Something in the world of floating have you stumped?
Show Highlights
The financial cost to opening a float center is huge at the startup, given the high ticket cost of float tanks themselves, as well as the expensive technical construction that comes along with making your rooms sound/water/saltproof. It’s rare for a float center to open entirely self financed, so what are the best options for getting funding? Loans versus investments.
Graham and Ashkahn break down the differences in these two approaches weigh the pros and cons to both for float centers.
Show Resources
Daily Solutions Episode 47 – What is an SBA Loan?
Listen to Just the Audio
Transcription of this episode… (in case you prefer reading)
Ashkahn: All right, all right, yeah. How’s it going out there?
Graham: Howdy all you little cowpokes. This is Graham.
Ashkahn: And this is Ashkahn.
Graham: And today’s question.
Ashkahn: And today’s question.
Graham: I’ve got a little echo going on here.
Ashkahn: Got a little echo going on.
Graham: Is “loans versus investments?” That’s it. That’s the entirety of the question that we’ve got.
Ashkahn: Okay.
Graham: We can talk about that. There is a difference. They mean two fundamentally different things, but both are ways to raise money for your business.
Ashkahn: I guess versus self-financing.
Graham: Yeah, we can improve on this question. Let’s throw some more in here.
Ashkahn: Well, that one is pretty quick. If you have self financing, usually that is what you are doing. There is not a lot of people who have enough money themselves and still decide not to use it and instead go to get a loan or get investment.
Graham: Yeah. I mean I guess there is this idea. Maybe you would have to empty your entire savings or bank account in order to do it.
Ashkahn: Sure.
Graham: Then you’ll see people be like, “Well, no. Keep some in there,” and only spend a portion of it.
Ashkahn: Yeah.
Graham: Also there is very few situations where you’d get by without any personal investment. Very often that’s what you start with. With some nest egg of money however much it is, and what you are trying to do is snowball that up to having full financing for your Float Center. That’s probably the number one path that people are taking.
Ashkahn: Right. No matter where you are getting money from, which direction you are going. You’re always gonna be expected to be putting some down yourself.
Graham: Yeah and it makes sense too. People want you to have skin in the game. Any amount of money you are going to need to do that will, of course, change depending on what you are trying to do and how you are trying to raise money, but it’s fundamentally if you’re a business owner with this expensive idea like a float tank center and you have absolutely none of your own money to contribute, then that’s gonna be a much harder path than if you are able to put in a decent chunk of change and, then again, have some of your own skin in the game.
Ashkahn: Let’s talk about loans versus investing as this questions wants us to.
Graham: Yeah. So loans are things where you are getting money and you are expected to pay it back with interest over a set amount of time.
Ashkahn: Yeah and investment is where you are getting money and you are not expected to pay it back. Instead, the investors, hoping to make money in some other way. So either by getting to sell their portion of ownership later down the line or by getting dividends based off of like the profits or revenue of your company.
Graham: Yeah. Most often, a lot of investors want at least a way to be able to cash out and claim their value of the full value of the business and not just dividends. It’s very rare you’ll find an investor who is totally happy for the lifetime of the company only collecting dividends and never intends to be able to unload the rest of their investment in business itself.
Ashkahn: Yeah. Loans seem to be a slightly more common path for people in the float world than investment and that’s just because very typical investment is kind of its own beast. When you hear about venture capital or normal big investments sort of stuff, there is a round of investors that are hoping to sell to the next round of investors. They’re hoping to sell to the next round of investors. There’s kind of like an expected amount of growth in your business that investors are looking for. A huge amount of growth.
Graham: Yeah.
Ashkahn: Ten. A hundred times bigger than what you started as. When you are taking on investment, they have their eyes towards you’re gonna be opening dozens of float centers or you’re going to be franchising or they’re gonna want to see, typically, this is just real conventional investors, they’re gonna want to see much more serious growth model than “I’m opening a float center and maybe I might open a second one if things go well like five years from now.”
Graham: Yeah and it’s a good time to mention there totally kinds of investors and different things those investors are looking for. The biggest distinction is between those venture capitalist and more friends and family.
Ashkahn: Yeah.
Graham: It’s what they all call very small rounds who’ll still be your investors, but often have much different requirements than people who do this professionally and they’re in the big money game of serious venture capitalism investments.
Ashkahn: So yeah. The nice things about investors are that investors are just people. They can decide whatever they want to do with their investment. So often we hear of people getting investment to open a float center, it’s they know someone one, a friend of a friend. They’re really interested in the project. I don’t hear of float centers-
Graham: Or their parents. Their parents are their investors.
Ashkahn: Yeah. Whatever it is. I know-
Graham: Or the guy who lives next door, for example.
Ashkahn: Yeah. Talk to your neighbors. I don’t hear of float centers going to giant VC firms and putting on a series of eight rounds of investment. That’s just a different class of-
Graham: You pretty much have to plan on franchising and have some serious things built into your business from the beginning that will really gear it up towards franchised development in order to eventually hit that size of growth where you would be attractive to more serious investors.
Ashkahn: Yeah. The sharks. You know there’s one perspective of comparing loans against investment. We’re just looking at the finances. Loans, obviously, have an amount of interest that you are gonna have to pay back over time. That interest can be significant compound interest over time. And investment, you are giving up a portion of your company. There’s scenarios where financially you could come out ahead in either way.
Graham: It’s another important thing, right there, to totally interrupt you. Is that the giving up a portion of your company is not just a financial decision.
Ashkahn: Right.
Graham: Whereas the loan largely is. Along with the loan comes no amount of control or governance that is required of the person doing the lending. Whereas an investor, often, that share coming along with serious voting power and the ability to influence the direction your company is going. I guess, just keep in mind the percentage comes with other impacts. It becomes a lot more like a marriage at that point rather than a loan, which is what? More like a pimp or something like that and less like a marriage.
Ashkahn: That was exactly what I was building up to. That was the point I was trying to get at there. That’s basically it. The finances can go either way depending on the outcome of your business, but the kind of effect of having an investor versus of having a loan on your decisions is definitely one you should also consider. It shouldn’t just be a numbers game that you are crunching.
Graham: I guess it is also worth noting that on the loan side, you can also have private lenders. You don’t need to be going through a big bank. You can also get loans from friends and family or loans from other people you know. So there’s kind of this whole range of private, big institutional loans, more private friends and family financing for the investment side, big serious investors, so there’s a range on both sides of the fence.
Ashkahn: A lot of time when people are getting loans in the float world, they’re getting SBA backed loans and we have another podcast episode where we kind of explain what those are and what goes into them. So definitely listen to that on if you’re kinda interested in, I think, the most commonly walked path of people bringing on money.
Graham: Yeah. Yeah. It goes much deeper down that rabbit hole for sure. What else is a difference here? You can do both too. Often for larger companies, there is some mix of both debt and investment that they take on, because there’s different amounts of risk associated with each one, so you can have a small amount of personal capital and use that to get even a small private loan and use that to go get more friends and family on as investors than use that to go get a bank loan. A combination of all these is, likewise, totally possible. In fact, it’s pretty rare that someone has only one or even two sources of raising money for their business. Very often it will involve a combination of personal round or personal money, friends and family round, and getting on some bank loan or larger chunk of money coming in through that.
And you can check out stats on this too. The 2017 Industry Report is the most common, but you can see throughout time for the last four or five year, where people have been raising their money and you can also see the percentage of people who’ve raised money from bank loans just go steadily up through that time. It does seem like people are opening bigger and more serious centers and they’re successfully find funding from them, specifically from big lending institutions.
Ashkahn: Yeah.
Graham: Which speaks well to the awareness of floating and people treating it more seriously and seeing it as a legitimate business over the past half a decade.
Ashkahn: Yeah and there’s people out there with investors and that’s where they got their financing. So even from whatever kind of route that you’re picturing, there are people who have successfully done it and made it work in that direction.
Graham: And there’s like two percent that funded their center through credit card debt, which I’m just like “Oh boy. This sounds really dangerous.”
Ashkahn: Yeah. So hopefully that overview is kind of helpful if you’re just kinda just not too familiar with that world or even what to be paying attention to. Yeah, do you have any other high level generalities you wanted to-
Graham: Yeah, you know, there are regulations and rules and stuff about all this stuff. Lending, investment, who you can invest from, how much money you can take from how many people. Just keep a small eye out for that. If you have some crazy ideas, you might want to run them buy someone to make sure that they’re legal.
Ashkahn: If you’re actually trying to scrawl out your contract on like a McDonald’s bag or something like that and get a quick signature, there’s probably more to it than that.
Graham: But in general, it is nice to know that you aren’t crazy for thinking that you can raise money outside of yourself for opening a float center.
Ashkahn: Yeah. Definitely. Alright. If you have any other three word questions you want to send our way, you want to head over to floattanksolutions.com/podcast. We will talk to you soon. Bye everyone.
Recent Podcast Episodes
What’s Floating Like Around the World? – DSP 290
Ashkahn and Graham break down the wild world of floating, well… worldwide. They share what they know about the industry in different countries, continent by continent, and gauging which ones are the most float centric vs. those that are the least (hint, it’s definitely Antarctica).
Replacing Filtration Parts for your Float Tank – DSP 289
When it comes to replacing a filtration system for a float tank, there’s sadly no easy answer. There isn’t a one-stop shop place to get replacement parts for float tanks (yet). Most systems are piecemealed together by manufacturers to work specifically for their systems.
In addition to all that, they also often use internal customized materials to accommodate the specific needs of float tank solution. So without some serious internal knowledge of how those systems work, it’s nearly impossible to safely and accurately just swap out one piece for another.
How to Handle Customers Wanking in Tanks? – DSP 288
Graham and Ashkahn tackle the uncomfortable issue of handling customers that may be using the float tank to do things in the tank wasn’t designed for.
They discuss the social aspects along with the sanitary aspects of dealing with ejaculate in the tanks.
Basics of Opening a Business – DSP 287
Graham and Ashkahn take creative license in this episode to talk about the basics of what everyone should know before starting a brick and mortar business.
They want to help others not make the same mistakes they did. This includes everything from getting a legal entity and hiring bookkeepers to making sure you have the correct labor law posters displayed and follow proper hiring practices.
Should People with Ear Tubes Float? – DSP 286
The format for this episode is a little different this time.
Graham and Ashkahn received an anecdote about someone who floated with ear tubes in. The float ends with extreme discomfort and pain when the floater gets epsom salt water in their ears.
The guys highlight this issue as a warning to the industry that this is something that can happen with floating.
Latest Blog Posts
Location Checklist – The Search for Your Float Center’s Home
In honor of our newly minted, fresh off the press, prize winning Construction Packet, we are releasing one of its more succinct components, the Location Checklist, as a free resource. Don’t let the fact that it’s only one page fool you – this set of questions breaks down the major site and location considerations for your center.
Financing Your Center With Bank Loans
If you are looking to open a center, at some point, you have to face the reality that you’re going to need to spend, and thus track down, a good chunk of money. There are many ways to fund a float center – personal capital, family and friends, sending travel funds to the exiled Liberian prince that you met on the internet and using the forthcoming reward money, etc. This post, however, will focus on financing using bank loans.
A Peek Into Our Construction Packet: Planning Your Space – Square Footage and Number of Float Rooms
For anyone opening a float center, one of the earliest questions they’ll have to tackle is, “How big should my space be?” This can be one of the most difficult queries to answer, because it hinges on many variables.
Will you be offering other services? What types of tanks are you getting? What other rooms will your space need? If you’re planning on installing a float tank water slide, that’ll take up extra space, too. I know it’s unreasonable, but Jake really wants someone to do it.
All of these questions aren’t even factoring in thinking about profit margins. It quickly becomes a daunting task that can feel overwhelming.
How to Launch a Successful Kickstarter Campaign
At Float Tank Solutions, our main goal is simple.
We want to provide access to floating for as many people as possible. That’s why, this week, we are opening up our blog to our friend, Shane Stott. Shane, an avid float ambassador, life coach, and founder of Zen Float Co., will walk us through the essentials of running a Kickstarter campaign, with a highlight on his current efforts to raise money through Kickstarter for a documentary on floating.
