Owning Your Own Club, Panel Moderated by Guy Edson (2008)


Published


[Guy] Thank you very much for coming. I know you have been here a long time, and I hope we can make this as valuable for you as possible. My name is Guy Edson. I work for the American Swimming Coaches Association, and one of my jobs is helping coaches with all sorts of employer/employee relationship issues, contracts and so on and so forth. I spend about half my time with employers, by the way, and the other half with coaches.

Frequently I will have coaches call, and they will ask me,“How do I form a coach-run program?” Well, we are off to a bad start already because that is the wrong question. There is a difference between a coach-run program and a coach-owned program. You can work for a parent-owned, 501(c)(3), and it can be coach-run (depending on your contract and your relationship with your board). We are not here to talk about that today. We are here to talk about a coach-owned program.

I had so many questions about this that I thought maybe I should write an article or even a short manual about it, and I started doing some research. And what I discovered is about half of what you need to know can’t be learned in a book. It has to do with maybe what Counsilman called the “X-factor.” It has to do with your ability to ferret out what you need to know. It has to do with your ability to persist, not to give up, keep trying, find a way to make it happen. The other half is already written. It is out there in books and it is on the internet, and there is all sorts of information about how to go about setting up your own business. And by the way, I didn’t say “club” did I? I said business. And that is going to be a key point that we are going to keep coming back to over and over again. It is not about owning your own team. It is about owning your own business.

Well, that was quite a while ago, and I gave up trying to write that article because of what I thought I discovered. But then I started learning more and more, and…there’s kind of a joke, if you want to call it that, and it goes something like this: Who is the best accountant? Well, it is the one who, when you ask them what 2 plus 2 is, they say, “Whatever you want it to be.” And what I mean by that is: If there is a will, there is a way.

I hear all the time about coach-owned programs, and I ask, “How are you incorporated?” And I hear things that I don’t think are legal. At least that is what I am being told by my resources who are accountants. And it just simply reminds me that, again, there are many, many ways to do this. In some cases I really think you are taking your chances, but there is a bottom line here which is this: you need professional help when you think about starting up your own business, especially if you are planning on being creative about it.

I’ve talked to two young men since I have been here. One I invited to be up on the panel, but I guess I scared the heck out of him because he didn’t even show up. I was very impressed with him. He had a lot of answers to some questions that I generally don’t get any response to, but the way he described how he was set up…. Again, I didn’t know it was possible to do it that way. And just a few moments ago I was talking to Chris down here in the front row, and he was telling me how he is incorporated. And I am thinking, “Yikes,” but I think again it is an example of: If you work hard enough to find a way, you can do it.

What I want to do now is just kind of skip from that general introduction to some specifics. The way I would like this to operate today is that I don’t want to do very much talking after this. I would like the talking to come from our panelists, and I would like you to ask whatever question that you can ask. Be very, very specific. There is no point in being here at four o’clock on Saturday unless this is going to be very, very helpful for you.

The two gentlemen that I have here are first, Mike Cody and then, Pat Murphy, and they both own their own teams. They are set up a little bit differently. They are both extremely passionate about the way they are organized. I asked Mike one question, and I couldn’t stop him. He just keeps going on and on. He has so many more ideas, and the way I would just like to start it off is to ask each of you to tell us in just a couple of sentences how you are incorporated, and then I will have a few questions after that. And then I want you folks in the audience to be thinking of questions, and I will repeat them up here so everyone can hear, and then we will just go from that so…. Mike, how are you incorporated?

[Mike] I am not incorporated. I want to go back to what Guy said about the 2+2. Actually I had heard that years and years ago at an ASCA talk. It was when you want to find a good accountant – someone asked the accountant what 2+2 equals and the first accountant said 4. And he went through and finally found an accountant that said, “2+2 = whatever you want it to be.” So, I always know Guy said, “Find a good accountant”. I found an accountant that I trust. She is very, very, very good. And she felt, with my set-up — which I will explain in a second — is “sole proprietorship” because I am a full-time teacher. Unfortunately, but fortunately, I am in a high tax bracket, and we felt it better served my personal finances that I was sole proprietor. But there are downsides to that, too – which I am sure I will run into in the next few years. But sole proprietorship is what I am set up as.

[Pat] We are set up as a Sub-S Corporation.

[Guy] Can you explain that maybe one step further, please?

[Pat] Well, what a Sub-S is, is an entity that is separate from you. So it is like a person walking around, named “Chattahoochee Gold” in our case, and it provides a veil between you, your assets, your house and your corporation. And that gives your wife maybe a little bit more security [that] your idea is not crazy, so people cannot come after you or your assets. And the way it works is: if there is any profit left over after you have deductions, depreciation, then that flows to you on to your tax return. And that has a different impact depending on if you own your facility. So, we are a Sub-S Corporation.

[Guy] Mike, is it true that setting up as a sole proprietor is basically the easiest way to go?

[Mike] I would say yes.

[Guy] And it is easy because…briefly?

[Mike] I understand it better. For me, that was what it was. When it was explained by my accountant, it was easy for me. I don’t have time to do all the corporation type things, and she would help me, but sole proprietorship for me was fine. And I think S-Corporations would legally protect you, but I am not worried about that right now.

[Guy] And that is the major disadvantage, is that correct? Do you want to explain what the major disadvantage of a sole proprietorship is?

[Mike] The one – and my accountant explained this to me – is that if I was sued I would probably lose everything. My wife and I would lose everything we own, worst case scenario.

[Guy] Your personal assets are not differentiated from your business assets?

[Mike] Correct – they are all in one.

[Guy] And major advantage – other than ease of incorporating?

[Mike] Easier to deal with the IRS, is what I am told. Reporting things. I mean, if you are an S-Corporation, it is my understanding that they scrutinize you a lot more if you are an S-corporation. You have to file a lot more information, and you have to basically give them everything. Whereas [in] a sole proprietorship, my taxes are done just like usual when you do your personal taxes.

[Guy] What kind of paper work did you need to file to become a sole proprietor?)

[Mike] I didn’t have to file anything other than – oh, I wish I knew this – you need to file for a DBA, which is “Doing Business As,” and you need to file for a tax business number, and there is another name for that – it escapes me right now…a Tax ID.

[Guy] And were you required to have a license from your county or state?

[Mike] Yes.

[Guy] Both?

[Mike] With LA County yes – no just LA County, sorry.

[Guy] And Pat, you are a Sub-S, so what are the advantages of Sub-S?

[Pat] Well, I think — and if I can just hit the nail on the reason I think people should be here in the room — I went to a conference years ago, and I argued with the guy who was saying the point of being a business. I thought the point of being a swim coach was to teach butterfly. He said, “The point of being in business is to sell your business,” and I didn’t get it. And I have come to realize the wisdom of that in that you are creating wealth when you own something that is not you. You build it up, the Sub-S, you have something of value beyond your paycheck, and you can sell that later in your career, and that is the point of it.

[Mike] Guy, can I interject one more thing? The other reason why I chose Sole Proprietorship was I don’t want people knowing how much I make.

[Guy to audience member] Okay. Yes, Mark?

[Audience member] What is the difference between Sole Proprietorship and Sub-S…and how —

[Pat] I don’t know how to compare those. I went to a lawyer, and they said, “Do you want to be a Sub-S?” and that is what I am. I just have a layman’s understanding of it. The other two are easier to set up and very minimal paperwork and minimal fees to file – that is my understanding.

I have to do a separate tax return which is really no big deal. The only thing that takes a little figuring out is depreciation tables of the assets – you know – the pool is 20 years or 30 years or whatever, and you just take that. Depreciation is a big hit to your profits, so if you have a profit of $20,000 at the end of the year, [and] you have depreciation that adds up as $30,000, you show a $10,000 loss, even though there is money in the bank and you got your paycheck. You bring that loss over to your personal tax return, and at the bottom you take off $10,000, and so you get money back from what, you know, what was withheld from your paycheck. Now, once you run out of depreciation, you might need to be a different legal format because you are going to be showing some real money if you have, especially, a thriving swim lesson program.

[Audience member] So you are a not-for-profit?

[Pat] I am a for-profit. I own my pool, and we also have a non-profit 501(c)(3). We call it, “Chattahoochie Gold Swimming Foundation of Georgia” and it is a private foundation, and we don’t have to do very much with it. We put money through there like the parents’ escrow money that is separate, and nothing that has to do with profit-making activities, but we are definitely for-profit.

[Guy] It is important to point out that those are two separate organizations. It is common, if I can use that term cautiously, for a coach to set up an LLC – Limited Liability Company. Accountants that I talk to say that that is generally about the easiest way to go. There are some differences between that and a Sub-S, and I am not knowledgeable enough to tell you the exact differences. But in many cases when a coach forms an LLC, he will also form a parent advisory group or a Booster Club. I don’t like the name “Booster Club,” but he will form some type of an organization that is there to help raise money and assist with swimming meets and do those kinds of functions. The only advice I would add in that regard is that they do not raise any money that is critical to your functioning, like your salary or your pool rent. Let them raise money that is good for travel or uniforms or other things that are not critical to you.

I ask coaches when they call, “Why? Why do you want to be a coach-owned business?” What do you think the #1 answer is?

[Audience member] Control.

[Guy] Control, yeah to get away from the moms and dads. And then I ask the second question, “Well, what does that mean to you?” And very few of the coaches I talk to think of it in terms of a business. In fact, I don’t ever remember a coach saying, “I want to run my own business.” They simply say, “I want to get away from the standard parent/board problems.” And I am tossing that out to you because if that is your reasoning, you need to re-examine your motives and go back and think of yourself as a business person, not as a swimming coach running from parents.

Question? …The question was, “Is Pat the 100% shareholder,” and Pat’s answer was he and his wife are the shareholders.

As long as the term 501(c)(3) has come up, let me just talk about that briefly. There are, I think, six or seven different types of non-profits. At ASCA, we actually have two corporations: 501(c)(6), which is a professional association, and 501(c)(3).

501(c)(3) is the most common form of a parent-owned club, and the purpose of a 501(c)(3) is that you can accept charitable contributions, which means if you want to go out and try to get sponsorships and so on, people can contribute to your club and it would be tax deductible. The IRS never intended 501(c)(3)’s to be for swim teams. Generally, they are intended for educational institutions and for churches, but the IRS has let sports teams of all kinds get away with it for a long, long time.

The question might be, “well, why can’t a coach form a 501(c)(3)?” Well, Chris has done that down here, and the gentleman I spoke to earlier in the week has also done that. A 501(c)(3) is run by a Board of Directors. There must be a Board, and we commonly think of a Board as being made up of moms and dads. It is not so. It doesn’t have to be that way. That is called a “membership based board.”

You can have a 501(c)(3) made up of community leaders, yourself being one of those, and you can get your best friends on there if you want to, and some people that you trust for their advice and so on. You can pick anybody you want to be on the board. There is an issue with whether or not an officer of the board receives a salary. And the IRS does not like that, and in both cases both people that I have talked to this week-end said, “Yes, we receive a salary, and we have a way of getting around that,” and so on. That is where the creativity comes in.

ASCA is not in a position to recommend that you do that. We are in a position to recommend that you follow the rules as they are written. However, if you find the right attorney or an accountant who is going to help you do that, and if you are satisfied with the way it is set up, then you are ready to go with it. It has just been in the last six months where the IRS has been extremely picky about the nature of boards. There was a time when ASCA recommended that coaches be a voting member of the board. Most of you want to be voting members of your board. Well, if you are a voting member of your board, and you are involved in any vote that has anything to do with your salary, the IRS can come back and take away your 501(c)(3)status. There are ways around that, which is you excuse yourself on any matters related to your salary and so on, but there are a lot of fine lines and a lot of rules that need to be followed here. Are there any other questions? Yes – go ahead….

[Guy re-words question from audience]: I would like to direct the question to our panel up here. When you are first thinking about establishing your own business, Mike, tell me some of the things that you need to think about first…..

[Mike] The first thing that I did was I called Guy. That was the first thing. The second item, I called United States Swimming. I contacted my accountant, let’s see, the LSC, those were the first things I did. But I did a lot of research. I talked to a lot of coaches. I went back through all my old ASCA Yearbooks –- there is a ton of articles in there. They go back 20 years, and it is interesting because some of them, they didn’t talk about owning your own business, they talked about coaching as a profession and as a business. Not owning a business, but running it like a business. That is where I got most of my information, and then other coaches in the LSC that own their own clubs. Those are all good resources I think, off the top of my head. That is what you need to do.

[Pat] My advice: The first thing to look at is: if your revenue is half and your expenses are double, do you still make it? And I had a few guardian angels come up to me early on and gave me some very good advice. One of the things that helped was a dad that said, “There are two reasons that people go out of business: One, they don’t know what they are doing, or two, they run out of money.”

And one of the things, when I say, “Half the revenue, double the expenses,” it is very tempting when you’ve got $50,000 in seed money to go out and buy that really nice laptop or buy some nice office furniture because you are in business now. And you are going to wish that you had that $50,000 back when you start seeing, you know, before you get traction. So I would be extremely conservative about your numbers early on. That is the main question: Look at your numbers, cut your number of bodies that come in the door in half. Assume that you are going to get hit with some bills you don’t know about because you are pretty new at this.

[Guy] There are a couple of resources I would like to give you. You may want to write these down. One is a publisher called Oasis Press, and they publish a manual called, “How to Form A Business in Your State” and they are all specific to your state. You can find them on Amazon.com. They have their own website. You can order directly from them.

Another publisher is NoLo Press, and they have a similar series of books. When you pick up one of their books and you read it, one of the very first chapters is about something called a business plan. This is something that Pat was alluding to.

But when you are considering starting your own club, that is really the first step you need to do. And part of the business plan is doing something called, “Market Research.” Do you have a ready-made team? Are you going to try to convert one team into another? Or do you need to go out and recruit swimmers? How are you going to do that? Are you going to do it by running a learn-to-swim program? Is your swim team really something that is a year or two down the road and between now and then, is it really a learn-to-swim program that you are running to build your own team? So that is all part of the market research. What is out there? You have to explore what is the potential revenue you expect to make? It comes down to math. What kind of fees are you going to charge? What are your expenses going to be? I had one coach who called me up and had done math, and everything balanced out except one thing: he forgot to include his salary. So again: When you are in business, you have to pay #1.

[Pat] Guy, can I say something? I was totally off base early on. I had come from a program that had a very active board. And my assumption was that parents would only give you power if you shared the power of the decisions, because that is all I knew. And so when I went to set-up my team, I came up with a committee for this, and a parent input thing for this and that, and I showed it to the former board member that had followed me from my old team, and I thought I was really clever. I had a little org chart, and he looked at it, and this is 20 minutes before I am to meet with the parents and he said, “What the hell are you doing? The prison gate is open and you are saying, ‘lock me up tight.’ These people want to drop their kids off and have you render a professional service and do a great job and they want no worries. They do not want to have to volunteer or fund raise or sell wrapping paper. They just want you to do your job and they will pay you good money. It is how lots of businesses are run.”

So, I went out there, and a parent asked me, and I did my story, and the parent said, “How is the team set up?” And I kind of gritted my teeth and I said, “There is not going to be a board.” And they all burst into applause. And we have done great since then, and I think we do a huge disservice when we don’t model ourselves on the dentist down the street or the gas station on the corner. Most people have busy lives, and they really don’t want to plan your swim meet schedule. They want you to do a great job, and they are willing to pay you lots of money, and we are our own worst enemy about giving our services away or making all sorts of assumptions that do us no good.

Letting the customer set the prices? That is crazy. Having a store where the customer comes in and tells their friends what the stuff on the rack is going to cost, because there is no retirement money in there for you. There is no bonus – I mean – maybe there is, but you are better off if you run it the way the dentist runs it. You come in, they drop their kids off, they trust you, you charge them a lot of money for it, and they go home with straight teeth.

[Guy] In the business world there is something called a USP, which is your Unique Selling Product, and when you are considering owning your own team – your own business – what is your Unique Selling Product? What sets you apart from the other programs in the area? What is going to bring people into you, and this is what Pat is kind of alluding to: Are you a professionally run organization? Do people view you as that? And so that is going to be a very, very important aspect of your business plan. Yes?

[Audience member] I think that when you approach it from that perspective – a professional business aspect that it also gives the parents and the community a better feeling about the importance of the coaching profession because we are not the same as a AYSO [local soccer] or a volunteer sports operation. And I think that is a point that separates the two.

[Guy] Oh absolutely.

[Pat] Well, there is something else: that these people that are writing you the check. They want…and I have been doing this for a while and I just figured this out…. I used to have a get-together, a dinner at my house for my high school seniors that were going off to college you know. Just to say good-bye and great times. And this year I just decided to invite the parents. I didn’t really think the parents were going to come, and all the parents came. And it was the moms and dads, and I was very honored.

But then I realized they weren’t there for me. They were there to say good-bye to each other. And it reminded me of my little girl’s first day of kindergarten where you are sitting there and you are looking at the other parents, and you don’t realize that some of these people are going to be your best friends for the next 12 years. And as you go through your life as a parent you gravitate to some of these people. When they come in the first day for your swim team, they are joining a community that is going to be very joyful for them, and they only pay $150 a month or whatever they pay, and it means the world to them. So at my first New Parents meeting a few weeks ago I laid that out, about what the parents were going to get out of this. They just want you to be consistent. They want you to deliver on your promises.

[Guy] Mike, do you have employees?

[Mike] Yes, I do.

[Guy] And how do you employ them? What is their employee status?

[Mike] Because I teach, and I don’t have a lot of time outside of teaching and coaching, I try to make time. And one way is to reduce as much work as possible. I talked to my accountant, and what she encouraged me to do was go 1099. So, they are actually private instructors that I pay through 1099. So I do not have to do payroll taxes, and I find it a lot easier that way.

[Guy] And Pat, do you have employees?

[Pat] Yeah. I have 7 full-time and a bunch of part-time, and we have two administrative ladies that are basically splitting one full-time.

[Guy] And what is their employee status?

[Pat] They are just regular full-time employees. You know, we withhold and we have a health savings plan and all the normal things you would have in a full-time position.

[Guy] And Pat, how do you manage that? Do you have an accountant that you have hired to do that? Do you do it personally? How do you manage it?

[Pat] One of the office ladies is a bookkeeper by trade, and she does all that, but we have split it. One lady does accounts receivable and the other lady does accounts payable. I just feel more safe thinking that I have those two broken up, and the accounts payable gives me profit and loss statements at the end of each month, end of the year, and fills up all the little boxes with numbers.

[Guy] Now Mike, you are a sole proprietor, so when you come to the ASCA Clinic you just whip out your personal credit card and pay for it, and then go from there and then worry about separating the bills later? Or how do you do that when you are a sole proprietor?

[Mike] Well, you mentioned the word personal finances, I keep something I learned a long time ago, this is my #1 advice to everybody here: Keep personal finances separate from business. Do not mix them. I think that came from Don Easterling.

[Guy] So do you have one credit card? Two credit cards?

[Mike] Two credit cards: One for business and one for my personal. And they are separated because, one, it is kind of interesting, I learned this a long time ago from Tim Hill in the back, is for United Airlines and one is for American Airlines. So I am just racking up airline miles all over the place. But my second point to that would be you have to be very good about paying it off every month. I have a zero balance on my credit cards after every month so I am never paying interest, but they are giving me all these free miles. And we just bought 2 international tickets and saved over $3,000. Plus I have a few domestic tickets and, you know, that adds up, so the credit cards are paying me to fly.

[Guy] Question?

[Audience member] If I could just interject, I have two credit cards – one for personal and one for business. I’ve been doing this for 15 years. One of the things you have to watch for is making sure that in your quarterly taxes that you are allotting for the appropriate travel amounts with the Franchise Tax Board and the IRS. On the flip side of that, without that [process of informing tax boards] I wouldn’t be getting money back every year from the IRS. So it is a wonderful tax benefit.

[Guy] Okay – another question – Chris? [Audience member asks another question about coaches as independent contractors.]

[Pat] I think it would be tough to convince the IRS that a coach is an independent contractor. Oh, I am sure people do it. But, you know, an independent contractor, my understanding is, is like the cabinet-maker that you have to come and redo your kitchen. He will tell you that he will be there whenever he gets there, and he wears whatever he wants, and he does it how he thinks he should do it. And if I tell a coach, “Here is your shirt, 3:30pm, Monday, Wednesday, Fridays, you got a meet two weekends from now, and here is what you are going to teach.” I think you don’t fall into, I know a lot of teams try to avoid financial overhead by independent contractor, but if I was the employee I think I might re-visit that.

[Guy] Pat is exactly correct. And I go through this regularly with employees and employers. It is easy to hire someone who is a 1099 and avoid the paperwork, avoid the extra costs. But the IRS has a 20-question test, and if one of the questions is answered negative it is an employee. It is a publication – I think it is publication 951, I am not sure – but you can download it, and you can look at it, and it is practically impossible for a swimming coach to be an independent contractor.

Now, it is done all over the place. The IRS cannot possibly keep up with all the violations that are out there, and so people that have gotten away with it year after year after year think it is okay. It is not okay. It is not okay, and if you yourself are employed as 1099 contract labor it is not right, and I would encourage anyone who is employing coaches not to hire them as 1099 because it is not right.

Question? What is the alternative? As an employee what is your alternative? There are swimming coaches I know who have complained to the IRS and the IRS has come back and fined the club for back taxes with hefty penalties and that. You may lose your job, and you wouldn’t lose your job because they would fire you, but you would lose your job because they wouldn’t be able to afford you anymore. But unless you can convince your employer that you are an employee, your only other recourse is to go to the IRS and file a complaint. Even if you are filing your taxes properly.

As a 1099 you pay your own social security, your own FICA, and your own withholding. Even if you are doing that, the IRS can come back and make the club do it again. They like that because they get the money twice. And there have been a number of cases of USA Swimming Clubs that have been nailed by the IRS for that exact reason. So, that is why I don’t encourage any of you that are thinking about owning your own club to hire 1099 contract labor, because it is not right.

Yes ma’am? [Audience member asks for further clarification about ultimate liability. Says she’s been told by two sources in the know that the entire board could be held financially liable for IRS mishaps, which is why she does not have a board.] If it is a board-owned club, and the current board members are liable for paying that back, the club is liable, not the individual members of the board. That is the advantage of forming a non-profit 501(c)(3), is that your board members are – the liability is limited. It is the club that owes it, not the individual board members.

[Pat] You would never get anyone to serve on the board [if they were liable individually].

[Guy] Yes sir, in the back.

[Audience member] What about learn-to-swim directors and home instructors? Do they fall into that? Independent contractor?

[Guy] Pat described it perfectly. You are giving them a suit or a T-shirt or a hat. You are giving them equipment. You are giving them a uniform. You are telling them they have to show up – that is one of the questions on the test. Another one is do they work on your schedule or their schedule? You don’t let them show up and teach lessons whenever they want. They have to be there at a certain time. They are employees. They are hourly employees. Yes?

[Audience member] We have a creative situation. We are a 501(c)(3). My wife and I are coaches. We have a contract company that provides “Coaching Services.” We can hire ourselves and other coaches at the times and rates they ask for. And in addition, we charge each athlete additional fees for different training models.

[Guy] Okay, what is your name again? Tim, yeah. Tim brought up an approach that I have heard of on a number of occasions where the club hires a corporation to come in and run the technical side of the business, basically. And how you are incorporated? C-Corp, okay. So, in that case the club pays you x number of dollars to come in and do their business, and then you have employees, and you file all the appropriate paperwork and so on. So you run your business, but you are also dependent on the club staying in business as well. Is that how you are doing it Chris? Okay. Yes Sir?

[Audience member] Did I understand you right? You do have employees?

[Mike] I do – I do.

[Audience member] You said they were 1099.

[Mike] Yeah, now I have to go back and revisit that, but I really don’t have…. You know, I was doing quarterly taxes, and you have to stay on top of that, and it just got to be too much. You know, I have lists of so many things to do, I kind of have to pick and choose. But after listening to Guy, I am going to go back and revisit that. But yeah, they are 1099.

[Audience member] You were told to do that by…

[Mike] …By my accountant. And there were other reasons for that, but I am going to go back and check it.

[Audience member asks question.]

[Guy] Okay, let me repeat that if I can. If you are not paid hourly, but you are paid a salary, and let’s say you are offered $300/month to coach the novice team, okay? That the IRS now allows a 1099 to be written to that employee and it is legal, is that what you are saying? Okay. I have heard that as well, but I haven’t seen it in print, but I have heard that as well. Yes?

[Another audience member asks another hypothetical. Guy answers.]

There are some unexplored territories here. There are a lot of things that I think we do wrong in clubs and we don’t know it, and we just get away with it year after year after year, and that is why we have accountants and attorneys help us. Yes, Mike? Ed?

[Audience member asks about retroactive penalties from the IRS for part-time employees who used to work as independent contractors.]

[Guy] But if your employees are only working 10-20 hours a week you are good on that – is that correct? Yes.

[Pat] But the real issue is that: If I tell my employee that he is an independent contractor, I am taking the normal corporate tax liability of 7.5%, which is my part of his taxes, and I am putting it on him. Which is great for me, but it takes a bigger bite out of the employee’s paycheck, and he is not really an independent contractor. Because I am training, providing and saying here/when/why/you know, blah blah blah, so business entities want the employee to not know that they are an employee, that they are an independent contractor because it saves them the 7.5%. However, as they pointed out, if you get caught with this with the IRS, then you have to pay that back plus the penalty, which might be 100%, and it could be a large amount.

[Audience Member says she is going to take over a program and wants to know what the positive aspects of owning a business are.]

[Guy] So the question is: What are the good things about running your own business, is that correct? Okay, Mike first and then Pat.

[Mike] It was one of the best decisions I have ever made. It is fun. It is yours. It is your business. I mean, you can run it anyway you want, freedom and control, you have complete control and you have freedom. If I want to go out and buy a Concept 2 Rower and spend as much money as I want, I don’t have to wait for board approval. I don’t have to ask anybody. All I have to do is ask my wife.

[Pat] Which could be worse in some cases.

[Mike] You can be very creative. I do not have to go through the red tape of always having to ask for things and then waiting for 5 people to decide. I am able to make that decision. That is what I really liked about it, but ultimately, it is mine. I am building it and it is my sweat, blood and tears, and that makes it worth it right there. That would be my #1 answer.

[Pat] I would say those were the things. You can move quickly when you are a business. If you decide that there is a threat from this local club or that you want to build a pool tomorrow, you know, you can start doing the things and you don’t have to sell it. You don’t have to get approval or, you know, you control your destiny. It is the entrepreneurial dream, and it is great.

Now, there are some birthing pains that are very tough. When you do something you love and you get good enough at it and you own it, it doesn’t give you the life you want. It takes your life away, and that is what people don’t get early on is: you work really hard, and your employees and the people around you assume you are rich and you don’t have to come to work, and you have got it easy and it is not true early on. And sometimes people don’t ever get unstuck from there. If you get past that, it’s awesome, but a lot of people stay for 5 or 10 years and become bored.

[Audience member asks how Pat came to own his own team.]

[Pat] I will be very brief. I will be very brief. I started the team in 1986, you know, when I was straight out of college. The team took off, got 400 kids, we were doing really well. Unfortunately I was the head coach, and every coach I hired was older than me, and we got a board along the way, and I got fired. You know, I just didn’t politically…I needed to learn things and I wasn’t learning things as fast as I should have, and the pain of being shown the door was something I had created. And you realize how vulnerable all of us are.

And coaches go through whole careers not realizing that they can be thrown out real easily, and they do not do themselves the service – their family the service – of protecting themselves. And so it really created the fire in my belly to protect myself and reap the rewards of the things I was doing in a way where I could reward the people around me and not have to wonder who was on my side, or was this guy trying to get my job. That was a painful thing to go through, and that was when I was 30, and so I have been doing this for about 16 years.

[Audience members asks if Mike also has a learn-to-swim program like Pat’s.]

[Mike] No, I have no learn-to-swim program, just strictly a swim team. I could do a learn-to-swim program, I just choose not to. But, can I just interject something? Because one of the other things is, and I think this is so important for coaches, is vacation. When you work for a board, the board kind of dictates how much time you can take off, and so many of us do not take off. And I got to the point where I wasn’t taking vacation. I felt I needed it. I wanted to see the world, travel the world, and this allows me more of that freedom because the board expects you to be there. They give you 2 weeks. It is just not enough, and I really stress this point that you really need to take time, and now that I own my own business I don’t want to burn out in 5 or 6 years and you know, I want to continue with it. So I forced myself to take vacations and tour the world.

[Guy] Mike and then Pat: Could you give me an example of some of your fees that you charge your swimmer’s families, and then how they compare to other nearby teams?

[Mike] We did something very unique. We have 5 payments a year. We…I will give you an example: Our senior group pays 5 monthly payments of $265, which I think would, comparatively speaking, we are cheaper, but I can get away from that, it is enough for what we want to do. Our junior group would be $205. The age group is $165, and the pre-competitive group would be $135, and they make 5 payments starting September 1. We also require a deposit/registration in August because we are full, and it is showing me that they are committed. And for that registration, they pay $140. I use that for their USA-Swimming registration. Everyone gets a team swim suit which helps with my brand loyalty, and they all get a team t-shirt in that registration fee. Then I don’t have parents coming back to me and saying, “Well, we don’t want the t-shirt” or, “We have a swim suit.” It is all done, and I have all my fees collected by May 1.

And the reason I went to bi-monthly is by the time I was entering all the bills into the computer and printing them off and then collecting them, I was turning around the next day and starting to bill everybody again. It was too much work. So, we went to a bi-monthly payment. It works for us. The parents bought into it. It is easier for them, and I hope I answered the questions on our fee structure.

[Pat] The novice 8 year olds pay about a hundred dollars a month. The senior kids pay about $250 a month. They pay 9 months, and the summer time is free. There is no fund-raising. We have an expensive registration fee, and I just tell the parents right up front and they are so happy to hear this. I say, “We are the most expensive registration fee in the whole city” and they are like, “Why is that?” And I said, “Well, moms have told me over the years, ‘Tack something on the registration fee because we are tired of selling candy bars and doing car washes and blah, blah, blah, and the moms wanted to just write a check right then and we don’t do any fund raising.’” We have a thriving swim lesson program, and I would really encourage you to have that. Our registration fee is about $205, and it goes for insurance and registration and a t-shirt. We host one meet.

Chuck asked what the learn-to-swim fees were. We have about…well, we have 400 kids on the swim team, and we have a swim league that is really starting to make some money. We have a coach that does a great job. Karen does a great job with that. We have 70 kids in this swim league which is kind of a bridge from swim lessons to swim team, and then we have about 225 kids in the winter time per month in swim lessons and Beth, what is that like? $45 or 50 a month? $60.

[Audience member asks to clarify something.]

Yeah, the question is whether swim lesson kids pay a registration fee. It is not as much. It is much more modest: $45, yes, the registration for swim lessons is $45. You know, I went to a talk a long time ago, and I was working my tail off and I was so burned out. Owning the business, working all the time, and the SwimAmerica Director at the time said, “Start a SwimAmerica program. It will be great, you know, you will make tons of money.” And I thought, “Oh yeah, that’s great, I will take the last two hours per day of my life, and I will start a brand new business and I will work my tail off and have everything happen to me doubly.” And it was really hard, but we finally got over the hump on that and boy, is that great advice. Feeder team to your swim team? Big money? Yeah.

[Audience member asks a question.]

The question was: How long did it take to get SwimAmerica going. I don’t think we really did it – we didn’t try – we didn’t do it very well for about 4 or 5 years because I thought I could hire somebody else to do it without me having to learn how to do it. I thought I could hire a smart swim lesson person, but they always walk off with your business when you do that.

[Guy] I would like to give you – speaking of fees – I would like to give you something to think about: In a parent-owned club you have fees set by parents, and they don’t want to charge themselves too much money. In Ft. Lauderdale we did a little survey, and we were curious as to what after-school care cost. Now you know what after-school care looks like, right? Chaos. There is no instruction, there is no professionalism to it, it is just chaos. And the cheapest, the cheapest was at a public school at $25 a week, which is what? A hundred bucks a month. Parents are willing to pay a hundred bucks a month for chaos.
The most expensive we found was $45 a week, which is $180 a month, and then we timidly asked people for $40 or $50 or $60 a month for their children to be on our novice team. When you own your own business, do not be timid. Charge what it takes and be proud of it. You are offering a professional service here, okay?

We have just a few more moments. Yes, in the back.

[Audience member asks a question.]

[Guy] Okay, the question is: Is there anything you regret that you would have done differently if you could do it over again, right?

[Mike] No, but I think…but to be fair, I think I was very lucky. I think there were things that I re-evaluated and changed, but I do not regret anything that I did. But I think I easily could have made mistakes, but again, I was lucky, so no.

[Guy] Pat, other than working 22 hours a day?

[Pat] Yeah, the big regret and my wife – I will pre-empt what she is going to say – she told me so, when I was doing this. I had swim coach’s blinders on, and I built a big pool: 5 feet deep, 6 feet deep for swimming, and I built a little tiny lesson pool. Just kind of how I saw it then, and I should have done it the other way around.

[Guy] Mark?

[Audience member asks if the coaches own, built or you rent a pool.]

[Mike] I have an interesting situation, unique. I am a high school coach, and I teach in the District, so I use the high school pools. I have two 10-lane, 25-yard pools, and I work creatively around the water polo programs. So I have to be creative, but I am unique and I am very fortunate.

[Guy] And do you rent the pool from the school?

[Mark] I rent the pools, and most of it is interesting because I have worked it out where I buy them equipment in lieu of rent. So they are getting a $10,000 scoreboard this year. The school benefits, we benefit, and it is win-win for both of us.

[Guy] I want to just make a comment here. In many municipalities it is against local law to rent a municipal facility to a “for-profit,” which is one of the disadvantages to going for-profit and an advantage to going to a non-profit. I just wanted to point that out in your considerations when you are trying to decide which way to go.

Chris? Just a moment, go ahead, Mark?

[Audience member asks question.]

[Pat] He is asking how did I get a pool built. Where does the humble swim coach get the money? And we…one thing is, I am in Atlanta. We had the Olympics, and so I got somebody who was running the swimming venue to send me a nice letterhead thing saying if you build a pool maybe somebody would use the pool. You know, a team would use the pool, and wouldn’t it be great.

And there are people in your community that will write a letter for you saying, “We really need this facility,” so I shopped it around, and the city gave me a 30-year lease on an acre of land, okay? That is a good thing and a bad thing. The bad thing is banks will loan you money only on the land, so I had no way to get, you know, I didn’t have leverage.

Anyway, we scraped, we raised about $50,000 through parents, through very small loans, $2,000 loans from parents with a great interest rate, and we got 25 parents to say yes to that. Within my family I raised another, you know, $75,000, and then I did find a small neighborhood bank that gave me an unsecured loan for…anyway, I raised $200,000, which I know it sounds kind of ludicrous, but I built a pool and a bath house and I put a bubble up over it. And what I would advise the coach is: Figure out what is going to make the money the best, earliest, and do it in phases.

And so I had a cruddy bubble over a nice pool, and then we went about 8 years, and then we raised money and had money in the bank, and we put a metal building over the pool. And now we are about to build a big swim lesson pool that is inside of a pirate ship – yeah.

[Audience member asks Mike to elaborate on his deal with the district.]

[Mike] I have a facility use agreement, and it gets kind of muddled in most people’s mind, but it is pretty clear. I know that I am pretty secure. Especially when the Superintendent, Assistant Superintendent walk in your classroom and you are giving a great lesson. You know you are in good for a while anyway.

[Guy] Okay, two more questions.

[Audience member asks how long before Pat was turning a profit on the facility he built.]

[Pat] I guess the question really comes down to how quickly did we repay the loans, because without the loans you know…. You are doing okay pretty early on, but the bank had a really tough term in that I had to repay all the money in three years, and so I had a pretty high check to write every month. And then the 4th year I repaid the parents, and the 5th year I repaid my family, and so after the 5-year mark when all the loans fell away, it was kind of a break-even. You know, from that point on, but we were really…it was very stressful to have high notes. The bank basically said, “We will give you a loan on the value of the land minus the cost to bulldoze the pool,” which doesn’t say much about their belief.

[Guy] Last question, Chuck.

[Audience member says that in California, most public schools have contingencies on leasing to groups that are for-profit. Typically for-profits are given a higher rental rate than non-profits, and many districts make it close to impossible – close to $100/hour – for most clubs to rent from them.]

[Guy] Okay, thank you for clarifying. Ladies and gentlemen, thank you so much for coming, and thank you, Mike, and thank you, Pat, and thank you all for coming to the 2008 ASCA World Clinic.

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