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
Should I Wire my Float Tanks into the Wall? – DSP 265
Ashkahn is currently recovering from his talk and the after-party last night, but Jake and Graham have gracefully taken the time to answer a construction question again today.
On the docket today is a question about wiring a float tank directly into the wall. Graham and Jake provide an overview of why some people may prefer this (it’s much easier to keep waterproof, e.g.), and why at Float On they use the twist lock for their outlets and how to properly utilize them.
Can I Keep My Old Ceiling With My Buildout? – DSP 264
Hopefully everyone had a lovely time at the Friday Activities and the after-party.
Ashkahn is still busy running the conference, but Graham and Jake have stepped in to talk about construction!
Today the guys talk about keeping a drop ceiling or T-bar ceiling in an existing space that you’re converting to a float center. The short answer is don’t keep it, as it can cause problems, but the guys do have some workarounds if your landlord is opposed to changing the ceiling.
What to Expect When Expanding from 1 to 3 Tanks? – DSP 263
Ashkahn is busy preparing for everything that happens tonight and tomorrow for the Conference, but that doesn’t mean Daily Solutions will stop being daily.
Graham and Jake talk construction and what to expect when you’re expecting… a giant expansion for your float center. What’s it look like when you go from one tank to three? How do the demands change? What needs to be put in place to make sure that you’re not hitting snags?
Fortunately, these guys know the score and are happy to share.
All About Floor Drains – DSP 262
As Ashkahn gets everything ready for the Start a Center Workshop (happening today) and the Float Conference this weekend, Graham and Jake tackle answering construction questions on the podcast.
Today they’re talking about floor drains. What to consider for drains and how they might pair with different types of flooring. Given the hefty price tag for these more advanced drains, having as much research before making a decision on these is essential. Luckily, the guys have done the hard part already and identified a lot of things to consider.
How to Deal with Float Room Humidity – DSP 261
Graham and Jake are at the helm again while Ashkahn puts the finishing touches on the Float Conference.
Today, the guys are talking all about humidity and how to deal with it when constructing your float rooms. They talk about all the little nuances that you (or your contractor) might not think about when it comes to humidity and how soundproofing and regular airflow may not always go hand in hand.
Latest Blog Posts
The Float Tour Blog – Issue #24
Alberta is often called the Texas of Canada. Part large oil industry, part cattle country.
Don’t Mess With Alberta!
At the base of the Rocky Mountains, replete with an Olympic Stadium, Calgary is a world-class destination for winter sports. The float community developed here similarly to Edmonton – there wasn’t anything nearby except for one or two residential float tanks, and then, in a short period of time, several centers opened all at once. Instead of competing, they’ve decided to work together and have developed one of the tightest knit float communities we’ve seen. They even have monthly Float Dinners, much like we do with the float centers in Portland. They don’t keep meeting minutes, so it’s hard to determine what they talk about at these dinners; my guess would be salt, the effects of salt on various substances, and how salty salt damage can make someone salty.
The Float Tour Blog – Issue #23
After Montana, we blazed our way back into Canada. The drive was long, but the scenery was beautiful. We followed the Rockies north, driving up to Edmonton. It’s a bit of a detour but, there are so many float centers in Edmonton, it seemed crazy not to stop by.
The city itself is primarily made up of workers from the oil fields – high risk, high income jobs that fuel the economy. At least until recently. Our visit was right in the middle of the Fort McMurray wildfire which has displaced a lot of the workforce, forcing 100,000 people to leave their homes. Many came to Edmonton, being the nearest metropolitan area to Fort McMurray. Some already split their time between the two cities, living in Edmonton and traveling to Fort McMurray for weeks or months at a time for work.
It’s understood that, in economic hardship, luxury commodities are typically the first thing people cut back on. Surprisingly, this doesn’t seem to be the case for floating. In fact, more people seem to be trying it to help alleviate the stress, many centers even offering free or discounted services to those displaced in an effort to help in a small way.
The Float Tour Blog – Issue #22
We’ve got two more stops in Colorado Springs before heading west. It’s a town known for its military base and long history of weapons testing. With such a large military presence, it comes as no surprise that the float center owners here are veterans, themselves.
After that, we shoot across to Salt Lake City. Utah is filled with gorgeous sights, from breathtaking lakes to stunning painted hills. With an international landmark famous for its effects on buoyancy, Salt Lake City should be pretty familiar with the concept of floating. With five different float centers, and the manufacturer of the Zen Tent out there, there could be some cause and effect.
After that, we head up into Idaho and Montana to close out the Central United States portion of our Tour. We’ll follow the Rocky Mountains north, taking in the scenery along the way.
The Float Tour Blog – Issue #21
Denver has been home to a vibrant float community for a long time. Some of the earliest commercial centers that started up in the ‘70s and ‘80s were out here. 30 years is a long time, and most of the old centers aren’t around anymore, but there’s a conscious community that has been floating since the old days and they love how much the industry has evolved and grown.
