Running a Martial Arts School: Things I Wish I Knew When I Was 22: Part 3

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Stephen Oliver

Stephen Oliver has been the guiding light for the professional revolution in the martial arts industry for more than 15 years, and is now leading the next generation of school owners to levels of professionalism and performance previously thought impossible! There is no shortcut on the road to success, but you certainly can follow the path of those who’ve come before you, and save yourself the time, energy and money by learning from their mistakes.

Stephen Oliver shares the expertise he has gained over years of working in the martial arts industry in his series Running a Martial Arts School: Things I Wish I Knew When I Was 22.

Wealth vs. Lifestyle

Let’s start with a few basic definitions:

Revenue or Gross Revenue: How much total cash comes through your business on a monthly, quarterly, or yearly basis.

Income or Net Income: How much you have available to you personally after ALL of the regular business expenses have been paid.

Wealth: How much in REAL assets you have accumulated. This includes: Equity in Real Estate; Stocks and Bonds Cash on Hand And, other truly valuable assets.

Lifestyle: The quality of your life now. This includes factors such as leisure time, travel, where you live, the quality of the furnishings, what you drive, have much real enjoyment do you get our of life.

Now lets talk about reality.

School owners love to brag about 3 things:

1) Number of students,

2) Size of their School, and

3) their GROSS revenue.

It’s really interesting to watch. Get 10 school owners together and watch them talk about themselves – and, let the lying begin. Student active counts are the most exaggerated number of them all. But that being said – all of these numbers give you a small piece of the picture of their school and their business but really none of them individually are of much interest to me.

Example: I have on close friend.  His claim to fame was 1,000 students. But guess what. He was grossing in the range of $35,000 per month (scary huh?) and had a huge rent, payroll and other expense numbers.  Many of these students as well were not really very solid – they just kind of came when they pleased and got rolled into the active count for show.  My friend worked 8 am – 10 pm daily, weekends, and had a huge renewal and retail push on Thanksgiving day.

Example #2. Another friend told me he had 450 active.  Most were kickboxing students on punch-cards.  They attended sporadically – and as long as they came in at least monthly they were considered an active student.  He grossed about $7,500 per month in an 8,000 square foot facility.

Example #3. I walked into a very small school – owned by an acquaintance. Asked what the active count was – he said they had enrolled 1,400. When I asked for clarification – that turned out to be the number of enrollments that the school had done in the 12 years it had been open. I asked how many ACTIVE students they have.  The owner replied that they had 450 students “on programs” – upon further questioning – I learned that that meant that anyone who’s program had not expired (ie. I signed them to Black Belt 3 years ago – they paid in full – dropped out two months later – and, have 1 year to go before their program “expires) counted. I then asked how many were actively attending – they had no idea!

Example #4  A very successful friend – with multiple schools – with several locations grossing $35,000 to $40,000 each and I compared financials.  In 5 schools I grossed what he did in 3 – HOWEVER – my average rent was $2,700 his $6,500.  My average school had 2 full-time employees and 2 part-time. His average school had 5 full-time employees. Well the bottom line was – well my bottom line was really good – he had to put $45,000 into his operation to keep it operating smoothly.

Example #5.  A friend runs a nice little – somewhat mundane operation. His gross is always OKAY – not spectacular – his school only enrolls about 8 new students per month and, his curriculum frankly boars me. However, he built his own building several years ago – and, started making double payments. He owns it outright now.  Ie. No rent, no mortgage payment, and LOTS of equity. His nice little school runs at close to 50% net.  Enough for a new Mercedes every couple of years – a few really nice vacations – and, he really likes $300 shoes – so he buys them whenever he wants – and, don’t forget the net-worth he has built!.

Don’t let impressive numbers – or, an impressive facility fool you.

You know what I’d like to hear about?

1.   What’s the quality of your life-style?  Do you enjoy life – are you doing what you enjoy – and, do you take time for hobbies, travel, family and entertainment?   If you don’t have time for these things because of your incredibly long-hours – then really what good is the money?  It’s easy to get caught up in working and striving for more and more money – but really money is only good for two things:

 FIRST, insuring that you can do and have the things you want RIGHT NOW;   Are you able to afford those “Toys” that are important to you?  Do you refrain from spending money on things that won’t contribute substantially to the quality of your life.  Do you have expensive STUFF to impress others – or, because you appreciate them personally?

SECOND, so that you can build security for your future – and, I don’t necessarily just mean for your retirement. What if your school has a down-turn (remember all kinds of unexpected things can happen) are you financially strong enough to weather the storm?  What if one of your kids has unexpected medical expenses – or, if you have a medical emergency.

2.  What’s your NET Income? How much money do you have left over from your business after EVERYONE ELSE gets paid? If your expenses are in line and your gross is adequate or excellent – you could have 15%, 25%, or maybe even 45% or 50% left over. Do $30,000 per month – with $15,000 left over and I’ll think you are incredible.  Do $180,000 per month with $3,000 left over – well nothing personal – but who cares?.

3.  How much Net Worth have you built – and, how much do you save?  Do you have equity in your home? Equity in the building that houses your school?  How’s your IRA, savings, and investments?  Does your SCHWAB account grow every month – or, are you living week to week?  Forget about the guy who boasts a huge student base – I want to be like a friend of mine who bought the building that houses his school – and, ended up owning the whole city block – with positive cash-flow from rental income and huge equity. Not very glamorous in the “bragging rights” pool at the next karate tournament or business convention – but hey he paid HIMSELF first!.

4.  How much have you learned this week, month, year?  If you are constantly learning – you will always be about to recover from set-backs as well as capitalize on new opportunities.

STUFF:

Your day to day life style expenses must really be determined by –  what is really going to add enjoyment to your life – relative to the costs.

A personal example:

Many years ago – many friends and employees laughed at me (remember when they laugh it’s your money not theirs.) Why did they laugh?  Well once a year I would have a Christmas party at my house – which is huge, beautiful, is in one of the most expensive neighborhoods in the Denver metro area, and has tremendous views overlooking the city.  At the same time – on a day to day basis I drove an Audi 4000 which was at about 150,000 miles (and, I finally traded it when it failed the emissions inspection, got hail damage, and needed more repairs than it was worth.)  During this period – my house appreciated over $300,000 and my car basically went from the $20,000 I paid for it new to a value of $0.

Often we are tempted to buy things based upon the image we hope to project to friends, neighbors, business associates and others.

If you really want that expensive toy – because it enhances your enjoyment on a day by day basis then by all means – get it – enjoy it.  Just decide on a daily basis – not because of the “image” you hope to project or because of an attempt to impress your friends.

Remember about the only thing that you can buy for yourself – that has any real value after you buy it is your home.

Everything else – with very few exceptions – begin to depreciate – or, really have minimal value right after you’ve spent the money.

Cars – NEVER buy one new.  Guess what happens – the minute you drive it off the lot it loses at least 20 to 25% of it’s value.  Want to have fun with your car – what’s the difference between brand new – and, a couple of years old and 10,000 – 20,000 or even 30,000 miles?  I’ll tell you the difference – on a Jaguar I bought recently about $20,000!

Furniture – just try selling that $2,000 or $3,000 sofa or table.  Guess what – you might just be able to get 10% of what you paid.

Art & Jewelry – people fool themselves into thinking that these items have value.  Certainly if you are a serious investor – buy at wholesale – and, have access to quality channels of resale then you might come out okay on some of these things. Reality is almost any ring, watch, or painting you buy is going to immediately have close to zero value.

Electronics, computers, stereos, etc. – Here again, buy what you will truly enjoy – plan on these items having no value once you have purchased them.

When you start reviewing your assets and computing your net worth your real estate, stocks, bonds, and other assets have real investment value. Home furnishings, art and jewelry – probably have only utilitarian value or sentimental value – once you’ve left the store.  Cars. They begin to depreciate the minute you drive off the lot.  Remember this when deciding on that new luxury car – or, whether to invest in a nicer home.

A book that should be required reading is “The Millionaire Next Door.” This book teaches some great lessons in wealth accumulation.

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Stephen Oliver is an 8th Degree Black Belt, MBA. Martial Artists since 1969. Has been operating martial arts schools professionally since 1974. Founded Mile High Karate in Denver, Colorado in 1983. Previously Board Member for Educational Funding Company, and World Tour Promoter for NASKA. Currently CEO National Association of Professional Martial Artists (NAPMA,) and Publisher of Martial Arts Professional Magazine as well as CEO of Mile High Karate schools internationally.