Budo Banker: Careers Colliding

By Andries Pruim

Separate Philosophies

When you begin your martial arts training at a young age, it is nearly impossible not to incorporate their traditional philosophies into your daily life.

For the most part, this is a good thing! The life lessons taken from martial arts have created many upstanding, well-respected members of society. However, some of the philosophies can restrict a modern martial artist from becoming financially independent – and, ultimately, even curtail the number of people they are able to help.

There is a common misconception that teaching martial arts is a worthy cause, and, therefore, is its own reward – with or without adequate financial compensation. This has resulted in many talented martial arts instructors having to maintain a separate career outside of teaching in order to pay bills, raise a family, and (hopefully) own a home.

            This practice of asking for less than what they’re worth is prevalent among today’s instructors. They feel that asking for reimbursement that is, in some cases, simply a living wage, would devalue the art that they are trying to teach.

            This is the environment I found while studying budo, a modern version of Shotokan karate (although one that continues to instill the philosophy of being above monetary concerns). I supplemented my training stateside with over a dozen trips to Japan. There, I trained at the Honbu Dojo, headquarters of the famous 10^th-dan Shotokan karate Master Hirokazu Kanzawa. Although an amazing learning opportunity from a training sense, from a business perspective, it made little sense.

It was imparted to me that if you needed money for living, you would simply take a full-time day job, while teaching karate during any non-work hours. Some of my peers took one or even two part-time positions in order to get by. I decided to take a position with a bank, since one of my students happened to be a branch manager for one of the major institutions.

I thought that working as a teller would provide me with enough income to survive as I tried to enhance my martial arts career. What I didn’t expect was for this “supplemental” income source to turn into my actual career! It also gave me a completely different perspective on martial arts – especially, the business of martial arts.

I found that my analytical side was a perfect fit for the bank. I took advantage of the opportunities this career offered, and quickly rose through the administration. I continued to teach karate three nights a week, while taking banking and lending courses to further my education.

            Karate never became less important or less valuable to me. However, I did start to realize how some of the traditional values taught by martial arts were in conflict with the school as a business, and were even hurting the school’s long-term viability.

It was at this point that I had to make decisions about the future of my career and my family. At first, I was able to sustain both my banking and karate careers. Unfortunately, life brought me to a fork in the road where I was forced to choose between them. I had an opportunity to significantly advance my banking career, by taking a position as a commercial lender. However, the job was in a different city.

As a married man with a new child in the picture, I knew I had to make the decision that would allow me to best support my family. Although I was reluctant to leave my school in other hands, I packed my things, and took the plunge into the world of commercial lending. Ultimately, this decision would lead me to learn more about the martial arts industry – from the “other” side.

Small Epiphanies

When we moved to the new city, I was not surprised to find that I was already well-acquainted with many of the martial arts schools there, through my many years on the tournament circuit. What did surprise me was that a number of them began to pay me visits when they discovered I was a business lender. Of course, these started as polite social calls to welcome me to the city. However, one by one, I began to receive financing requests.

As the new kid on the block within the bank’s commercial lending department, I was closely supervised. For this reason, I had to be especially careful that any financing request I submitted for the bank’s approval included standard financial statements, a business plan, and detailed financial statements. To do any less could have reflected poorly on me and the school asking for a loan. I certainly didn’t want that! 

The more I looked into them, the more apparent it became that, based on their principals, these schools could only be considered hobbies, regardless of their long-term intentions. Most of the lending would need to be based on their financial statements (to a bank, these show credit worthiness). I quickly gained insight into how schools documented their yearly income and expenses.

Most school owners tried to ensure that they paid the minimal amount of taxes possible. Unfortunately, this meant that the financial statements I was given reflected almost no profits for the year in question. Additionally, the accompanying business plans were, to be polite, somewhat unprofessional in their contents. Finally, most school owners had only nominal net worth, which, again, made any collateral options limited.

My final small epiphany was the realization that for anyone interested in making a career out of martial arts, the age-old adage “business is business” still very much applies.

Business is Business

This simple statement reflects the banker’s position that no matter what product or service you offer, you must run your operation along standard business parameters. What I also realized after conversations with my commercial lending colleagues was that there was no standardized business model for a full-time martial arts school. We attempted to leverage the private school model, but the lack of a standardized curriculum between martial arts schools made this difficult.

I discovered that, too often, martial arts schools were not deemed “standardized” enough to grab the attention of their local banks – mine, unfortunately, included. In an effort to help, I personally met with and consulted local martial arts school owners. However, due to the infancy of the industry, most schools were run by a single owner with no support staff and limited business expertise. The business plans they presented to me simply fell apart upon scrutiny.

Any martial artist who wishes to make his or her passion into a rewarding career must realize that the industry we know today is considerably different from what it was as little as 40 years ago.

In fact, up until the mid-1980’s, there was not a true martial arts “industry.” Most schools were of the “hobbyist” variety. It was the generation of “Karate Kid” movie fans that eventually took martial arts from garages and backyards to the mainstream. This was when the martial arts industry began to start tapping into the same financial resources as other, more well-established industries.

Business Includes Banking

When I first started commercial lending at a major international bank, there was little appetite for financing any martial arts facility unless it was attached to a well-known fitness center. Even then, the focus was on the fitness side of the business, rather than the martial arts.

After many years as a commercial credit manager, I came to the conclusion that when evaluating a loan request, most lenders focus on the three basics components of lending. These are the three “C’s” of credit evaluation: Cashflow/Capacity, Collateral/Capital and Character.

Even when evaluating the three “C’s”, lenders initially look at the first two fundamentals: Cashflow/Capacity (“How are you going to pay the loan back?”) and Collateral/Capital (“What do you have to offer to secure a loan in the first place?”) The importance the lender places of one of these criteria depends on the value of the other.

For example, if the security you are providing is of high value (such as the first mortgage against your home), the concern for repayment is not as high as if you were only providing an unsecured personal guarantee. This is because the value of personal residences rarely depreciates and can quickly be sold to recoup funds.

If your security value is lesser, then the cash flow analysis must be concise and convincing. There must be definitive documentation to convince the lender that your revenue and profit figures are attainable. Leveraging my considerable time in commercial lending, I would like to provide some insights on how a banker examines your financing requests.

Most banks use a standardized template to capture the basic details of the request (see sidebar). As a business owner, you should familiarize yourself with these details before dealing with a financial institution or private investor.

Once the technicalities of the request are agreed upon (such as the amount of the loan, the interest rate, and how repayment will take place), the bulk of the banker’s analysis will focus on the following three main areas of the business:

• Industry Risk
• Business Risk
• Financial Risk

This section will provide a more detailed view of the lender’s analysis, which will be useful when developing your business plan.

Industry Risk

In risk analysis, the focus is on the viability of the industry and how it falls on the industry maturity scale. For most industries, there is a myriad of data that the lender can obtain from government or other official sources.

Although martial arts has been a widely available activity for many years, the business side of the industry is still considered to be in its infancy. This is because of the lack of set professional standards across organizations.

In fact, in lending terms, the martial arts industry is classified under the umbrella of physical fitness businesses. This means that the lender will likely look to the fitness industry – gyms, fitness studios, and similar operations – for statistics and comparisons.

Still, there are still several differentiators between the fitness industry and the martial arts industry. Some of these contrasts are positive, such as the self-defense and life skills taught by martial arts. In some cases, these comparisons may be unfavorable. Some martial arts schools, for example, seem anachronistic next to modern fitness studios.

Another risk factor that weighs against our industry: government statistics show that the martial arts only makes the list of “top 10” interests for the five- to 12-year-old age bracket, and it’s in 10^th place. In all other age groups, it doesn’t even make the top 10.

This is where you as the business owner, need to step up and provide your lender with quantifiable and reliable sources for your own school, as a piece of the martial arts industry. This is why it is important for you to keep detailed records of student enrollments, payments, and other financial information. It is also wise to keep an eye on industry trends. Make sure the information you present is thorough, clear and, above all, correct.

The lender will usually only do a nominal amount of research of the industry, especially if it is smaller, as is martial arts. It is in your best interest to ensure the lender has all the facts they need to make an informed decision on not just whether to support you, but the industry as a whole. 

Business Risk

This section deals with your business acumen and the pertinent business climate. With respect to the latter, one aspect of the analysis will not only look at the competitive factors for your business, but at what alternative exist for the products and services you provide.

Unfortunately, the martial arts industry has quite a lot of competition – or, “alternatives.” Since a majority of our clients (students) are children, the alternatives are all the other activities kids love to participate in: soccer, football, dance, gymnastics, softball… the list goes on.

Businesses survive on cash flow. It is your responsibility to convince the lender that you can generate the necessary revenue. If you are a small operation, you will have to document your abilities and experience. You will also have to show proof of your skills in an actual class. This is another reason to have your school well-established before approaching any financial institution for funds. This way, you will be able to demonstrate your teaching, organizational and communicative skills, allowing for a more informed decision to be made by the lender.

In addition to being able to physically demonstrate your capabilities, you will also need to show your documented knowledge. This would include not only your business plan, but a detailed class schedule and curriculum. You will also have to show that your curriculum works. Does it do what you say it will – that is, are students able to learn progressive skills and advance in rank?

In your plan, and throughout your discussions with your lender, you should also highlight your ability to properly hire, develop and manage a team of instructors and administrators. In other words, you will need to prove not just your business management capabilities, but your relationship management skills.

The latter also includes your salesmanship abilities. Many times, this is the martial artist’s Achilles heel. However, this ability is especially paramount if you are going to “sell” your idea to your lender. If you know that you are uncomfortable “selling” your school, them emphasize your ability to hire a team that will draw in business. 

Another major factor lenders will consider is your ability to market yourself and your school. You must come in with a comprehensive marketing plan, including cost and implementation. Your knowledge of both standard print media, as well the new social media platforms (Facebook, Instagram, Twitter, etc.) will provide the lender with confidence that you will be able to locate the clientele you need to populate your school.

Your research in this area must be thorough. You should provide your lender with evidence that you have looked into the demographics of your area, including how many other schools you will have to contend with in your area, and their success.

Finally, while the majority of the business analysis will focus on the principal, and your ability to run a business, there will be other technical aspects that will be reviewed by the lender. You must be able to analyze your success, and communicate it.

If you are not able to produce weekly stats or monthly financials, you will not be able to properly monitor the growth of your business. This is something the lender will zero in on. The lender would prefer to see a system where, if they were to request certain data (such as your active student count, revenue breakdown, or a profit and loss statement), this information could be produced immediately.

In summary, while the martial arts industry has some uniqueness to it, for the most part, the analysis of the business side will be similar to all other businesses in that the lender is considering.

Financial Risk

The financial analysis is quite straightforward. This is where most experienced lenders will focus. To be blunt, most lenders are “bean counters.’ At the end of the day, it is the numbers in your business plan that will make or break your chances of getting a loan approved.  

In many cases, the senior credit adjudicator will go directly to the financials provided before even looking at your request. Therefore, the figures you provide must be realistic and arguable. You should be prepared to justify each of the figures you have provided in your business plan and explain how these figures were obtained.

You will also have to contend with standard financial ratios lenders use. These are working capital (your business’ immediate efficiency and short-term finances), debt/equity (total liabilities divided by equity), “CapEx” or capital expenditure (money you’ve spent to maintain or improve your physical property), retained profits (net income left over after paying shareholders), as well as gross profit margins (the total amount of money you have made, minus the cost of the expenses it takes to run your school).

While it is not necessary to be a financial expert at these figures, it would be good to sit down with your accountant to discuss the importance of each.

Each of these financial ratios is there to determine the ongoing viability of your business. As all business success is derived from cash flow, these ratios will provide evidence of liquidity – the ability to pay debt, grow, and produce useful services.

For the most part, the focus will be on your income statement, also known as the profit and loss statement. A good lender will scrutinize each major line of your revenue and expense statement, including your revenues streams, your facility and staff expenditures and your personal remuneration. This is why it is always best to review your business plan and your financial statements before meeting with a lender or investor.

In the end, you may find yourself having to provide a substantial amount of personal assets, as it is doubtful that the business itself can support itself entirely on its own. Also, there is the last “C” to consider – character. Your personal credit will also likely be examined. How you handle your personal finances will be viewed as an indicator of how well or poorly you will handle your business’ finances – and the lender’s money.

What is the Best Option?

After I left the banking industry, I accepted a position as a senior business consulting with a leading telecommunications corporation. This allowed me to gain even more insight into business processes. In the meanwhile, I continued to teach karate part-time in local schools while researching the evolving industry.

My studies included dozens of books on the business of martial arts, as well as industry publications like the MASuccess. I found this magazine to be extremely informative and insightful, ideal for any martial arts school owner. In the mid-2000’s, I attended my first Martial Arts SuperShow and was encouraged by what I saw there. The business models being promoted there were, I felt, the best suited for the industry as it moves forward.

Although I was tremendously impressed by the quality of the seminars (then and now!), my favorite part of the Show was talking with all the vendors on the tradeshow floor. As a banker and business consultant, I am used to talking with enthusiastic entrepreneurs both at the small business and corporate levels. The vendors here have the spirit that will put themselves and our industry on the path for success.

During my continued research, I had the honor of talking with Frank Silverman, the very busy and ever-helpful Executive Director of MAIA. He provided incredible insight as to how the industry was changing. I was also able to talk with the late John Corcoran, editor of MASuccess. He was another invaluable source of martial arts business information. I was convinced that these gentlemen and their respective organizations were on the right path to assist all martial artists in turning their passions into rewarding careers.

The Future of the Industry

Now that I have retired from my position in corporate management, I have dedicated myself to assisting local martial arts school both in teaching and business. I continue to attend the Martial Arts SuperShow when I can, so that I can continue to best serve the schools I work with. Events like the SuperShow and organizations like MAIA truly offer school owners the best path forward.

While a career in martial arts is attainable, you must decide on how much of your life you are willing to dedicate to not only your art, but to your business. The days of the martial artist teaching without adequate financial compensation are over. They were a fallacy from the outset, and certainly are today. It is not fair to you, as a school owner and instructor, to ask for less than what you are worth. To lenders, it may indicate a lack of confidence in your abilities.

A full-time and rewarding career is available to you but only if you remember that it is a business, first and foremost. This means you must be constantly reeducating yourself, both with respect to your particular martial art as well as to the art of business. In this way, your careers will never collide. They merge to become your one and only true path to personal and financial success.

Andries Pruim is a 6^th-degree black belt in Shotokan karate with over 45 years experience training in his home country Canada as well as in Japan. A former martial arts school owner, Pruim has 38 years of corporate financial and business management experience. He is a Certified Financial Planner, and continues to renew his CFP designation and update his financial knowledge and skills. In the martial arts world, he is currently a Senior Instructor at two karate schools in Langley, British Colombia, Canada.