 

The test was prompted by a few Facebook posts from other gym owners. They claimed to be “retiring” and selling their gym. But I was skeptical: their posts on LinkedIn told a different story. And their gyms didn’t appear to be worth much. In fact, they weren’t really retiring. They were just giving up. I wanted to prove that there’s no need to close your gym to retire from day-to-day operations.

 

You don’t have to quit YOUR gym, don’t worry. Consider this my 4-minute mile: someone has to prove it’s possible to set the scale. Then we can all choose how detached we really want to be.

 

I missed doing CrossFit with my noon group. But removing my last connection to the gym–and having my GM run it–meant that I was free to work on my Tinker-level projects, like building Two-Brain Business. Yep, I still got paid my full salary in my year away. The gym grew without me. Rates were raised, customers were fired…all the hard stuff still happened without me. Because it had to.

 

Listen to Kaleda’s podcast. She’s 29 and retired too.

 

There’s a new way to retire. Your mission can continue when your working life ends. Follow the steps in Founder, Farmer, Tinker, Thief. You’ll get here far faster than I did!

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