Chapter 5 - Expansion part one

 How do I do make more money?

    So things were going well 1450. I had some help here and there from Zach for cardio classes and the odd PT I couldn't handle. I was steadily increasing the bank account  month over month, having fun playing with different types of advertising, and more importantly, never feeling like I was actually working. Most people, and I tell my clientele now, all hate their jobs or don't really get satisfaction out of what they do. I'm fortunately not in the group, I live a life of freedom, fitness, and I cant imagine doing a 9-5 clocking in and working for the man. Fuck every bit of that. Hats off to people that workout before or after working at a place that doesn't really move the needle for them. I truly don't know how you all do it.

Anyways, I was getting the hang of it all is what I'm getting at. Now, if you know me, nothing is ever enough and I was already starting to think about how I could increase the revenue of the business. Of course you see the Orange theory finesses, the 9 rounds and other franchise style gyms and I thought that expansion to additional locations was the best way to add to my bottom line (how naive of me). So I set to work on plans to expand. I quickly realized that the legal leg work of setting up a franchise was way north of what was possible for me. Several estimates had it at between $50,000-100,000 so that was out of the question. I talked to Ted, and he mentioned something about a licensing structure. Looking into that, It was indeed far less legally taxing and pretty straight forward;

1. Find people that want to own/run a gym 
2. Train them on the business model for 6 months
3. Secure a location and fit out
4. Execute opening and Go

Looking back now, apart from my ignorance that the process and progress was going to be a linearly upwards, a couple mistakes were made. The individuals that ultimately ended up signing on for the Middletown location and the latter, Bel Air location were all friends of mine. I believe that they all signed on with me because of one thing, and it wasn't because their dream was to own and operate their own gym. It was because they were attracted to the idea of me and that they saw it as a way to make easy side money. Ill be the first to admit, I haven't been the best judge of character and their was a steep learning curve on this that I didn't see then. I went through the process like a checklist and looking back, I should have vetted them differently. 

The next mistake was how I structured the licensing agreement. Now, I assumed that if someone said they were going to do something, that they would do it to the same level and quality that I would, and that as long as that happened, the businesses would make it and it would be great for everyone. Ill foreshadow a bit....people fucking suck. So, if you ever find yourself in a position similar to this, just know, that NO ONE EVER CARES ABOUT SOMETHING AS MUCH THE OWNER. The most you can get out of someone is about 80%. You'll never get 100%. My dumb-ass went and structured the ownership of these new ventures with ME being the majority owner. Let me explain, the model had it so that my 4 new partners (2 at each new place) would be on the ground and putting in sweat equity to get the business to profitability and to keep expenses as low as possible on the payroll side, all things that make sense and are what a business owner should do. What I should have done, was make THEM majority owner and keep me off the business OR at most, as a minority interest.  This is because;

1. Risk - When you are the majority owner, you shoulder the majority of the risk. Risk is fine when you are able to be in the facility day in and day out. Not fine when you cant be in three places at once making sure your partners/employees are doing what they should.
2. Lease exposure - When you are over 20% owner you must go on any commercial lease as a personal guarantor. If you don't know what a personal guarantor is, it basically means that if the business fails, you are on the hook for the lease. If you don't have the funds to do that, then the lessor is legally allowed to take your possessions until the debt is met.  

 The people on the ground floor should have been the individuals on the lease, and the majority owners that  would take in the majority of net revenue. I should have been there in a support role through only advertising, admin and consult work. Now, if the business goes off without a hitch, and it makes money then ok. I had set up an agreement that as revenue increased, my partners ownership would increase, which in some ways makes sense BUT even when ownership would eventually change from majority to minority ownership for me, MY NAME WAS STILL ON THE FUCKING LEASES. In Delaware, businesses are run and governed by the operating agreements, and I did set them up as Delaware LLCs so the ownership shares could change on there but as far as the lease goes, it wouldn't change without a lot of legwork (during the best of times). In Middletown, it was just me on the lease. In Bel Air, my partner Brandon and his wife were 25% owners so, they were legally required to be on there. Thankfully, and unbeknownst to me, if you are on a lease as a guarantor, it doesn't matter if you are 25% or 100%, you guarantee that whole motherfucker, and landlords like having guarantors. More people to go after in case the business fails...

Middletown was first, and I started planning that in 2017...Ill get into how that went in the next installment. Heads up...not smooth.