244. Another LOC draw, probably time to message my banker and franchisor about the business future

Sailing the choppy waters of retail finance, I found myself caught in a tempest of debt and decision-making that could make or break my business. Balancing a mounting credit card bill and a shrinking line of credit, I faced the harsh reality of advertising investments that didn't pay off as expected. In this candid episode, I take you through the tumultuous journey of managing financial pitfalls, including the tough choices around consulting with my franchisor, banker, or fellow members for guidance. But it's not just about seeking advice; it's about the daunting possibility of having to shutter the business I've poured my heart into. Join me as I confront the effectiveness of our sales strategies and ponder the dire need for a turnaround before it's too late.

On the brink of bankruptcy due to a predecessor's misguided decisions, I held fast to integrity, honoring financial agreements despite enticing settlement offers. This chapter of my entrepreneurial saga explores the emotional weight of a floundering business and the significance of self-care over succumbing to failure. I also shed light on the often-overlooked support, or lack thereof, from franchisors when the going gets tough. We’ll dissect the strategies for pushing forward, be it through advice from bankers on growth or the arduous decision to wind things down. So, brace yourself as I share the real, raw, and often solitary experience of business ownership and impart the valuable lessons learned about setting realistic expectations within the franchise landscape.

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Chapters

• 0:32 Financial Struggles and Tough Decisions
• 10:03 Navigating Business Challenges and Decisions
• 16:34 Challenges in Business Growth

Transcript

Speaker 1: 0:32

All right. Well, today's a little bit spooky. It's the 11th of the month and I realized you know, I cannot keep avoiding it Time to pay the bills. And so I logged into my bank account and, fortunately, on the $10,000 credit card is about a thousand dollars remaining. And you know, we ordered some supplies, we ordered some items times the retail store and that's why the the bill is up there, and so there's a few pressures going on right now and I'm feeling it. So the line of credit we've tapped in about twenty thousand dollars so far. Um and sorry, my watch is beeping at me we've tapped the line of credit $20,000 in and this month will probably break even. Even after, like, the big surge of renewals that are auto-enrolled, we'll probably break even. And that's a little scary because it was supposed to be a juicy month. And so there's about $40,000 remaining on the line of credit and at the current pace that's about four months. If we lose 10 grand a month like this is, this is getting stressful really quickly. So I don't really know, like, where to go or who to turn to.

Speaker 1: 1:42

It wasn't really made clear where I should go if things get stuck or things are not looking rosy. Should I go to my franchisor because I don't know if they're. I mean, what can they do? Are they going to tell me prices? We're already at the upper end of our pricing point. Get more customers? I'm doing that. We're paying triple on ad spend. What other clubs are doing in the space and we can't turn them profitable fast enough.

Speaker 1: 2:08

Cut costs Cool. What costs should we cut? I don't see any. We've already trimmed down some subscriptions and I don't know what else we can do. We're going to pay rent, we're going to pay salaries, we're going to pay royalties. That makes up like 80% of our costs. Then the others are the small ancillary ones, like utilities. Which utilities are tough? Music subscriptions, the website, technology fees, like there's not really much that we can cut um. So reaching out to corporate, that's one option.

Speaker 1: 2:43

But I also don't want to just complain and say, hey, fix my business, but it's not their job to fix my business. Um, I could talk to my banker and say like, hey, banker, um, what should I do? And then you'll probably say go talk to the franchise. I'm going to say, great, they're going to tell me the same things that I just told you. I could talk to the members, but the members probably just hear the same thing of well, get more members, get more sales. So, like, who do you go to when things are tight? I don't really know. Last thing I'm going I do is just shock you and say, hey, everyone, doors are closing.

Speaker 1: 3:20

Some people say, hey, you should have reached out, you should have asked for help, even if there's nothing that they can do to help. So I don't know. Um, I should have asked a long time ago hey, if I get into a bind or if things are getting rocky or I'm struggling, who should I reach out to under what situations? Is that something for the franchise or to get involved in? Is that something for the bank to get in, like my checking account, savings account, bank to get involved in? Is that something that my lender who made the SBA loan gets involved in? I just don't know. So I'll probably.

Speaker 1: 3:55

I guess step one is going to be reaching out to the franchisor because if this thing implodes, they're going to be in the list of folks that need to get paid out. So it's terrible of a way to think about it. The folks that are going to be most upset if we shut the doors down and I'm on the hook for something probably the franchisor and the litter, something. And I'm on the hook for something probably the franchisor and the lender, but something that's helping me make a tough decision the agency that's helping with the sales rep. I need to make a pivot. I've been like antsy and I don't want to make the tough decision on replacing the person. But they're not performing. They are doing half of the results that we need and it's just not working. So I need to. I'm on contract with that agency for another six weeks. I'm six weeks into that contract. I have six weeks to go. So I'm going to reach out to. I need to reach out to that agency. Hey, the rep, they're putting in the effort. The results are not coming in. It's going to reach out to. I need to reach out to that agency. Hey, the rep, they're putting in the effort. The results are not coming in. It's going to be in the details that I can't quite put a finger on, but it's well. No, I can put a finger on it.

Speaker 1: 5:04

So classes start at the top of the hour and they're booking people in the middle of class to come in and take it. So that can't work. They're double booking people. They. They're double booking people. They're following up on people that are like, yep, I'm ready to come on in, and then they text them like three more times like hey, looking forward to seeing you, hey, here's directions, hey, can't wait to see you, and the people are getting annoyed and they just walk away. So it's the little things like that that are probably hurting us. And this agency just set up a Slack channel that includes everybody. I don't need everybody, I just need the account manager in slack. So okay, just so you know, this is not working.

Speaker 1: 5:40

We need to make a change because the the business will be closing in a couple months and I'm losing money working with you guys. So if you need want to keep me as a client, I need to make a switch now and that's uncomfortable. I've that's happened to me in my career and I hate it when people do it to me and that hurts. And unfortunately, I need to do it right now with that, with that rep, and I remember the first time I ever had to do this. I remember their name. I remember um, um, like thanking me for the time of employment and I feel bad and I'm still a young man for my career. I haven't had to fire people before, and it still stings when I do it and I probably need to have thicker skin. But at the end of the day, the studio studio has to survive and unfortunately, I need to make a hard decision when I need to live without pain and work through that pain. So that's where I'm at, that's where the business is at for the spring summer months.

Speaker 1: 6:51

I'm trying to hold on to August, when the seller made this giant piff run and all these other PIFs should come back in. I can't be my savior. I cannot rely on that PIF thing to save things. We've only had one profitable month out of five and that profitable month was like the biggest sales month of the year. So I don't, I don't know what to do.

Speaker 1: 7:14

Um, yeah, other than increased sales, increased revenue, increased customer base, increased prices like more money, more revenue. Yeah, no, kidding Sherlock, I'm doing that, I'm investing hardcore in that and the results are not coming in. That's frustrating. I just don't know what to do and it's eating up my mental space. I still have my day job to do, I'm tired of working late nights and I just don't know. I don't know, I don't know, I don't know, I don't know. All I can do is work with sales, work with my accountant to make sure nothing weird is happening on the expense side of things, work with my sales team to make sure we're doing the best we can on that side of things and keep working the day job.

Speaker 1: 8:07

And if we lose 10 grand a month, um, and it's march, like it's july, I have to feed in, feed in funds for a month, which I don't know how I'm gonna get 10 grand to keep the doors open. Probably see the good sales month. We gotta have a good sales month. That's the only way we which I don't know how I'm going to get 10 grand to keep the doors open. Rather, see the good sales month. We got to have a good sales month. That's the only way we really can do it.

Speaker 1: 8:31

So this will need to get this out, because when things are not going well financially, you do not want to open the bank account. You don't want to look at the bills you got to pay the expenses you need to churn out account. You don't want to look at the bills you got to pay the expenses you need to churn out and just tired of banging my head against the wall, don't know what I'm doing, don't know who to talk to, and the folks that I do that I can talk to, I don't think are able to fix it. At the end of the day, when you're the owner, you're the person who's supposed to fix it. Other people can guide you and say hey, hey, yep, go do this and go do this, and if you're already doing this, then what's what's the point like is, the only thing that's valuable is if you get novel information or new direction or new insights, and right now I don't know what new insights I can gather, which is why you meet with people, but I don't know. I don't know other than we have the check-in with my sales team in an hour, so we're doing some training and objection handling with my staff, and then we're gonna go from there. So that's where we're at, that's where we're going, and, assuming the gym turns around, this is going to be quite the story to tell, because right now, things are looking pretty dire. Um, early march and and slow months for pulling out 10k a month to keep things going. So that puts july we'll have a pop. So it's not going to be a treacherous decline.

Speaker 1: 10:03

I'll never forget, though, when the seller did the piff run, they cut off all marketing. Their response was why would I pay marketing for your revenue? And I've been stuck in that for a long while. And the answer is because your financials say that you will, because your integrity says you will behave the same way in the next 60 days that you have been the past two years. When you buy a well that's producing oil or water, you don't stop pumping because someone's going to take over in three months from now. You keep pumping until the day of transfer so that they can keep pumping. The point of buying an oil well is that it's gonna keep producing oil, that it's gonna keep producing cashflow.

Speaker 1: 10:47

And yeah, the guy screwed me over. And we say the guy of the two sellers, the seller that made the decision to cut off all future, to stop feeding this well, and now I'm paying the consequences. And he's waiting for a seller financing payout. And you wanna get paid out right away. Yeah, no wonder you want to get paid out $55,000 day after closing. And circumvent or not, I don't circumvent the right term but he wanted to say, hey, I'll give you a $3,000 discount if you pay me out right now. Like, yeah, I'll pay you out as it's profitable. We've lost money every month. I'm going to draw out his seller financing note as long as I possibly can, even if things are profitable. No, you put me in a rock and a hard place, heading towards bankruptcy within a year of the purchase. No, I'm not going to pull you a solid bro. No, by no means. I'm going to follow the contract that we signed. I'm going to follow the terms of the agreement. If this thing ends up going bankrupt, then, sorry, you're out $50,000. You get to wait in line behind other people. If this thing ends up working out nicely, then, no, you will reap what you sowed. You will get paid based on what we agreed upon. I'd be happy to pay you ahead of time, but no, you do not get paid faster because you, because you scheduled this business to fall apart right after the sale happened.

Speaker 1: 12:12

And either the seller was negligent about the accounting and truly did not know what the other seller was doing with the books and the, the commingling of funds and the. What is it in the wage theft of employees, making them pay taxes when they were under the assumption taxes were paid? No, either you're a negligent business owner or or you are mischievous and have ulterior motives and I don't know the right label to put on it, but either way you're in denial. Or you are mischievous and have ulterior motives, and I don't know the right label to put on it, but either way you're in denial, or you are completely trying to hose people. One way or the other, I'm going to give you a bit of this without you. Just didn't know about the accounting for a seller who was not the accounting. So that's my event.

Speaker 1: 13:00

I'm learning to not fear the the downward trajectory. Let's pretend this thing does crash and I can't save it. I'm not gonna. Then I'm not gonna expend my health and my mental energy stressing over destruction. If it's fate and it's inevitable, I'm not gonna fret about it because it's gonna happen, whether I can or or not. And if I can fix it, then there's nothing to stress about because I can do what I'm doing and we're going to figure this out. And so stress, pressure, anxiety will not improve the situation. It's only my reaction to the situation and the cards that have been dealt. I'm doing the best I can.

Speaker 1: 13:42

People are saying I can do more by coding in the studio. I don't think that's. I don't think that's going to benefit the studio. Working my day job at the gym. So I'm going to do the best I can. Uh, I'll send out a message to the franchisor. Um, at the end of the day, you're an independent business owner. The franchisor is not going to rescue your business. They may give you an out, they may buy your studio for like 50 grand so that you don't have as much of a bankruptcy to deal with. I mean, that's always a possibility.

Speaker 1: 14:12

But franchisors usually get hosed the same way that buyers can get hosed In the stock market. It's called catching a falling knife. If something's going to gonna or what is it? Even a dead cat, dead cat bounces. I guess it's a little different. But catching a falling knife trying to rescue a failing business, you need to be very good at doing it or you're just gonna hurt yourself and you're gonna get cut on the way down. And so it's very uncommon for franchisors to buy back locations, especially when locations are historically closing already within the system. So I'll reach out to the franchisor, I'll find a time to talk with them, but I have little expectations. I have more hope talking to my banker and talking them through it, because they may have some ideas If this thing ends up working out. They may have some business, sales and marketing and growth ideas. If this thing ends up falling apart, they may have some bankruptcy wind down tips and tricks for how to deal with closing up shop. So, either way, I think the bank's gonna be more helpful than the franchisor.

Speaker 1: 15:20

I don't know if that's my particular system or if that's just kind of a business owner thing, franchise or not, and no shame if that's my system. I mean, I'm not. I wasn't expecting them to be a huge guide on how things are going, more so the, the referral of vendors, and so, um, yeah, I definitely don't want to come across as I'm like bashing my franchisor by any means. That's not the case. No, they've. I had low expectation because I knew this is a business ownership thing. My job is to own, operate and profit a thing, and they help with the branding and the connections and some generic industry marketing. So, no, franchisor and I were good. Uh, some people expect the franchisor to do a lot. I did not have that expectation and so, uh, I'll talk to the bank, I'll send out a message to the banker, send out a message to the franchisor, I'll set up the yellow flags. I'm like hey, just so you know, over the past six months, we've lost sixty thousand dollars. The current pace will make it until august, september. Uh. Any tips or tricks or guidance as to how we can keep the doors open? And then we'll go from there to infinity.

Speaker 1: 16:34

Though, if your business is struggling, most likely it's a lack of sales, lack lack of marketing, lack of customers or lack of pricing or retention. It's either not enough customers, not enough cost. There's three issues with the business Either not enough customers, not enough revenue per customer, or you lose your customers too. We're losing our customers at like a 3 percent rate a month, and industry is like five to six percent a month, so it's not a loss. We're charging 179 a month, 179 169, depending on the package a month, which is like upper average. We're not like the, the most expensive, but upper average on our pricing. It's our volume of members. We got to get in more quantity of members, and that's why we're marketing so crazy, because we need to get more members, and right now we're still at like a five return investment, investment for our marketing process, and so or what is it? Our row is one and a half, which is not as good as I want it to be, but our one year return on investment for our customer is still up there.

Speaker 1: 17:43

But I need to swap out my sales rep. This replacement sales rep, the first one I had, the OG. He was phenomenal. The gal I have right now is struggling, so I need to swap her out quickly. So that's where we're at, that's where we're going, and I'm learning emotionally to not internalize and bear the stress of failure, because if things pan out, there's nothing to stress about. If things end up failing, then it's going to fail while I'm doing all the right things. But let's go send out the message to the franchisor. Let's send out the message to the franchisor. Let's send out the message to the bank and figure out what we can do from here. That's where we're at, that's where we're going. Let's rock and roll.