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.
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Still no Ashkahn today. He’s taking a couple of post-conference days to himself.
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Construction to Make Your Life Easier – DSP 268
Graham and Jake cover a wide range of construction tips to make running a float center easier. Everything from making sure you have extra storage to installing mop closets with sinks in them for dealing with heavy duty chemicals.
The advice is pretty much a shotgun approach of tips, tricks, and hard lessons learned throughout the years.
Draining Float Tanks into Septic Systems – DSP 267
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Post-Conference Ashkahn is still out of the recording studio, but fortunately Jake is keeping Graham company in there.
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Latest Blog Posts
The Float Tour Blog – Issue #28
Home sweet home! After so many months on the road, it was strange being back here in Portland. We were exhausted, excited, and a little travel weary. The first night back, I slept in my own bed for the first time in three months and the world just melted away.
Having travelled across the United States, I’m reminded of how insular Portland is. We are aggressively fixated on keeping things local. Local beer, ketchup, bikes, pet food, pillows, phone cases… it’s part of our charm. We want to reward people for living here and being a part of the community. It’s so pervasive that, after living here for so long, I kind of forgot that Secret Aardvark hot-sauce isn’t available everywhere, and that most cities don’t even recycle, let alone compost.
The Float Tour Blog – Issue #27
Our northern neighbor – a sister city, of sorts – Seattle is the largest metropolitan area in the Pacific Northwest. It’s the land of Microsoft and Kurt Cobain, and the culture here embraces both simultaneously. It’s tech business professional in the front and rock n’ roll grunge in the back. This blend creates a perfect storm of high energy business life and high energy nightlife, making relaxation a valuable commodity. Floating helps fill the void left by nightmarish traffic and overcrowded restaurants.
Given that it’s so close to home, the float centers in Seattle are a lot more familiar to us. Our visits here were more like a high school reunion than they were like the first day of school. During some of our visits, we were picking up conversations right where we left them.
The Float Tour Blog Issue #26
Vancouver is the largest metropolitan area in Canada, and third largest on the West Coast. It’s a major hub for international trade, with one of the largest ports in the world, giving it a large migrant population, mainly from Asia, the Middle East, and Australia. It’s also been a long-time home to the Canadian film industry, and has even been nicknamed “North Hollywood.” Dozens of film and television productions from major studios film here every year.
Vancouver is very much an international city. It has large boroughs dedicated to varying cultures, including one of the largest Chinatowns in the world. The society here is more receptive to new ideas, always looking for the next big thing; it’s not surprising that floating has blown up in Vancouver as much as it has.
In the last 3 years, 10 float centers have opened up, most of them being larger 4–6 tank centers. The really interesting thing is how they all opened within the same short amount of time about 1 ½ to 2 years ago, within months of each other.
The Float Tour Blog – Issue #25
We finally made it back to the West Coast! We went through the Canadian Rockies and were overwhelmed by the beauty of it all. We drove through hours and hours of winding mountain roads, fertile valleys, and tiny towns so picturesque they looked like movie sets. It was so captivating, in fact, I suspect Graham and Ashkahn may have secretly replaced themselves with robotic doppelgängers to hike throughout Banff.
This post will focus on the smaller communities in B.C. that are bringing floating to new people every day. We also get to visit Canadian manufacturer Pro Float. They’re relatively new to the scene, just opening up earlier this year – another exciting sign of the growth in the industry.
