Something in the world of floating have you stumped?
Show Highlights
Deciding when to close down is a challenge in any business, but it can hit especially hard for a float center. The upfront costs to build out are much higher than other industries, many of which simply cannot be recouped. When do you decide that it’s time to cut your losses and move on? What expenses can you recoup?
Graham and Ashkahn tackle this difficult question with laying out some sensible guidelines about what it means to run a business and how to go about it in a way that makes you comfortable.
Show Resources
Wikipedia – Sunk Cost Fallacy
Wikipedia – Moving the Goalposts Fallacy
Where to Buy or Sell Used Float Tanks – Usedfloattanks.com
Listen to Just the Audio
Transcription of this episode… (in case you prefer reading)
Graham: Yup. Today’s question is, “I’ve been open for a year and between repairs and a lot of empty tanks, things aren’t going great.”
Ashkahn: Uh oh.
Graham: How do I know if it’s time to quit or keep pushing forward?
Ashkahn: Boy.
Graham: This is a sad question. It’s a sad day. This is a question too that relates to more than just float tank centers, although we’ll try to be float tank centric in our answer. That’s the risk of starting a new business especially something brick and mortars. They’re really hard. I mean the failure rate on restaurants alone is completely insane. It, depending on a lot of factors, can be a really challenging thing even for a while.
Ashkahn: Yup. There’s a lot of emotions that go into answering this question I think. Do you want to keep running a float center?
Graham: Yeah.
Ashkahn: Are you tired of it?
Graham: If there is a right answer to this, we don’t know. That’s beyond our human comprehension.
Ashkahn: I will say the float specific part of it, I think, is that it can be really easy when opening a float center if you don’t have a lot of funding to put in simpler construction to begin with. That’s a scenario where you could end up, one year or two years down the line, all of a sudden having a pretty serious renovation bill ahead of you, which can lead to questions like this. “Man, what do I do? I haven’t really been getting customers in. Am I about to sink another $50,000, $100,000 into totally redoing all this stuff or do I just kind of call it?”
Graham: Yeah. A year is an interesting point too. Ideally, I guess, in your business plan and in your savings going up to opening your center, you’ve kind of budgeted at least 18 months for your center to be losing money and for that build up to happen. That’s kind of very standard business runway for length of time that you should not really expect your business to be profitable and immediately successful. A year and a half is at least a good healthy buffer to have in your bank account. At the year mark, things still aren’t going good, I mean that’s a good time for these alarm bells to be going off and to be asking yourself these serious questions. In an ideal world, it’s also not quite at the make or break, totally stressed out, I flat out need to decide whether to take out another bank loan or keep pushing forward point.
Ashkahn: Yeah. A year’s a little early. I don’t see a lot of people who are burnt out in a year. You know?
Graham: Yeah. I mean it kind of depends I guess. We’ve seen centers go up for sale.
Ashkahn: Yeah.
Graham: We’ve seen centers that just close down and sell their tanks and kind of scrap the hardware.
Ashkahn: I mean that’s the nice thing. The float tanks retain a lot of value in of themselves.
Graham: Yeah. Yeah. Definitely a nice thing about our specific business.
Ashkahn: Unlike pretty much everything else you put money into.
Graham: Yeah. The downside, of course, is unless you sell your whole business, all of the money you invested in your walls and waterproofing and all of that is not going to be going back into your pocket.
Ashkahn: Yeah. I’m going to take your water heater, set it up at home, have a really nice water heater.
Graham: Sometimes you can’t. Sometimes it’s year lease. The landlord owns whatever appliances you put in there too.
Ashkahn: Oh, that’s right. Yeah. We made sure that keep that in. We’re taking everything with us. We’re disassembling the HVAC, taking it out piece by piece.
Graham: If you’re listening to this, our landlords, this isn’t going to be for like 50 years so don’t worry about it. We’re around. Yeah. The reasons people quit and the reasons even people get into running a float tank center really affect this question too.
Ashkahn: Yeah.
Graham: I mean one of the things we see is people who get in and they’re expecting this to be a money maker and profitable business that within maybe a year, they can be out of and not work in the front desk and it just kind of starts to, if not totally, then at least kind of run itself. I think those people are the ones who I see getting out fairly early on or just realizing I didn’t get into this to work in a brick and mortar business. They thought it was going to be something that they could leave alone or get hands off sooner.
Ashkahn: I mean that’s important. You got to realize if this is your lifestyle or not.
Graham: Yeah.
Ashkahn: With the construction stuff too, I think it’s important to be realistic about it. If you have $50,000 of renovations you need to do and you decide to do $10,000 worth of renovations, just know that in another year, you’re going to have probably an even bigger problem on your hands. Having a reality check when it comes … If you’re noticing certain things in your center starting to be damaged and especially leaking salt water anywhere or regular water behind walls or things like that, those are problems that will not go away and will become a little bit crazier.
Graham: Yup. As far as what to do if you decide that you’re thinking about this, your options really are try to sell your business as a whole and find another owner who will take it over, again, if there’s repairs to do, who will go into that with their eyes open and know that they’re also investing money into those repairs who maybe thinks that they can do a better job of marketing because they have a marketing background or something like that. That’s kind of the ideal. Then if you can’t find someone to buy it and you’re just sort of bleeding money, then at some point, you consider shutting down and just cutting your losses again and selling the equipment. At the point that you’re actually booking yourself up, if you’re business is profitable, not including paying yourself, you can probably recoup a good amount of the money that you threw into it. If not, actually in some cases, turn a profit.
Ashkahn: In terms of selling it you mean?
Graham: In terms of selling it. Yeah. If you’re not filling up your tanks, if you’re actually actively losing money every month, shoring off your initial investment and figuring out how to just reclaim some of that money is probably what you’re looking at unfortunately.
Ashkahn: Yeah. Or, I mean your other option is to go the haunted float center route. You know, really just let things continue to deteriorate. Get some ghosts in there and sell admission for that, that experience. That’s an option.
Graham: We’ve only seen about half a dozen float centers successfully pull this off, so it’s not very common.
Ashkahn: When they do, it’s gone really well for them.
Graham: Never going back to that one. It’s terrifying. Yeah, again, just how many hours should you yourself put into working your float center? There is no right answer to this. So much of it depends on your life circumstances, your personal savings, what you want to do outside of running a float tank center and again, even the reasons you got into this in the first place.
Ashkahn: There’s a human fallacy where you tend to overvalue the amount of something you’ve already sunk into a project, whether it’s time or money. It’s called the sunk cost fallacy.
Graham: We also like to name things literally kind of like we just did.
Ashkahn: That’s an important thing to consider. Don’t just continue on because you’ve already spent a year of your life and you’ve already spent this amount of money on something. It’s important to know when to be realistic and quit if that’s what you’re feeling. I guess it’s really that. Don’t push yourself past something that you really don’t want to do because you’ve already spent time and money. If you really do, if you really love being in the center and you want to keep it going, then I think all the other stuff seems like smaller hurdles to get over.
Graham: There’s another human bias as well, which is the shifting goal post bias, which … Well, the bias itself is that as we get closer to things, that we’ve hypothetically said, “No, this point is where I want to quit.” Then we get there and we’re like, “Well, maybe I’ll just let it go for a few more months and see if things turn around.” It’s really easy to shift your values or these kind of cutoff points that you’ve made for yourself. For people who are just going in to starting up and you’re making your plans, this is also a good question to be thinking about then. What’s the point at either where your bank account is at, at the amount that you’re losing per month? What are the criteria ahead of time that you know that you want to call it quits? Sitting down and seriously putting that into your business plan or thinking about it as part of your business arrangements can-
Ashkahn: Yeah, write it down.
Graham: Yeah, exactly. Write it down, put it in an envelope.
Ashkahn: Get it tattooed on your body.
Graham: Don’t maybe do. That’s a really depressing tattoo. Maybe not the tattoo part.
Ashkahn: Somewhere they can’t see, like you’d have to use a mirror.
Graham: Maybe just write it on a mirror or something. Yeah, I see what you’re saying. Anyway, defining those points ahead of time is probably a really good idea and can help, again, calibrate your brain. Go back to that and try to hold yourself to decisions like that as well because when you get there, you really don’t want to give up on your float center most likely. The likelihood is that you’ve invested, like Ashkahn said, a lot of your time and money into this thing and that makes you less and less likely to be willing to give up on it.
Ashkahn: So, good luck.
Graham: Yeah. Man, I hope things work out whatever you decide. Yeah, best of luck to you. If you have anymore depressing questions to throw our way, send them to floattanksolutions.com/podcast
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