Let people talk long enough and they're sure to tell you of a time they were misunderstood or wronged, and the words, "I got screwed" are almost sure to emerge. At times, we listen to the stories and we empathize, while other times, we listen with recognition that there are clearly two sides to the discussion. It's best, of course, if we opt not to choose a side. Today, I'm in a position where I meet thousands of personal trainers, and in many cases, I'm invited to discuss their business experiences and plans. Much as in the realm of client vents, the "I got screwed" stories abound among trainers seeking business growth many of them related to "partnerships." I'll share two illustrative examples:
"The owner of the club said he'd make me a partner. I'd be in charge of training and not be connected to sales at all. I was supposed to get 30% of the profits, but just when things were ready to rock n' roll, he fired me!"
Or: "My client talked me into opening the studio. I believed his financial equity and my sweat equity made us equal partners, and when it came to the money, he said he'd back me 100%. I'm not sure how much he put into it, but I was working 85 hours a week, barely sleeping and getting run down, but I stayed committed. After six months, just when we were getting close to showing a profit, he pulled the plug."
These are two examples of very real life outcomes when a personal trainer connects with an entrepreneur expecting a demonstrable financial return. In general, business is tough and most small businesses fail within the first two years. When two partners, with opposing, but potentially complementary skill sets, consider entering into an arrangement, it becomes vital that the difficult questions are answered before a nickel is put into a shared venture.
The Obstacles of Partnering
Here's part of the challenge: when an investor plunks between $50,000 to a million dollars into a venture, a 15% to 30% return on investment (ROI) would be reasonable, at least in some arenas. A 20,000 square foot health club today might cost upwards of $800,000 to create and might operate with well over a $100,000 monthly expense. The reality is that the commodities, as well as memberships sold are low-ticket items; therefore, lots of things have to happen for the ink to turn black.
Often, personal training sessions can be viewed by an investor as a commodity, and if it is the sole or primary source of revenue, a strategic arrangement must be in place to ensure the trainer/partner is fairly compensated and the investment is secure. Personal fitness trainers are typically expert in their domains, but a skill set grounded in anatomy, kinesiology and physiology often falls short when faced with making a health club of any size successful. This challenge is only amplified by the illusion that operating a fitness business is simple. The "build it and they will come" idea is a dream that is rarely fulfilled without a driven marketing and outreach effort. Even if they do "come," another vital element is getting them to spend again and again and again which requires sophistication in creating interest, motivation, retention and growth.
Am I suggesting a trainer/investor partnership is really destined to go downhill? Absolutely not! It can offer extreme opportunity, but as with many opportunities, there are pitfalls and prerequisites that must be recognized. There are three significant opportunities that can allow personal fitness trainers to become business owners, while establishing win-win partnerships: The existing facility, which may include a chiropractic office, wellness center or mainstream health club commercial health club where personal training exists, but operates at a loss or breaks even or during start-up where an investor seeks a sweat equity partner.
In the first two scenarios, an arrangement can be structured where the trainer owns a percentage of the intangible. Since sweat, time and dollars have already gone into the operation, the trainer has little if any entitlement to the tangible. The profit center can be clearly defined, and if the partner can keep the business in the black, the opportunity to establish a "split" of the profits can be exploited to the mutual benefit of the existing partners. And in the third situation, where a personal trainer believes "the investor" serves as the angel that turns the dream into a reality, requires far greater preparation since virtue of the investment ultimately rises or falls based solely upon the trainer's performance.
If you are about to open a facility, whether you have the financial wherewithal or you're planning on connecting with an investor, do it first on paper. Have answers to the following questions:
In addition to these important questions, there are some more primary concerns you must consider if you are going to connect with an investor. Let's start with the primary financial concern: How much will you need to borrow immediately, and what security does the investor have to ensure your absolute delivery on your promises?
Being Real Lays a Solid Foundation
Although you're calling yourself a partner, in reality, the business is going to borrow money from the other party in the hope that you can repay it plus a satisfactory return. It's healthy to approach this with the sense of obligation you'd feel as a borrower. You're going to tell me that as the operational entity, as the brains behind this club or studio, you're putting in more than money. You're putting in your blood and guts. You're putting in your time, your commitment and your dedication. ' I know that, but that's viewing things from your standpoint. I'm asking you to put yourself on the other end of the transaction. If you were the potential investor, even if the greatest guy in the world promised you his blood, guts, time, commitment and dedication, wouldn't you want to have something on him? Oh, I know your investor doesn't have to worry, at least from your perspective. You're reliable, but I assure you your investor is going to want some type of guarantee that you won't bail when the going gets rough. He's going to invest in the fact that you can make this business fly. This lender wants to know, to really know, that your tail is on the line with his money. If you can answer the question that helps minimize his sense of risk, you're way ahead of most trainers entering into "partnerships."
These main concerns are only the beginning; there are many more questions that must be answered to make sure this relationship proves prosperous on both sides of the table. Here are just a few more: How much capital will you need in total, including a "plan B" reserve? How do you and the investor stand to benefit individually and jointly, and what key indicators will you use to make certain you're on a course toward those goals? What will the investor's operational role be?
Before you enter into this partnership, be honest in assessing your strengths and abilities. Once the doors are open, it's hard to go back and admit you might have required a marketing talent you haven't yet acquired or an operational awareness that needs honing. Be complete in not only your assessment of the goals and guideposts, but also in what resources, including human capital, are going to be necessary to make the ride to the desired destination as smooth as possible.
Look for Phil Kaplan's follow-up article outlining the specifics of "the deal" appearing in our March edition of the Wellness & Fitness Entrepreneur Newsletter. Phil Kaplan is a fitness professional with a commitment to helping personal trainers find success at the highest levels. Visit www.philkaplan.com.