We’re going to have fun. I don’t like to talk to people, I like to talk with people. I have a disclaimer: Warning, this talk may be hazardous to your complacency.
There was a fisherman in a boat, minding his own business, when he hears a thump on the side of the boat. He looks over the side and sees a turtle. The turtle has a frog in his mouth. The fisherman decided to do a good deed and removes the frog from the turtle’s mouth gently and released the frog. He notices that the turtle is not too happy so he reaches into his tackle box and pulls out a bottle of bourbon. He pours some bourbon in the turtle’s mouth. The turtle smiles and goes away. The frog is happy, the turtle is happy, the fisherman is happy. In a little while he hears a thump in the side of the boat. He looks over and sees a turtle with two frogs in its mouth. The moral of the story is to be careful of what is said today, it can be taken many ways.
The first part of the talk is abstract then we are going to talk about pdq — which is pennies, dimes, and quarters. You are going to live through some philosophical statements.
I hope you are here today because some day you want to do something out of the normal — not above the normal, but out of the normal. You want to do it on your own. That is what this whole tract, with “”, Murray Stephens, Bob Steele, and John and Karen Leonard is all about.
These are important principles. You need to understand a mind set. I have heard a lot of talks in a lot of clinics and they give you a lot of electrical devices with cords and they never plug it in. They expect you to understand how to plug it in and use it. I am not going to tell you to go home and adapt this. I don’t think anyone is. I have asked everyone in the tract to bring us facts and figures.
This is almost back to the old days when you walked into a clinic and said, “I need to see 10 100’s.” We don’t do that anymore. I think, in a way, we might be able to get back to a little bit of that. We are going to talk conceptually first, then we are going pdq.
First, you need to figure out if you want to do this — what ever “this” is — build a pool, start a business, whatever. You need to be able to break out of your comfort zone. I think that anyone who has done something like this will tell you that to be great is to be misunderstood. You have to be able to live with that a while. It’s OK. Your peers probably will not have your vision. When you sit to talk to them it will be like talking to a bunch of alcoholics at an AA meeting when you are not an alcoholic. They have no idea what you are talking about. Don’t be afraid of being misunderstood.
Second, what are you willing to invest? You have to answer these questions honestly. Dwell on these answers. Once you start you are down hill and out of control. There are no brakes. Do not allow yourself to think how much you are going to put into this, how much it is going to cost, or how long it is going to take. If you think that, you need to rethink why you are doing what you are doing. Patience is important. Be willing to do what ever it is going to take.
What are you willing to give up? Personally my family is not something I will give up. Swim coaches have the second highest rate of divorce next to firemen. And we work long enough already, don’t we? Maybe we do not work smart enough.
What are you willing to endure? I am a pretty big metaphoric type person. In our swim practices we talk about cars and spinning wheels with Burnelli’s principle and all that sort of stuff. I started thinking one day about this car thing being a really good metaphor. There are two kinds of people out there. There are people driving luxury cars and there are people that are driving race cars. If you want to drive a luxury car you need to stay where you are at and work for someone because it has a great suspension system and it insulates you from all the bumps in the road. It is comfortable. If you want to be a race car driver, the wheels touch the ground in only 4 points and you feel every bump. If you want to be an entrepreneur or on your own you need to decide you are going to endure it and you are going to feel every bump. Be prepared for that. You have to be able to endure some really hard times — and they are not bad times, they are just hard times.
How much responsibility can you handle? You have to be willing to step forward. I think you have to be willing to say to yourself, “I did the best I could today and that is good enough” and then get on with it. Perfection is not a 199 part of this.
Are you willing to start where you are at right now? I sat at your place many years ago. You cannot change that, you are there. Are you willing to start at the bottom? I don’t know any successful coach that didn’t start at the bottom in some way or another. You have to accept it, it is your beginning. Right now, can be your beginning and you have to feel comfortable with that.
Here is another story about starting at the beginning. In line at registration for classes for college freshmen there was an 18 year old. Behind him was a 74 year old man. The 18 year old turned to the man and told him he was in the wrong line. The man says, “Yes, I am a freshman.” The younger one asks the older man his age and then says, “Do you realize you are going to be 78 when your graduate?” The older man says, “I am going to be 78 in any case.” That is an important philosophy. You are going to be where you are going to be anyway. You cannot change it. Accept it and go with it.
Are you confident to think for yourself. You have to do some real soul searching. I am sure many of the people in the room know what hard work is but the successful people know what hard thinking is. There is time when you have to have confidence to think for yourself, the confidence to analyze, and you need to do some hard thinking.
Those are the six questions you need to ask: Do you really want to do this? What are you willing to invest? What are willing to endure and give up? How much responsibility can you handle? Are you willing to start where you are at right now? Are you confident to think for yourself?
There are six attributes on the thought process you need to go through. First, make no small plans. Two, be willing to do what you fear. Three, be willing to prepare. Get excited about what you are becoming, not what you have done. That is what preparation is all about. Four, risk failure. I have failed my way to success. Anybody who has done anything, failed their way to it. Five, ask for help, and remain teachable. The brotherhood of swim coaches is the best in the world. There is help out there and you can get it just by asking. Last, have heart. I define heart as courage, perspective, and purpose.
If you can look at yourself in the mirror and say, “Yes, this describes me” then I think you have a shot to do whatever “this” is.
The science of memetics says, “Most of our beliefs, traditions, convictions, and the basic ways we perceive and think are often hard to justify rationally, considering today’s modern society.” That is a fancy way of saying in swimming, that we used to have swimming families with a working father and a car pool driving mom but not anymore. There is a lot of stuff that used to be, and a lot of people think still is, that needs to be challenged.
Here are the four theorems or postulates of memetics. First, beliefs that survive aren’t necessarily true. Second, rules that survive aren’t necessarily fair. Third, rituals that survive aren’t necessarily necessary. And the most important one, things that survive do so not because they are good, but because they are good at surviving. When you walk out of here and you think about a model, don’t be afraid to think of the science of memetics and be free thinking. It is important for whatever “this” is for you — and I keep saying “this” meaning whatever it is for you.
Noticing Change. There is a thing in psychology known as the “painted room principle.” Have you ever looked at your house and said, “It’s time to paint” and then planned on painting it the same color. After you make the first pass with new paint you stand back and wonder if it’s the same color? All of a sudden you notice that there is a difference. You did not notice that slow fading over the years. There is a factor of the special people who are going to be the entrepreneurs. They are going to be on their own and they have to be more aware of change. That just comes with practice and paying attention.
Whiners. How many of you have ever gone into the hospitality room at a meet and sat down and started listening to conversation? These are the whiners of the world. “The meet is running too slow.” “You build your own pool.” “I don’t have any money.” This is the major population. It is nice to see this many people here because you are probably not the whiners. You are the people who are going to do something about things. What I really want to do is slam my fist down and say, “Stop whining” but that wouldn’t make me very popular so I bite my tongue.
We always hear about money. If you don’t have it, it is very important. If you do have it, it is important. I am going to say some radical things about money and it is going to be debated but that is OK. I am going to give you some options. If it works for you. Great. We talked about courage, well this is going to take some guts. Let’s talk about the person that is somewhere between 25 and 45 and they want to do “this”, whatever “this” is and they need money to do it. Let’s take some of the obvious and work our way to the radical.
The first thing I would do if I wanted to build a little pool in my yard and start swimming lessons. I am going to need $15,000. I will first check into a home equity loan. You can borrow up to 80% of the equity in your home. Equity is the money you have left over if you sold your home and paid off the mortgage. Repayment times and interest vary. You can deal with a lot of different people about that.
Plan number 2. Life insurance policies. A lot of people forget that they have a policy that has built up cash value 200 over the years that you can borrow from. You can pay it back at about a 6% interest rate. You can set it up to pay back when you can.
You can do a lot with a little cash. We turned a million and a half dollar facility from a $15,000 investment. That $15,000 was cash. If you go to a bank with $15,000 and you can do a great proforma and you present yourself well you can borrow a lot of money or you can buy some land with the money.
Number 3, retirement plan borrowing. This scares a lot of people. You are allowed to borrow up to 50 percent or $50,000, whichever is less from your 401k or pension plan. You are not taxed on your borrowed money. If it is used for your business it can be repaid in equal payments within 5 years maximum. The interest is comparable to a bank loan.
Number 4, borrowing from your brokerage. Maybe your parents have one. It’s not common but it is a possibility so I have listed it. You set up a margin account and put your securities up as collateral. The borrowing limit is 50% of the value of the stocks and corporate bonds and 90% of treasury bonds. There is not a set repayment time. The interest can adjust monthly and you may need to sell securities at a low price and you have to cover the 50% to 90% margin-call. That’s for people who say they have never thought of that.
Number 5, boot-strapping. Timing is everything. You have between 90 and 120 days before your credit is frozen. The average husband and wife should be able to acquire about $150,000 loan at 5.9 to 7.9 percent the first year and 12 to 19 percent the following years.
These are for desperate people. I am not a big venture capitalist. I don’t like to share or sell a piece of me. Whenever we have done anything we did not go out and say, “Would you like to have a piece of me?” Because that is a piece you may never get back. So I believe in doing this pretty much on your own if possible.
This may scare you and you are going to shake your head. This is not theoretical. This was done. This is credit card borrowing. Many banks handle both Visa and Mastercard. Apply for both. Set up a credit card machine for your new business and beat the high percentage on cash withdrawals by selling money to yourself. It costs about $15 a month. You can take everything out as sales in cash on the credit card. If you write a check on a credit card you pay a higher percentage rate. For purchases you have 5.9 percent but for a check on your credit card it may be 19 percent. The one time 2-3 percent transaction fee is much better than the 12 to 14 percent higher interest rate on cash advances. It is not illegal. When you start using credit cards to do this you start getting more solicitations for credit cards in the mail. You pay off balances of old cards with new cards so you don’t have payments for the month. If you transfer balances you don’t have a monthly payment and then you have another card that is blank that you can use. If you can get an account that treats credit cards checks the same as purchases you can use this as a cash cow account and use the checks to pay off other credit cards.
Cash flow for a new business in the number one priority. Before you start a business you have to sit down and you have to figure out what is this going to take to pay salaries and to pay loans and you have to have that cash at least planed for. Cash flow is the thing that will come up and bite you.
I have looked at some credit card companies. These are the companies we have used. We just bootstrapped $250,000 to get our water therapy business going. They have low interest rates, one year grace periods, and will probably give you the line of credit that I have listed. You can call them. This is after you have done all the thinking we talked about earlier. Are you willing to take a chance? What are you willing to risk? They are all no fees. The total is $156,000 so don’t tell me you cannot get the money to do your dream. How many people filed for bankruptcy last year? Millions, it’s ridicules. I am not advocating bankruptcy. You have to treat this like it is funny money. It is a hole in the ground with water in it. You can finally not have to depend on these type of people. If this is the only way you can get it, it is a great way but I don’t think a lot of people are willing to do it.
It’s $156,000 with the interest rate between 5.9 and 7.9 percent for 12 months. So 12 months you have this money to work with and after 12 months it goes up to between 12% and 19%. 19% scares people but think about what you got it for the first year. Do the math, it is only a 10 or 11 percent loan for two years. If you cannot do it in two years you didn’t plan too well.
You can also consolidate loans. When they figure out you are a bootstrapper, they will shut you off and you won’t be able to get a dime. Then you start getting things from these companies that want to consolidate your loans at low initial interest rates that balloon after three years. All we are looking for is money. That’s what I came here to tell you about is how to do it if you have no other way. It is not hopeless. Nothing is impossible.
Watch your activation dates and annual dates so you know when it goes from 5.9 percent and you know what card to pay off with a new card. You skip a monthly payment and now you are back to 5.9 percent. Keep accurate computer records and check with your accountant about these personal loans you have make to you business and the income tax ramifications. Detailed corporate minutes are very important.
Understand that timing is everything and there is little room for a lull in the start up of your business. 85% of new businesses fail in the first 18 months.
I just received a threat from one of the parents on our swim club who really wanted to have a piece of the water therapy action we put together. He thought he was going to have a way to step in. He is a medical person. We received a threat that what we did with a 501-C-3 corporation and credit cards was improper. These credit cards where not loans to a business. They are in your personal name. He had something to do with medical 501-C-3’s and told me that we were going to be brought to the IRS because these were personal credit cards and that it was misuse of funds. After he left our office I double checked with the three accountants we employ — and they are cheap accountants, I do not pay $5000 a year for accountants — and we had research done and found out that something I had learned to do a long time ago which is to keep very accurate corporate minutes because they are legal documents; in those minutes we listed that my personal Visa gold cards were for $5,000 and were maxed on a card machine and loaned to the 501-C-3 We wrote that in the minutes because it was honest and honesty is the best policy. The IRS ruled that all of this money is 501-C-3 money and I was acting solely as an agent for the 501-C-3 Warning, don’t ever put a MacDonald’s hamburger for yourself on any of these credit cards. Keep them separate from your personal accounts. The fact that you can act as an agent for your business was ruled OK by the IRS six weeks ago. When you become successful, people want a piece of it and will stem through the door and your best friend will stab you in the back.
If you already have a card and you have used it for personal things, don’t use it for business.
Question: What do you suggest for a married couple where one partner is conservative and the other is more adventurous? What are the things you would say to the conservative one?
Nelson: I’d say, “You see me do what I do and I am limited. I am not fulfilled. I need to so something else. I need you to be a partner in this. I need you to understand this. If I cannot convince you to do this then I don’t belong doing this.” Just talk it over. It is not going to be a one time session. You have to have heart and faith. If it is meant to be it is. If not, it’s not the end of the world. I live each day of my life with the thought, death is running parallel to you, right over your left shoulder.
I play two games with myself constantly, and this may help you. First, I am aware of each moment of my behavior and I never want to suddenly die in the middle of whining or some other inappropriate behavior. The other game I play is I imagine going to the doctor who tells me I have six months to live. I ask myself how am I going to live the last six months of my life. I am a healthy person, so this is just a game. Try it, ask yourself how you would live the last six months of your life. I guarantee you would max out all your credit cards. If you can talk to her in that way, so she sees your motivation, then I think you have a chance.
I don’t think you should go ahead and just do it anyway. If you cannot sell her you need to become a better salesman before you begin this adventure. You are going to deal with a lot tougher people who don’t care for you so you better get by her first. Remember what I said about not being afraid to do hard thinking? Here is your first exercise. How would you handle this?
Understand that it is three to five months before your social security number is on everyone’s desk in the United States and they won’t even talk to you on the phone. They will just send a letter back telling you that your credit report is on file and you cannot have anymore money. I cannot advocate fudging your annual income on the credit card applications, I can only say to be futuristic.
Here is another story. I believe in starting a 501-C-3 and getting a tax attorney or a regular corporate attorney and a tax accountant, or somebody who knows it is not a 501-C-3 It cost $1500 and up to do it. It is well worth the expenditure. Every state has different rules so you need assistance in your state. A 501-C-3 is a not for profit charitable organization. There are private and public 501-C-3’s They follow different tax laws. You need the advice of someone who knows more about them then I do in you state.
We are about $200,000 in debt. We had everything pushed back. Not everything went as planned with the start up of our water therapy business. We had everything set, we had a physical therapist hired. I am a swim coach. We have this other thing going that is very lucrative so I can afford to keep coaching in a town with a dwindling population. I love to coach and I want to stay in a small town. We also became a Medicare type “A” facility with is the same as a hospital. We are an out patient rehab clinic. That took a lot of time. What we didn’t plan for is that at this point today Medicare owes us $58,000 they have not paid. That is hard to predict. We started running into financial trouble. We started getting to the point where every penny was either paying a balance on a credit card or going to salaries and that we didn’t have enough money left over to be able to do personal things like eat. I asked what you are willing to give up. Eating should no be one of the things.
One thing I had heard at a clinic before was, “Well you know what? I got a guy who just gave us $100,000.” And I thought “so?” and I walked out and didn’t think anything more about it. I didn’t need $100,000. During this financial difficulty we called a town meeting with our parents organization and they knew what was going on with our new business and what we were doing for the community, and I said, “Guys, here is the way it stands. I don’t like what is happening in our town in terms of dwindling population and I don’t like what has happened with our business. We have some unforeseen things with the government. I am thinking that this home club is in trouble. I am thinking that we won’t make it through the year. I don’t want to raise fees. I don’t know what to do.” We had one person step forward and asked, “You are a 501-C-3, right?” Yes. That one person came back four months later and handed us a check for $400,000 for the swim club to totally remove the club from danger from the difficulty the water therapy business was in. It is a tax deductible donation to the swim club. The club is now protected for five years, because we asked for the money and someone came through.
So if you start a 501-C-3, and you have done a community service for a while, there is another avenue for raising money. On the Internet there is a lot of information on how to get grants. I wanted to let you know that saved our butt. I don’t think we are going to go under, but I wouldn’t be standing here today because I could not have afforded to come to this clinic because we were that close to losing it.
I am not advocating you do this boot-strapping. It is high risk. What I am saying is don’t whine. There is a way.
Question: We recently lost our pool. We thought about trying for a grant but we didn’t want to lose control.
Nelson: You cannot own a 501-C-3 I like to say I own my own swim club. That’s why Murray Stephens mentioned sub-s. We own the building. We own the land and every piece of equipment in the building. The swim club rents from that. It is a phenomenal structure because rental income is not a taxable income as far as a sub-s corporation goes up to a certain limit. It give you a legal way to move money from a 501-C-3 to a sub-s and be able to offset your expenditures. If we had a board meeting the names would be Nelson, Nelson, Nelson, Nelson — my family, plus Rick Klatt and Jim Montrella. We don’t have a membership based board of directors that can vote us out.
We had an opportunity to move ownership of the facility to the water therapy business. It would have been a nice tax advantage. They also would not have paid real estate tax. That would have saved about $12,000 a year. When I checked with the experts they said it would be a foolish move because for $12,000 a year I could have opened a situation where I could have lost the whole thing. A 501-C-3 which is public or private entity that cannot be owned but owns a building, where there was a hostile take over, I am out. Now we can have a hostile take over and the swim club will spring up tomorrow.
Our swim club is 501-C-3 so donations made to the swim club are tax deductible. The club pays rent back to the sub-s corporation which owns the building, runs the other businesses, owns the cars. They do everything. It took eight months for our 501-C-3 to be approved.
Question: How much of a financial benefit is there to being a 501-C-3 as opposed to be s sole proprietor?
Nelson: There are advantages and disadvantages to both. It depends on your overhead, what you can use to offset and depreciate. Just because you have a sub-s corporation doesn’t necessary mean you are going to have to give away a lot of money in taxes because you can keep a red balance for so many years. And then they will take it away from you because this is not a for profit corporation. You have 5 years. I think the main advantage is that when you do fund raisers and when you sell yourself to the public and you get an exempt number for sales tax the public looks at you as a charitable organization and it is easier to sell that you are working for kids and you can get more community involvement and more opportunity for donations. Just be sure that you do not confuse membership fees with donations. There cannot be any benefit to the individual who donates money or it is not considered a donation.
There are many subtleties to setting up a 501-C-3 and a sub-s and anything I could tell you may not work in your particular situation. You cannot count on me for advice. I can give you a general idea but you must hire your own corporate accountant to answer your specific question. Ask the professionals.