Podcast

Episode 376

Sep 24, 2021

What's the worst that could happen? Michael and Allissa go through everything to think about before deciding to take on debt to expand, renovate, or make a large purchase for your business.

Listen to "E376: When is It "Ok" to Use a Credit Card or Loan to Purchase, Expand, or Renovate?" on Spreaker.
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EPISODE 376

Weekly Roundup

Discussion Topic

  • When is It "Ok" to Use a Credit Card or Loan to Purchase, Expand, or Renovate?

Quick Tips

No matter how much you like BLTs during tomato season, maybe don’t eat 3 in a row just before a meeting.

Sponsors


Transcript:

Sponsor message:

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Allissa Haines:

Hello, everyone. Welcome to the Massage Business Blueprint Podcast, where we help you attract more clients, make more money and improve your quality of life. I am Allissa Haines.

Michael Reynolds:

And I am Michael Reynolds.

Allissa Haines:

And with.e are your hosts as usual and Michael, what you been reading this week?

Michael Reynolds:

I've been listening to a podcast episode called A Hidden Shame in Nursing Homes from The New York Times podcast called The Daily. And I wanted to listen to this one because I have this low-level anxiety about how we treat the elderly in our country, or I guess in the world, but definitely in our country. And this was really a depressing episode. And it was just kind of... touched on that anxiety I have. And it was telling the story about how there's this trend in nursing homes, and the trend is that the nursing home staff and caregivers will... First of all, there was this practice of giving medication that is sedation-type medication for residents who potentially need that. And there is a regulation that says that when you give this type of medication, you're supposed to publicly report it, just supposed to kind of keep track of it and report it.

Michael Reynolds:

And there was a loophole that was introduced, I forget the exact year, but there's a loophole that was introduced around the same time this regulation was introduced that says if the resident has a diagnosis of schizophrenia, you do not have to report this. And interestingly enough, around that time, the diagnoses, or the number residents diagnosed with schizophrenia, skyrocketed in nursing homes. And the story kind of goes on to conclude or to suggest that this is because caregivers are simply using the medication as like a crutch to kind of say, "Oh, well, we're just going to keep people sedated and keep them out of trouble and to make their lives easier, basically." And it was just really depressing and eye-opening to listen to. And again, like I said, it just kind of touched on this low-level anxiety I have constantly about how we're treating older people in our society and how the system is just kind of broken and sometimes abusive. And sorry to kind of be depressing right out the gate. That's what I've been listening to.

Allissa Haines:

And like many things we've discussed in the [inaudible 00:03:44], the same thing happening to the elderly is what's happening to disabled people. And it's a big part of why... This was standard for institutionalization... I don't know. Sending disabled people off to facilities like much like nursing homes. Yeah, just the massive drugging that went on. And nevermind the eugenics, but yeah. Yeah, I mean it's-

Michael Reynolds:

Yeah, sorry. There was basically misdiagnosing just to make life easier for the staff, and they kind of pointed out that schizophrenia is something that's diagnosed early in life. It's extremely uncommon for there to be a diagnosis of schizophrenia later in life. And so it was just really obvious what was happening here.

Allissa Haines:

Yeah. And I mean, when you think about how nurse CNAs and nurse certified nursing assistants and other lower-level staff in nursing homes and hospitals are paid so poorly with far too big of a patient load and it kind of all comes together to be like, yeah, I can see how this would make their job easier and why this kind of horror would end up happening. I hear you, dude. I hear you.

Michael Reynolds:

Yeah. So what do you got?

Allissa Haines:

Yeah. Actually, I was going to say not quite as sad-

Michael Reynolds:

Excellent.

Allissa Haines:

... but really almost is.

Michael Reynolds:

Oh.

Allissa Haines:

I know, right. So last week I talked about a book, I think it was last week or the week before, called Mother Land by Leah Franqui. I read a prior book that she wrote called America for Beginners. And it is a story of an Indian woman who her husband dies. And they had had a son who moved to the United States for schooling and then stayed here, stayed in the United States because he was disowned when he told his parents he was gay. And after her husband dies, this woman, the mother, decides to come and take a trip to the United States, kind of with the hope that he might still be alive, and does this traveling across the country to see the country, but kind of to go and meet her son's partner. I's got an interesting cast of characters. It is just like the other book that I read, Mother Land. It really lets you see the wonderfulness and also the really dark parts of each human. It was great. It was a captivating read. And yeah, I think everyone should go read America for Beginners by Leah Franqui.

Michael Reynolds:

Thanks for sharing that.

Allissa Haines:

Yeah. So who's our first sponsor today, Michael?

Michael Reynolds:

Our friends at ABMP.

Allissa Haines:

They sure are our friends. ABMP says they're proud to sponsor our podcast and we believe them. And I'm just looking through my list of what do I want to say about ABMP today because I felt like-

Michael Reynolds:

There's so much. It's hard to pick.

Allissa Haines:

There's so much. I am going to choose the ABMP Education Center. You can find that at ABMP.com/learn. They have 600 hours of CE courses included with ABMP membership and available for purchase to non-members at super reasonable prices. There are all kinds of topics. There are hands-on techniques and ethics and self-care and cultural competency and business stuff that Michael and I have created, and classes for massage educators. So that's super helpful. ABMP members get free CE for all courses included with their level of membership, and a great way to meet CE requirements, try out new presenters, save your CE budget for other live stuff. You should check that all out at ABMP.com/learn.

Michael Reynolds:

All right.

Allissa Haines:

All right. So today is one of my favorite kinds of days, where Michael is doing all of the heavy lifting. And our topic comes from a... We said, "Hey, what do you want us to cover on the podcast?" And somebody said, "When is it okay to use a credit card or a loan to purchase, expand or renovate?" And this is just the kind of topic that Michael thrives at. So take us away, dude.

Michael Reynolds:

All right. Yes, that is true. I love this question and I love this discussion. And so the first thing I want to start with is first of all, I see this kind of question being asked in various contexts in various places. And I liked the way we phrased it because I think it points to something I want to start with, which is the permission aspect. So it's phrased as when is it okay... And I'm putting okay in quotes. You can't see my air quotes. But when is it okay to use debt to expand or purchase something big or to renovate your office or something like that, a big expenditure. So, first of all, I like to really start out by encouraging us all to remember that it's your money and it's okay to give yourself permission to make your own decisions and own those decisions.

Michael Reynolds:

And I say that because there is no shortage of financial advice out there. And I'm calling it advice loosely. There are lots of people yelling at you about money suggestions and saying you should or should not do this or making blanket statements about, "This is always wrong," or, "This is always right," or whatever. And there's a lot of noise out there when it comes to financial education advice and suggestions. So just before we talk about this at all, just I encourage you to make sure you remember, it's your money. You know your situation better than anyone else. And it's okay to give yourself that permission to make a decision that's right for you and own that decision. So that being said, let's talk about how to think through deciding for yourself when it's okay to use debt to expand or make a big purchase in your business.

Michael Reynolds:

So, first of all, I think it's important to understand the issues with debt. Why is debt sometimes problematic? So I'm the first to admit that I am prone to be one of those people that sometimes goes too far and says, "Oh, debt's just bad, bad, bad." I avoid debt. I try to make sure I avoid debt as much as possible. I think a lot of times as business owners and people, we over-utilize debt sometimes. But I will say it's important to understand the issues with debt. First of all, what's one of the issues of debt? Well, you pay more money. You pay more in interest. When you're borrowing money, there's a cost to that. You're going to pay more overall than you would if you just paid with your own money. So that's a factor. So the interest rate is going to sometimes be a factor.

Michael Reynolds:

If you're going to look at the overall cost of the debt you're taking out, you want to look at that. Is it acceptable? Is it way more than you would spend otherwise with just cash in the bank? Next, it adds risk to your life. So having debt is risk. When you have credit card debt, when you have a loan, that's risk. There is an extra factor that if something goes differently than you expected or something disrupts your income, you've got that risk factor. You can default on the debt. It can damage all sorts of aspects of your financial life. So that's risk.

Michael Reynolds:

It also locks in a burden on your cashflow. When I say locks in, I mean this. So here's the difference. If you save up for a large expenditure, you're in control of that savings. So let's say you're saving up for something and it's going to take you a year to save up for it if you transfer X amount of dollars per month into an account for it. Okay, so you're doing that. Something comes up and you can't make that transfer, you can't make that contribution to your savings account. Okay, you push pause. You're in control, nothing bad happens. You just take longer to save up for it. If you borrow money for it, the bank is in control. They set the payment terms. You can't change that without consequences. And they are the ones in control. The bank or whoever is lending the money is the one in control. So you give up that control and that autonomy over your cashflow schedule when you borrow money. So keep that in mind.

Michael Reynolds:

I also think it can reinforce a pattern of borrowing that we all sometimes struggle with. The more you borrow money, the more normalizes using debt for stuff. And it can often lead to doing the same thing over and over again. So Allissa and I both talk to people about money all the time in the massage therapy community. I have other businesses where I talked to people about money as well. And so we see a lot.

Michael Reynolds:

We see that this normalization of debt is pretty common for a lot of us, and it's not helped by our society in general that's always pushing debt products at us. There's always credit card offers flying at us. There's always, "This loan, 0% interest," and it's just this constant bombardment in our culture of, hey, debt is normal. That's how we live. So I think it's important to understand that and objectively look at that and saying, "If I am going to borrow money, if I'm going to use credit for this, how is it going to reinforce this pattern of borrowing and am I struggling with that?" So that's some of the stuff that I think is problematic about debt in general. Anything you would add to that list of Allissa?

Allissa Haines:

No, I think you covered it. That risk of somebody else being in charge of what you owe is a terrifying to me.

Michael Reynolds:

Yeah. No. So let's think through the situation. So if you're deciding for yourself on whether it's okay for you to use debt for an expansion or a big purchase or something in your business, let's think through the situation. So first, I would think through what's the timeframe. So for example, can you pay off the debt within a year or two, or is it going to take you five or six or seven years? How long is the repayment period going to be? If it's one, maybe two years, to me, that's much better than a five or more year debt repayment schedule. Because that's longer you're going to be in debt and longer you carry that risk, and a longer timeframe that you've got that locked-in cashflow issue where the bank is in control. So the longer the debt carries on, often the higher the risk.

Michael Reynolds:

So you want to look at the timeframe, think through what is an acceptable timeframe for you. For me, it's really short. It's zero to short. I'm not going to want to be in debt for a long time. Next, what happens if you delay the expenditure and save up instead? Let's think through the scenarios. So if you're thinking through whether to borrow money for this thing or not, what if you delay the expenditure? Is it truly a time-sensitive opportunity? For example, there's lots of scenarios where this could play out.

Michael Reynolds:

For example, did you find the perfect team member and you need to expand? Okay, that's one example that I've seen come up, where it's really hard to find a great team member in a massage practice. And if you find someone that you know really well, you vetted and they're ready to get to work right away and all the factors line up, and it's kind of a right now decision or it's going to move on, or it's going to pass you by, then that would be classified as potentially a time-sensitive opportunity. Maybe you need to expand your office to accommodate that person. Did you find a new office location in a perfect location that will help you grow, and maybe it needs renovation, and that's what the expenditure would be going toward?

Michael Reynolds:

I'm not saying these are great or not great reasons for borrowing money. I'm saying these are the examples of things that you can look at and say, "Okay, are they truly time-sensitive?" Or is it something you just want to replace the windows in your office, or you want to buy this fancy new equipment or whatever, and it's going to be there in a year or two later, and nothing's really going to change as time goes on. That would be not a time sensitive opportunity.

Michael Reynolds:

Or this is more obvious. Is there a business point of failure that needs to be fixed? Is your massage table broken? Okay, that's pretty obvious. If you don't have the cash on hand to replace your massage table and it can't be fixed easily, and you can't see another client without getting a new massage table, okay, I'm not going to say that's a terrible decision to put on a credit card if you have to, because that keeps your business operating. There's some caveats we'll talk about later, but that's kind of a very quick right now kind of decision. Or is there an office repair you're responsible for? If you're responsible for replacing your HVAC and it goes out, that's pretty obvious. That's not something I would agonize over. I would get it fixed.

Michael Reynolds:

Next, what is the plan for repaying the loan? And with that, how realistic is increased income from the expenditure? is this a new modality or class you're taking? If so, is there a demand for it, or is it more of a passion project? Often I see this is kind of one of the more common things that happens with our community is a massage therapist will say, "Okay, great. I've got this new class I want to take. It's modality XYZ. I'm learning a new skill." Great. That sounds awesome. "I want to take it. I need to borrow a thousand dollars or I need to put on a credit card to take the class." Okay, great.

Michael Reynolds:

But what happens after you take the class? Does this mean that there is a demand for it from your clients? Are you going to be able to upcharge for it? Are you going to be able to create new sessions that are $20 an hour more higher price for it, therefore making you more money? Are you going to be able to book more clients as a result because it's something people want? Or is it a passion project? Is it a modality no one's ever heard of, and nobody really cares because they don't know about it? And it's something you love and maybe helpful, but is it going to lead to more clients or more money? Something to think through.

Michael Reynolds:

Office enhancements, for example. Will it let you see more clients? Let's say you have a space where you're not able to see a certain number of clients. Maybe you're sharing space with someone. You've got to maybe expand into a new office and renovate it. Will that let you see more clients and increase your capacity? Will it let you scale the business and earn more? Is there a plan for capitalizing on that expansion, whatever it is? Is there a space you're adding on that will let you teach classes or something, that will generate more income for your business?

Michael Reynolds:

So what happens if you can't repay the loan? I would think through that as well. I would think through the what if scenarios. For example, is the loan personally guaranteed? For a lot of us that are sole proprietorships, LLCs, solo businesses, it's very common for a business loan to be personally guaranteed. What that means is that it's not just your business credit and your business itself that's on the line. It's your personal assets on the line as well. So what that means is if you can't pay the loan back, if you default on it, that means people can come after your personal assets. The creditor can garnish your income, bank accounts, assets, in extreme cases, things like your home.

Michael Reynolds:

So you want to look at that. Is that personally guaranteed? That can damage your credit. There can be liens against your home. You can get general harassment and garnishments from the creditor. So think through that. If it's personally guaranteed, that's a higher risk for you. If you're able to get a loan, assuming you've decided to do this and it's business credit only, or business signatory only, that's preferable, but it's not very easy to do that as a small business. So most loans are going to be personally guaranteed, and you need to be aware of that and aware of the risks.

Michael Reynolds:

Also, I would look at your business financial trends. This is a really important one. There's three numbers that Allissa and I talk about a lot, and it's revenue, net income and take-home pay. Revenue is somewhat important. Net income is much more important. Take-home pay is really, really important. So revenue is what you are taking in in gross receipts. This is what your business overall just takes in, what people are paying you. So your gross receipts or your revenue is just simply what all of your clients are literally paying your business.

Michael Reynolds:

Your net income is that number minus your business expenses. So whatever it costs to operate your business, the revenue minus that cost is your net income, or your profit. Your take-home pay is what you pay yourself. So your take-home pay or your compensation is what you transfer from your business account to your personal account. And that is what you literally have to spend as a person, not a business. That's your personal money, kind of your paycheck, so to speak. So your net income and take-home pay, especially, should be either holding steady or increasing to point to being a healthy business. If you're a healthy business, they should not be decreasing.

Michael Reynolds:

Now, the caveat is obviously pandemic. Hashtag pandemic. We know this. This is not a normal timeframe. So we have to kind of unplug that from the picture and account for that. So let's say in a normal circumstance, that would be a number or numbers you want to look at to see if your business is on the right track. Even with COVID, I think a lot of us are hopefully navigating this well, and some of us are getting back to work, and I think going forward, we're going to start to level into a scenario of not normalcy necessarily, but a consistency that is adapted to the pandemic. And that being the case, we can start to look at our financials a little more objectively again and see, okay, what is the trend?

Michael Reynolds:

Let's say you've been in practice for three years. Year one, you're doing X. Year two, you're doing Y. Year three, your doing Z. And the numbers are always increasing. X, Y, and Z, you have more net income and more take-home pay as the years go on. That's a great sign. That means your business is thriving and healthy. That means you're going in the right direction. That to me is sort of a check in the check box that says, hey, using debt to expand my business is not necessarily the worst idea in the world if all other factors make sense, because I am investing in a business already moving in the right direction. However, if your numbers are going down, if your net income is decreasing, or really kind of struggling or a lot of inconsistency, and you see that you're just struggling with the money aspect in general and the profitability in general, and you think that borrowing money to expand is going to fix that, I would really caution you to think through that much more carefully.

Michael Reynolds:

Sometimes we think of, hey, I'm going to borrow this money or put this on a credit card because it's going to fix my business. And very often that's not the case. Fixing your business is often much more boring and simple. It's things like raising your prices and getting more clients and lowering your expenses and finding a cheaper place to rent and all sorts of things that can be fixed before you spend a bunch of money on a fancy class that teaches you a new modality that may or may not lead to more income. So I would think through that very carefully. Look at your business numbers, see how your business is trending, see if it's telling you a story of a healthy business or a business that needs some things fixed before you think about expanding with debt.

Michael Reynolds:

So bottom line, just to kind of summarize, understand the risk, keep the timeframe for repayments short, determine if the expenditure is truly a time-sensitive thing and act accordingly, articulate the likelihood of a return from that expenditure with a timeframe. How long will it take you to get a return from that expenditure from an income standpoint? And make sure this is truly an opportunity for expansion and not just a hope for a quick fix. So that is how, in summary, how I would think through answering the question, is it okay to borrow money to expand or make a big purchase? So I would love to hear your thoughts, Allissa, but that's what I've got.

Allissa Haines:

I think you covered this really thoroughly, which is why I was delighted to hand this question to you. Yeah, I think the only thing I want to reiterate is that really, when you decide you're going to take on debt of any kind, think through the worst case scenario. There are a lot of people who signed a lot of leases and took on a lot of debt for expansion in February of 2020. And no one could have predicted a pandemic, but it's been very, very hard for people who didn't think through what could happen if they got sick and couldn't work or whatever.

Allissa Haines:

So thinking through how you would be able to handle stuff and live if all of a sudden you couldn't work for one reason or another. It's uncomfortable to think about. And it's annoying to think about because when you have big ideas and big excitement and really want to grow, having to think about the reality of what happens if you get sick and can't work for six months is... It's a bummer. But yeah, I think you covered it really thoroughly and there is nothing of substance that I could add.

Michael Reynolds:

Thank you. All right, wonderful. Well, that's a great opportunity to talk about our next sponsor, which is PocketSuite.

Allissa Haines:

Hey, PocketSuite. PocketSuite is an all-in-one app that makes it easier to run your own massage practice. PocketSuite keeps you organized and looking professional with automated scheduling, payments, contracts, and more. It's text-based. It's all HIPAA compliant. You can actually port your business phone number into the app, and then all communications, voice and text, can happen through the app so you have a record of them. And it means you can have one phone, but have a business number and your personal number. And that is really, really nice. Our Massage Business Blueprint listeners get 25% off your annual premium subscription for your first year with PocketSuite. You can go to massagebusinessblueprint.com/pocketsuite to check it out.

Michael Reynolds:

Thanks, PocketSuite.

Allissa Haines:

Yay.

Michael Reynolds:

All right, quick tips.

Allissa Haines:

Quick tips.

Michael Reynolds:

I think you have one.

Allissa Haines:

I do have one. I just have to flip back to the right screen. There we go. Okay, listen, this is more of a personal quick tip, and it's a situation that arises every summer when tomato season hits and you can get those big, giant, red, juicy, delicious tomatoes that you can slice up and put on a BLT. It's the only time of the year I eat BLTs, and I will eat an entire loaf of bread's worth of BLTs all in one sitting at this particular time of year. Now, first of all, I need to say that I missed BLT season last year. We weren't going to the grocery store very much still, so I didn't have bacon at the same time I had tomatoes, and it was very sad for me. But it made me very happy for this year.

Allissa Haines:

So there was a bit of an incident yesterday when it turned out I had bacon and bread and lettuce and tomato all at the same time and was home alone all day. And I may have eaten three to four pretty heavy-duty BLT sandwiches directly before a meeting, and a meeting in which I had to appear alert and happy and participate. So my quick tip for you is that no matter how much you like BLTs during tomato season, you should not ever eat three to four in a row and then be in a meeting where you have to stay awake and participate. And that is my quick tip for you all today.

Michael Reynolds:

That is a very specific quick tip. I don't even like tomatoes so I'm safe there.

Allissa Haines:

I don't really like tomatoes either, except in this particular situation.

Michael Reynolds:

Oh, okay.

Allissa Haines:

I tend to take them off of my burger if a burger comes with a tomato on it. I do like lettuce. There are very particular circumstances where I like tomatoes and this is one of them. And I'm going to say the tomato I had yesterday was perfect, and I don't regret my decision, but I almost regretted my decision.

Michael Reynolds:

All right, that's fair. I'm going to add a not quick tip real quick.

Allissa Haines:

Okay.

Michael Reynolds:

So one thing, going back to the discussion, I want to note that this is the kind of discussion we have with people in our membership community all the time during office hours. So if you're a member, hop in to office hours, or if you're not a member of consider joining. And this is the kind of stuff we talk through. So if you have a decision to make, "Hey, should I borrow money to expand or should I do something like this?" We will talk through it with you very objectively and lovingly and help you with decisions like this. So that's my quick tip, I guess, is if you have a decision like this that you're wrestling with, bring it to us. We're happy to help.

Allissa Haines:

And to be clear, not the tomato decision, things like, should I take out debt to expand? That what he's talking about.

Michael Reynolds:

Right. Sorry if that wasn't clear. Yes.

Allissa Haines:

I really want to help people and clarity does that. So that is everything we wanted to talk to you about today, folks. I just thank you for listening this far. If you'd like to learn more about our resources, you can go to massagebusinessblueprint.com. There, you can find a whole bunch of blog posts, all of our podcast episodes dating back six and some odd years. We have all kinds of free resources on our free resource page, including a download that's a whole bunch of pre-written blog posts that you can use on your website. I think we've got some website copy there. We've got links to all of our partners and sponsors, all kinds of stuff that we really don't talk about nearly enough. And we also have a link to join our community, which is a monthly subscription that gets you into that community Michael just talked about. And we'd love to have you. And that is everything I'm supposed to say, I think. I don't know. I don't typically do this part of the [crosstalk 00:28:51].

Michael Reynolds:

Yeah, I think you nailed it.

Allissa Haines:

Yay. Good job me. So thanks for joining us. We will see and hear you again next week. And until then, have a great day.

Michael Reynolds:

Thanks, everyone.

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