Investing vs. Expenses: Takes Money to Make Money with Dr. Schwanda Flowers

And today’s guest is certainly aligned with all of those attributes and then some, and I can’t wait to have her talk to you about who she is, what she does. So without any further ado, I am welcoming Schwanda Flowers here from First Financial Bank. Schwanda, thank you for being part of our podcast.

Schwanda Flowers:
Thank you, Joe. Thank you so much for having me. It’s a thrill to be here today with you and with your listeners. So I’m excited to have a great conversation.

Joe:
I am too. And, you know, I often wonder how people see financial partners like, you know, like what your institution is. Before we hop into sort of maybe what their perspective is, let’s maybe stack the deck in your favor and tell us a little bit about you, tell us a little bit about your company and just a brief overview about what you do because then we’re gonna really unpack what that partnership element is and what it is that the services you provide.

Schwanda:
Yeah, yeah. So First Financial Bank is a community bank per se. We do have a local footprint in some of the Southern States but we’re primarily a lending bank. And our division is called a professional services division. And we are SBA lenders in a variety, but really a specific variety of industries. And so one of those industries that we have been in for several years that we specialize in is pet care services. And so we want to be that trusted partner for our borrowers, for our customers.

We have a very high touch model. And so our lenders are either small business owners, former business owners, entrepreneurs, so not really bankers by training. And so, I mean, disclosure, I think a lot of people who know me know I’m a pharmacist and we do have a pharmacy lending division. And so, you know, not a banker by trade, I’ve owned a community pharmacy. So I know what that feels like to be on the borrower side. I know what that feels like to be on the owner side. And so I just, we have a little bit of a different perspective when we deal with our customers.

And we always say we want to treat our customers just like you guys treat your customers in the Pet Care Services space.

Joe:
Well, and we know, Schwanda, like you said, you’ve been, well, first off, I forgot that you were a pharmacist. So thanks for reminding me. I’m like, “oh, I should have known that,” but yeah, I forgot. I think you had mentioned that when one of our first meetings.

But you know what I really like about what you said, you’ve been in this industry for several years, partnering with businesses to help them grow, to help them explore options for growth. And that’s what we’re gonna talk about today. Not necessarily a commercial for First Financial Bank, although obviously we would love for all of you out there to at least consider them as a partner. But just understanding the strategic financing. Right? Strategic finance. You use those words in our show prep and what, you know, sort of this crucial role.

Really think about the string of those words, the crucial role of strategic financing. And what I like and the reason why we wanted to have you on the Hey Joe Pet Pro podcast is that you get the pet industry. Not many people do, right? You’ve said before, You’re not just a bank that says, okay, application approved, here’s a check, right? So, but we’re gonna talk, why is that approach so important? So when people are out there, any of the audience out there that hear this as they’re exploring partner options or lending options, giving them some materials, some expertise, some examples of maybe what to be looking for.

So, you know, the very first thing is, People wanna grow. Some people wanna grow. Some people wanna grow their businesses. So when we talk about strategic moves by adding services, so whether you’re a doggy daycare, right? Primarily a doggy daycare, whether you’re primarily a grooming facility, primarily lodging, primarily training, some of you out there, many of you, most of you might even be a mix of all of those, or a combination that is, of all of those. Maybe one of those or a couple of those segments are really taking off and really strengthening. So when it comes to growing services, you know, this necessary financing with the help of First Financial Bank and this focus on partnership, help me understand what, if I were to say the word partnership to you, as it relates to our industry, how would you define that?

Schwanda:
Yeah, yeah, absolutely. There’s a lot to unpack there and because you’re absolutely right. So strategic growth, strategic financial decisions, very well planned decisions for your businesses to grow, making sure that there is that ROI, that return on investment for everything that you’re going to invest or borrow, good debt versus bad debt.

So all of those things play into that decision and your financial partner your lender should have time to talk about all of those things with you, should be willing to discuss things with you. You know, and from a lending and credit perspective, be sure that, you know, we are giving good advice that we are approving loans that are going to be good for your business and not hurt your business.

So, you know, if our customers aren’t successful, we’re not successful because they’re not going to be able to pay the loan back. So, you know, we take that approach that we are a partner in that. We want to know about your business plan. We want to know what you’ve done. We want to know how you want to grow. How can we really help you with that? And honestly, sometimes we want the answer. Sometimes that SBA loan product is not the answer and that’s okay. And we are that partner that’s going to tell you that, that’s going to say, hey, there might be a better financing option for you. I mean, as much as we would love to do that, here’s something that you might consider or here are different resources or different avenues for funding, different ways to think about that. Maybe it’s not time. Maybe it just, once we look at it from that credit and lending decision making process, we might just say, hey, I think that’s too much, or I don’t see how you’re gonna be able to pay that back. This might put you in a bad position financially for your business.

So we’re gonna be able to have those open conversations. And if we do that, we should be building a partner and a customer relationship for life because we want you to trust us. We are not here just so that we’re going to stamp it like you said and say approved and take your application and move on to the next one. And I mean, that’s not how we want to operate. We want to keep our customer as partners for a lifetime of their business.

So one of the things I always say is when we’re thinking about debt and we’re thinking about going into more debt, right? So borrowing more money, especially right now when money is pretty expensive, compared to interest rates several years ago, you’ve got to be sure that you’re not making an emotional decision. And so very often, and I know I’ve been there, I’ve owned a business, it is your baby, it is your blood, sweat and tears. And there is a lot of emotion, there’s a lot of pride, there’s a lot of excitement that really gets wrapped up in your business and in your business plan. And it’s always important to take a step back, you know, and to really say, okay, am I making a smart business decision? Not about emotion, not about feels or looks, or, you know, what’s the return on investment for me? How does this increase revenues? How does this help me be more efficient? How does this increase my bottom line? Because as we all know, As much as we love what we do, we do work to make money. And so the end goal is that we’re going to make a profit, right? So that our time, our risk, you know, all of those things involved with that are worth it at the end of the day, because we’ve increased that net income, that bottom line.

And so when you say partner to me, that’s really all encompassing. So that’s the conversation I want to have with each and every one of my customers. And, you know, I want them to be successful. I want them to understand. So another piece of that is education. Doing programs like this, you know, doing other types of educational pieces or providing resources, just educating the pet care services, you know, space owners, potential owners. sellers, buyers, whatever that might be, but educating them about, okay, how do we make good decisions? How do we look at those financials? What is a lender going to look at? Or what should I be looking at to be sure that that’s a good investment? And education is a huge piece of being a good partner.

Joe:
Yeah, I agree completely. And to your point, being able to share your thoughts with our listener audience, but also just- What’s interesting, I think the only, I think the best way to position yourself as a partner in any kind of relationship is to have an understanding of who it is you’re partnering with. And that’s why, to your point, this is a very passion-filled, passion-charged industry.

Schwanda:
Yes.

Joe:
So I’ve been in the industry, gosh, I’m almost coming up on four decades in the industry. And… You know, I’ve seen so many businesses, business owners, I said, why did you open up your pet resort? Well, because I couldn’t find one in my area that would take care of my dog like I believe he should be taken care of. And I think that’s really great. And in some cases, those people are crazy successful. But in some cases, to your point, they may not have the strongest business acumen, they may not have the strongest… education experience. So they need a partner more than ever that can help guide them. Somebody that, to your point, that you’re not afraid to say, no, not so much, not yet, right? Because you can, you can lend conversation and really any good partner can, needs to be the one that sometimes has to throw cold water on, on what appears to be somebody’s dreams. And that’s hard.

Schwanda:
It is. Yeah, we want to make everyone’s dreams come true. We don’t want to crush them. But there are times when we have to say, okay, let’s scale your dream back. Or, you know, maybe we need to wait a year to make this dream come true. But yeah, you know, I can’t give somebody the passion that they might have for the industry that they’re in. But I can help them learn the other things or point them, you know, towards resources. And so those things can be taught. And I say that. That is… You know, if you’re passionate about what you’re doing and you want to be a good owner operator, there are resources out there to help you do that. You can be very, very successful. And so, yeah, absolutely.

Joe:
And then I’ve seen some people on the, you know, the other side of the coin, right? That are, that have incredible business acumen, incredible professionals. Maybe, you know, maybe one day they pull up in front of their, maybe one day they pull up in front of the big glass building that they’re gonna walk into to, you know, report to their cubicle or to their office and say, “I hate my job. I want to do something I’m going to love.” And we see that a paragon all the time. People don’t want to become a dog groomer or, you know, and just pet services. “You know what? I’ve always wanted to have a pet resort” and really, you know, COVID served that up on a silver platter. I mean, it was, it was such a reason and sometimes even an excuse to, to change, you know, career paths and have a you know, maybe you always wanted to do it and people thought you were crazy before that, but then people thought, oh, that makes sense now that you’re tying the pandemic to it, right?

But, you know, we saw that. And, you know, when I think of, when I think of partnership, I also think of, you’ve said it a couple of times, investment, investment. And it’s investing in each other, right, in that relationship, but oftentimes, do you see oftentimes investment getting confused with, let me rephrase it. Do you see expenses getting confused with investing?

Schwanda:
Yeah, yeah. And so, you know, there are expenses associated with running any kind of business, right? So, I mean, you’re going to have expenses, but at the end of the day, the expenses are not typically what increases the value of your business. And so when we’re thinking about an investment, an investment in your business with new debts, right? Potentially that investment in your business should translate into increased revenues, increased profits, increased value of your business at the end of the day. So there’s a big difference between expenses and investment. And so when you’re investing something into your business to grow your business, diversify your business, that’s huge, diversification is key, I think, maintaining successful growth, you invest in your business in order to do that. And so even though that’s another expense, right? You’re gonna have to service the debt, you know, that investment should translate into a higher value at the end of the day for your business, increased revenues, increased profits.

Joe:
Yeah. And I appreciate what a spectacular way of saying, expenses are expenses. They’re not going to… add value to your business? Because I mean, really, truly, you probably are in a position of asking people often, what is your today goal? What’s your tomorrow goal? And what’s your exit goal? Because I mean, at some point, is it a legacy play? Are they growing their business to leave it to a family member? Sometimes even a staff member. I mean, there’s a variety of different ways to sort of kind of keep it in the family. Or are they starting and growing your business to maximize an exit strategy, right?

So imagine that those conversations, do you find that many people that you talk to are seeing it from that perspective or are they sort of more short-term view and you’re sort of have an open net door and open net perspective?

Schwanda:
Great question, great question You know, I mean, I don’t want to stereotype, you know, kind of lump everybody into one category. So we see a variety of people and owners in different stages of that kind of realization. But I would say primarily what we see is that planning, that strategic exit, you know, planning is done probably way too late. And so… When you find yourself in a situation where you’re ready to sell and you’re really ready to sell, right? You’re ready to exit, you know, or like you said, like a legacy and pass that on to somebody. If you find yourself in a place where I’m ready to do that this year and you have not planned or prepared, you’re probably not going to either leave that person or pass on to that person or those people the business that you could, the successful business that you could, you’re certainly probably not going to get top dollar if you do want to sell.

And so planning that exit strategy and really being forward thinking about what does that look like? “Is this five years? Is this 10 years?” I mean, but always be prepared is so important. And really you should have about a three year exit plan, like a true exit plan. “If I’m going to be ready to exit three years from now, okay, here’s what I’m going to do,” because getting your finances in order, and I will tell you one of the biggest things that we see is that as business owners, we have lots of benefits, tax benefits, different things that we can do with our business, right? There are certainly advantages to ownership. And so when we’re taking full advantage of those things, sometimes our finances don’t look exactly like we want them to look when we sell, okay? And so retrofitting that or going back and trying to fix that real quick, that last year when you’re trying to sell is not what you need to do.

So you need to be having those conversations with your accountant, with your bookkeeper, your attorney about, “hey, I’m planning to sell in three to five years. What do we need to do so that my finances, my finances, that I can get the best price possible, the best sales price possible for my business?” So those are the things.

Joe:
You might have to slow down your Amazon spending and.

Schwanda:
You might, yeah. Yeah. You really do have to think about those things. Yeah, so we want to normalize the income. We want to add things back. We want to be sure that we give those owners credit for everything, right? So we can do that, but some of those things are kind of hard to justify an ad back from, you know, my underwriter’s gonna, you know.

So, you know, I think that that’s important to think about, you know, really thinking about what your finances look like and, you know, do they look attractive to a buyer and to a bank? I think that’s really important so that you can get top dollar as a seller. And so those conversations and that thought process, it needs to happen, you know, three to five years before you’re ready to either, leave it, pass it on, give it away, sell it, whatever that is.

Joe:
I think that’s just, again, just brilliant piece of advice because, you know, I think if you ask the average, I don’t know, I don’t want to group everybody in one bucket either, but I would bet if you ask, you know, majority of the people that own businesses in our industry, if you were to say when should you start planning your exit, you know, they’re like, “well, I’m only 52 years old, I’ve got, you know, 10 years,” you just don’t know, right? You don’t know.

So, you know, if I was going to exit, you know, “if I want to exit in three years, what do I have to start working on now?” I think that’s just brilliant recommendation.

You brought up a word earlier, diversification, right? And we think about diversification, you know, anybody that invests in the stock market or, you know, in businesses or real estate, or, you know, why are we talking about a diversified portfolio of investments? But for this conversation. a diversified approach to the services you provide in your business. To your point, it’s good to be balanced because one main reason is if one of those services for whatever reason takes a hit, right? It could be tomorrow, people wake up because of something on the news. It’s happened. Something on the news says, Don’t take your dogs to doggie daycare.

It just happened to our industry, what, six months ago? Right? And it was on mainstream, you know, prime time news, every major network. And I was getting phone calls and, you know, listen, Paragon, we grew our dog groomers, but I’ve been in the industry long enough. They’re calling me, people are, our clients are calling me and saying, hey, what do I do about this? Right? So for a minute, for a minute, daycare took a punch in the teeth, right? Because of that, because customers love their dogs. They don’t want their dogs to break. So until there was more evidence, it took a little bit of a hit.

So when you talk to facility owners about diversification of services, A full service facility is the most diversified. All of those services I’ve mentioned before, lodging, daycare, grooming. Do you find, is there a pattern of one or more of those seemingly always being smaller than what you think it should be or could be?

Schwanda:
You know, it’s interesting because I do think, I think it’s a mixed bag for sure. I do think that primarily what we saw historically, was probably boarding, right? You know, and I remember when we got into this several years ago, and it was a customer who was not in the pet care services space, they were actually a veterinarian, and wanted to expand and open a pet care facility with boarding, true boarding, you know, not in their vet office and daycare. And so, you know, and that has grown since then and now they’re grooming and training and doing all the things. But that was the first person that came to us and said, “hey, would you think about doing a loan for us for this business?”

So I did a ton of research, you know, and then we really sort of dove in. I mean, we just jumped in both feet and, you know, absolutely loved the space. But what we see most often is that historically it was a lot of boarding facilities. you know, overnight boarding people on vacation. And then again, with generational changes, you know, now we have people making decisions about, we’re not going to have human children. We’re going to have, you know, our, our animal children. And so, you know, this is, you know, I actually, I have a son.

Joe:
Some of us have children that act like animals. I’m just saying.

Schwanda:
Well, that happens too. Yeah. My, my, my dogs are probably better behaved than my children were many times. But. So, you know, and so, you know, I’ve got children who are thinking, you know, “I don’t know if we’re going to have kids. We have, you know, our fur babies and they are our lives.” And so, you know, so society is changing. You know, it’s just very different than it was, you know, 15, 20 years ago when, primarily in the space, you know, you would see across the country, or as fun and cute and enriched, you know, as they are now. So then we really start seeing, you know, I think that the majority are daycare boarding.

And then what we see is we see some that are filling, you know, some training and then the grooming space. And so I always, when I look at those things, I think about, okay, why are you not doing all of them? You know, is there some lost revenue opportunity there? You know, And sometimes there’s a good reason. Maybe there’s competition in the area for something. Maybe they don’t have the expertise and they’re not exactly sure how to incorporate that into their business. But when I look at a profit and loss statement and I look at those categories that are generating the income for that business, we definitely wanna see it come from multiple sources. I think that that’s something that’s very important that gives us confidence in that business. that it is sustainable. And to your point, if something, you know, pops up in the news the next day that hurts one revenue stream, you still have the others that are incredibly successful.

And so, really it’s, you know, and we’re talking about four big buckets there, but there are other things that you can do also. I mean, there’s some retail stuff you can do. There’s, you know, I mean, pickup, there’s, you know, school buses, you know, I mean, you’ve seen it all, right? So, I mean, there’s tons of opportunities in this space to make yourself unique, to stand out. But anytime you add those services, you’re adding a revenue stream. And what you wanna think about is, okay, can I control the expenses associated with that revenue stream so that I’m in control, I’m able to increase revenues through adding this service. Maybe that’s a grooming, you don’t have a groomer. Employing a groomer or training someone on your staff, sending them to… You’re in Paragon, you know, you, and adding that to your revenue stream, right? Well, what that does then is it diversifies your business in such a way that you’re protected if one area takes a hit.

Joe:
Yeah. Well, and you know, and I look at it too, obviously competitive forces could be something that negatively affects your, your income in one of those, in one of those key revenue streams. But when I have the opportunity to look at somebody’s financial statements and such, and are just getting in other businesses, obviously if you’re gonna start a business, there’s a certain amount of DNA you might have to be an entrepreneur, right? You don’t wanna work for somebody else, you’ve started your own business. And if you started your own boarding business or lodging business or lodging in daycare business, I’ve often recommended to clients, business owners, that they flex that entrepreneurial muscle a little bit more and view each one of those business units, those revenue streams as starting a new business, right? So not that one is just essentially like a barnacle to the whole of the rest of the business, just stuck on there because we have to provide grooming because we have lodging or whatever, but how do we take that business unit and apply our entrepreneurial spirit to it and say, “well, that in its own is a business. It’s a business inside of my business.”

And together we’ve got this ecosystem that sort of feeds on each other, of course, one strengthens the other, but because they both exist in the same area. But I often see entrepreneurs, business owners taking a pass on one of these services and to a lending partner like you, that’s just gotta kill you when you see that.

Schwanda:
Yeah, and it’s interesting because there’s, what we see in the space, and it kind of goes back to where we started this conversation with, there’s a lot of passion involved in this space. And people get into this industry because they’re passionate about animals, right? They wanna create these lodging spaces, daycare spaces, enrichment spaces for our babies that are just phenomenal, right? And so there’s a lot of passion there. They like being involved with the day to day, with the animals, right? They like to be involved in that business. But as an owner and as an entrepreneur, if we’re going to do something, you need to do it all the way. Because if you just, like you said, if it’s a barnacle, if you’re just dipping your toe into one area, probably losing it, quite frankly. And so you want to be all in.

If you want to be all in and… you have to step back at, you know, once you get your business kind of going, you’ve got to be able to step back and say, I, you know, in order to be successful, I need to focus on my business and let other people run, you know, be in the business working. And so, you know, I know that there are a lot of owners who are like, oh, I like to be in that daycare space, or I like to be at that front desk, or I like to be, you know, you know, once you start growing that business, you really need to think about taking a step back, putting key people in place, so that you can spend your time actually on the business instead of in the business, and you can focus on all areas and what needs to be done, whether that’s training or hiring or, I mean, recruiting is a huge thing, right?

So whatever that is, making these strategic decisions about the directions of your business and the growth of your business, that’s where you really do need to kind of step back and be able to have some time to do that as an owner in order to truly be successful.

Joe:
Yeah, I agree. And oftentimes I’m asked the question, well, I can’t afford to have, I can’t afford to invest in people. I can’t afford to have people do things that, I can do that as a business owner, I can do that. Which is a little bit of quicksand. And listen, we’re all scrappy when you start a business. I mean, you are doing, you are, it is Mayberry, right? You’re the fifth grade teacher, you’re the- justice of the peace and you also change the oil for everybody’s car at the service station.

Listen, that reference is lost on a lot of the younger people. So all of the younger people just go up and look up Mayberry, right? And you’ll know what I mean. But it’s wearing multiple hats. But there’s a point, right? There’s a point where to your point, you need to start working on the business versus in the business, especially if as an owner, you do wanna enjoy some of the spoils of being an owner, right? And sometimes people will come to me almost like that is almost an impossible notion. They just can’t figure out how to do that. And I said, well, it’s, I don’t want to oversimplify, but there’s two things to do.

First off is you have to look at it as it’s a simple math equation, money in, money out, money left. So what do you need to charge in order to have those people? do those jobs, managing them well, controlling your expenses, of course. What do you need to charge in order to have that in place for you as the owner, right? To have people that you’re relying on to do the work in the business so you can do the work on the business or sometimes even out of the business, outside of the business, you’ve got other interests. And can your market sustain that? What you need to charge in order to do those are really, I mean, again, not to she needed to charge in order to make that happen, right?

Schwanda:
Well, if you have time, like you said, you think about what you’re charging, but if you’re creating a new revenue stream, how much are you going to generate in revenue and profit from this new stream by having someone else, you know, clean out the play yard or, you know, and take care of feeding time or whatever that is, you know, I mean, when you kind of remove yourself from some of those… daily tasks, like you said, and then you are able to actually sit down and think and be strategic and plan. And, you know, you are creating an entire new revenue stream that should be, you know, 10 times what you saved by doing some of those tasks in the business.

Joe:
And it’s hard. It’s hard for the passion of a business owner who, you know, we’ve got some really awesome people in our industry. But I’ll tell you what, they’re a scrappy bunch.

Schwanda:
Yeah, hard workers.

Joe:
They almost feel guilty by not, like in some cases, really getting their hands dirty, but they almost feel guilty by not working in the business. So I’m sure, you know, but in order to get those people, we have to hire right, right? We have to recruit correctly, we have to hire correctly. But then we have to invest in them. Just like investing in your business, what is your take on investing in the people? So skills development, specialization, continued training, what’s your perspective? Because again, you’re partnering with these businesses on financial investments and to some degree, investing in people, some see it as an expense, but really is the healthier way to look at it as an investment like anything else that they would be using their resources, their capital for?

Schwanda:
Yeah, absolutely, absolutely. So one of the, when we think about expenses, right? So we’ve got salaries, wages, we’ve got all the benefits, right? Taxes is created with the people, you know, in our business that work on our team. But then I often see huge line items for recruitment. And that is so expensive. not just recruiting in and of itself, but training and retraining. And I mean, that is a time drain. It is a money drain, everything that you can do to create a team where people want to stay. And whether that’s, you know, fairly, whether that’s benefits, you know, for the, you know, compared to the market, creating just a culture where people enjoy coming to work and want to work together and work with you as the owner, it is so critical because you know I’ll tell you one of the best ways to tank a business is by not hiring the right people, not treating the right people the way you should as an owner, and losing those people and having to continually replace you know there’s no continuity.

That is absolutely just a financial just drain on the business. And it’s a drain on the owner because, you know, you want people in the business who you train so well and you invest in them, you know, maybe there are opportunities for promotions or to do something different, right? To offer them a different type of training and skill that they would have. Train them so that they could leave, but you treat them in a way that they would never leave. And that’s key, right? So, you know, want to be building your people up, training them up, being sure that they have opportunities for growth and enrichment so that they feel, you know, like they are growing and that they are learning new things and that they are valuable. But then you’re gonna treat them in such a way that they would never want to. And that’s the sweet spot.

That’s absolutely the sweet spot. But it’s a huge investment. It’s absolutely an investment, not an expense. And it is something that when we see a business plan for expansion, one of the questions that we always ask, we don’t see in that plan is, okay, do you have the people, do you have the staff to make all these things happen? You’ve just told me in this business plan you’re going to grow and you’re going to do all of these extra things and you’ve got more space now and more daycare and more lodging and more, I mean, grooming, whatever it is, okay, who’s doing that? If you’re telling me you’re gonna do all of those things, but you didn’t increase your salary and wages line item at all, what’s happening? How is that gonna work?

And so that’s something to think about when you think about expansion is what are the huge resource needs and add that to your working capital assets. I mean, when you get a loan, you can have working capital in there. And that working capital is meant to help you sustain that growth by paying your operating expenses. which includes your salary and wages to new staff or staff taking on additional tasks, jobs, responsibilities.

Joe:
That’s all brilliant to point out. And to your point, and again, a really quick internet search will say this. The number one reason why people leave a job is because they become disengaged, right? Lack of engagement and learning new skills, developing, feeling recognized. All of those things are forms of engagement. I mean, it’s like any other relationship, Schwanda, right? I mean, if I stopped talking to my wife or I got so busy and things around the house, you know, I mean, I got a honey-do list, you know, a mile long, but if I got stuck in the vacuum of doing more things than paying attention to her and talking to her and spending that quality time with her, she could become disengaged.

And then I wouldn’t even, I might not even see it coming. And maybe that sounds like a lot of you out there with your staffing, it’s like, why did they quit? I didn’t even see it coming. I just talked to them last week and they were happy. I said, how’s everything going? I just talked to them this morning. How’s everything going? Great. What am I gonna say? I mean, it’s not that one conversation. It’s those many conversations. And to your point, if you’re stuck with your head in the sand in the business too much. You might not be seeing what’s happening on the business, right? Or in, or around the business, around you, because you’re just at that point, I’m one of the worker bees, right?

So, you know, I think about this and I think about, you know, specific to Paragon with training future groomers, grooming staff, you know, uh, what’s interesting is people often ask, what if they leave? I’m going to, I’m going to spend all this money in training somebody. Well, what if they leave? And my thing is, listen, let’s deal with reality. Just like I said earlier, it is more of a simple math equation and what it might appear to be on the surface, but it’s probably not realistic to think that you’re gonna be looking at all of the same set of faces a year from now as you’re looking at today. And some people, and we’ve got this term I throw around, people are people-y, right? I mean, you might get somebody on the team that is not a good fit for the team. You might’ve even paid for training. You might’ve even invested in them and then you’re left scratching your head, well, what wrong?

Maybe employ the idea that what is, how much is it going to require of my financial resources to train somebody and then build in a fudge factor, build in the, you know, 30% of the time I’m not gonna keep my people or 25%. So what does that add to that line item to your point of training new people? So just try to have that. You’ve said it probably five times already. Plan for that. Don’t react, what if they leave? They’re going to leave. At some point, they’re going to leave.

Schwanda:
Right. You’re not going to put a chain around their neck and keep everybody there forever. If you do, they’re not going to be doing a great job anyway. So people grow, people change, things change. And so that’s okay. That is a cost of doing business. But what you said was, and I loved it, because yeah, we’ve talked about planning, we’ve talked about being forward thinking. But what we haven’t said until you just said it is, we don’t need to be reactive. We need to be proactive. In everything we do, we need to be proactive. Because then if we’re proactive and we’ve planned and we’ve thought about scenarios, and like you said, you’ve planned for okay. we may lose X percent of the staff. And I need to expect that transition to happen every year and I’m gonna plan for that. Well, then we don’t have to be reactive when it does happen and kind of pick ourselves up because we’re shocked that happened. We’ve thought about that scenario, right? So, as that leader in that business, we’ve thought about that scenario, we’ve thought about how we would handle it. And so now we just execute on that plan.

Joe:
I’m going to go back to my third grade self, right? The fire drill. Yeah. I mean, there’s a reason why when that bell goes off, everybody follows each other like a bunch of little ducklings outside. You will probably never have, never live the scenario of a fire in our school, but we still practice it. So that large muscle memory, that’s done. It leaves space for true react, you know, reactive situations, reactionary situations. But there’s a plan, contingency planning, right? Everything that we’re talking about, if there’s a plan and we flex that muscle and we just adopt that as the plan is our reality, it’s just so freeing, right? And I know it’s a whole lot easier, oh, they’re on a podcast, they’re talking about it, but here I am, you know, my customer’s screaming at me and my staff is quitting and my equipment is breaking and you know, I’ve been there. I really, I mean, I have.

Schwanda:
It happens, that happens.

Joe:
Right? And, you know, so empathy is absolutely present in this exchange. So let’s talk about expansion. Mm-hmm. You used the word expansioner. So, I don’t know, maybe somebody’s got the money tree in their backyard. I haven’t found one in my yard yet, although my kids swear I could believe it.

Schwanda:
I didn’t bother to water it last night.

Joe:
Yeah. So when it comes time to expand, whether we’re gonna expand a service, whether we’re gonna remodel, maybe expand some rooms or add rooms or even subtract from some rooms and cannibalize that space for other services, or we’re gonna add onto the back of the building, or we’re gonna get a second location, maybe a 20th location, maybe we’re gonna pick up and delivery, maybe we’re gonna do that service and we need to buy a vehicle for that, a Sprinter or something, you know. you know, some kind of transit van.

The role of a lender, let’s speak specifically to now First Financial Bank, right? So what is the role of your firm? What is the role of First Financial Bank when it comes time to secure financing for whatever and maybe all or some or none of the above mentioned expansion efforts? So you have sort of this three step. kind of process.

Schwanda:
Yeah, and I’ll put a little plug in here because we have a lot of calls for different reasons, right? Loans for different things. We have a lot of people who call because they wanna do startups, okay? And we look at those, we absolutely do. And so we’re one of the banks that we will still consider startups and we’ll look at your business plan and does that make sense? And have you prepared yourself all of those things? Expansions though are so awesome. because they are easier to finance. And I think a lot of owners don’t realize that. But with an expansion loan, we’ve got historical financials of your business.

And if you’ve been running a good business, we can look at your historical financials. We can see what you’ve been doing. We can look at the plan that you’ve laid out for this expansion. And like you said, that can look a million different ways, okay?

Joe:
I’ve seen all kinds of-

Schwanda:
Yeah, a million different ways. And then we can kind of talk about what options and what that looks like. But because you’ve got a successful business, you’ve got historical financial documents, statements that we can look at. It makes it so much easier to find this. There’s a huge advantage right now with SBA with expansions. So what the Small Business Administration loans provide are you can do an expansion with zero money down.

Joe:
Wow, really?

Schwanda:
No down payment on a loan. That’s right. So we would use the equity in your current business in lieu of a down payment. And typically a down payment for an SBA loan is 10% a down payment for a conventional loan, a direct loan from your bank, not a government backed loan, probably be 20%. Right. So, you know, you’re kind of removing that barrier of, I want to do this expansion, but I don’t want to just deplete my cash resources. you know, with a down payment on this loan.

So the SBA allows us to do those expansion loans in many cases with 0% down. Now, some banks may want, you know, some more skin in the game, but typically the equity in your business can be used in lieu of that down payment. So that’s a huge advantage. And that could be, like you said, that may be buying a second expansion.

So let’s say you own a pet care services business, there is one for sale across town, next town over, whatever it is, and you see an opportunity there to have two locations in your market area, we can absolutely do that. And many times you can do that and not have to put the down payment on acquiring that second location if you’re expanding your current business. So huge huge huge advantages that you need to talk to your lender about because those are great opportunities, especially for successful owner operators. who identify opportunities in their area where maybe a competitor isn’t doing as well to really take another facility on, have a second location below their footprint. There’s lots of efficiencies involved with that. So those are wonderful. Those are great to do.

Now, the other thing-

Joe:
Is that still a startup? Let me interrupt just for a second. Yeah. Is that still a startup or, I’m sorry, is it an expansion if they’re not purchasing a second location that is already in existence? So they’re not purchasing another lodging facility, not purchasing another doggy daycare. But let’s say they’ve been in business 10 years in their original location and they wanna open a second one from scratch. Is that still an expansion or is that a startup?

Schwanda:
Nope, that’s an expansion.

Joe:
Okay. I’m sure somebody would wanna, if I thought about it, somebody else might have a problem.

Schwanda:
Yeah, so now of course with that, what we’re gonna have to look at, we do have to see. more of those startup financial business plans, right? So it is a second location, but we can have confidence that your first location did well, right? And we do those all the time. And it may be that you’ve been in a leased space, right? So you’ve got a first location in a leased space. You don’t wanna close that down, but you see opportunity in, you know, across town, a couple of towns over, you know, maybe where there’s a lot of growth, there’s new homes, new families, you know, all of those things, and you wanna build one from scratch. That’s still an expansion.

Joe:
It could be a land building thing at that point, right?

Schwanda:
So it’s a, yeah. It might be a new lease space. It might be building from scratch, but those could still be considered expansions. And a couple of things that have to happen is, it’s gotta be in the same geographic region. It has to be in the same industry. So there are things called NASIS codes, which are identifying codes for each industry, business industry.

So for example, you couldn’t come to me, Joe and say, “okay, hey, I want to open, you know, a laundromat across town. And can that be an expansion and I do zero debt?” No, no, it has to be within pet care services, right. So, so there are some there are some rules around it.

Joe:
I mean, grooming, laundry is not like grooming dogs?

Schwanda:
I don’t know if we could make the connection there. But so, so yeah, so there are a couple of caveats, and then it has to have the same ownership. So that’s the other, you know, rule for expansions is that you know, I can’t own a business and then say, oh, I’m gonna expand my business. But when I expand across town and build this, now I’ve got two other partners. You can’t do that. It has to be the same.

Joe:
Not even with partners, right? So it’s gotta be.

Schwanda:
The same ownership. Yeah.

Joe:
So same ownership structure with the expansion. Gotcha. Okay.

Schwanda:
Exactly.

Joe:
So, you know,

Schwanda:
That way it’s, you know, the SBA wants to be sure that we’re lending money truly to small businesses. and for the purposes that they’ve outlined. And one of the things, and I know that sometimes SBA loans can be difficult, and there are people that are like, oh, I’ve done one and it’s hard. I would be lying if I said that they were just a piece of cake, right? We’re just, it’s a walk on the beach. Perhaps- That’s what they need you for. But that’s right. That if you find a bank who does that in that industry, asked about that earlier about being that partner, if- somebody comes to me and it’s something that I have no knowledge of. It’s an industry that I’ve never done a loan in that industry. I’ve never looked at those financials. I don’t understand how that business looks, right? From an operational or financial perspective, it’s a lot harder for me to do that loan, to get it approved, to get it across the finish line than it is if I’m looking at this type of business financial every single day, day in day out.

I know what it should look like. I know what those reasonable revenues should be. I know what I should expect those profit margins to be. You know, I mean, and that’s very, very different. And so it’s important to find a lender in whatever industry you’re in that knows that industry. But that really is used to looking at those financials so that if not, it’s just gonna be a little bit more of an uphill battle.

Joe:
They we’re doing the same thing for insurance providers, right?

Schwanda:
Right! Yeah!

Joe:
I mean, how can you be properly insured if the insurance provider doesn’t understand what could happen? I mean, what do you buy when you buy an insurance? You buy a piece of mind, right? You’re buying some sort of confidence or security.

So once you’ve identified the type of loans, right? You’re meeting with a client, you’ve identified the type of loans and sounds like… Obviously one of your superpowers with you and your team is walking them through the application process. Like you said, SBA could, you know, oh my gosh, I lived through one, I was terrible, right? But to your point, if that’s what you guys do, then that River Guide partnership for the applicant has gotta be worth just an incredible amount of value.

When it comes though to… financial planning, because that’s one another area where you partner with your clients, right, with your customers is financial planning, right? So, types of types of identifying the types of loans, the application process, helping get on. But speak a minute to that financial planning piece, if you would.

Schwanda:
Yeah, and you know, we don’t do actual financial planning from an investment perspective, right? So you need to have a good financial planner helping you as your you know, invest appropriately. But when you talk about financial planning from a lender perspective, what we can do is look at those projections. So that’s what’s called projections. We can look at your historical financials. We can look at industry benchmark standards. We can look at, you know, growth rate, you know, compounding annual growth rate in that industry. And we can see reasonably… you know, if your financial projections for your business based on what you wanna do, makes sense, okay? And so you have a lot of individuals who may be new to the industry, they haven’t owned a business before, you know, and they’ll come and they’ll say, okay, well, yeah, within the first six months, we’re gonna have a million in revenue. Well, you’re not, and so we-

Joe:
Well, you’re not, yeah. (Laughter)

Schwanda:
You’re just not, and so- we’re going to take a step back and we’re going to talk about that, you know, or not. And what does that actually look like? Like, let’s drill down. How many lodging nights is that? How many dogs did you bring to do that? Like how much, you know, let’s work backwards and let’s think about that. And that’s how we help you put through, you know, put those projections together or think about, you know, the expense items. And they’re like, you know, you have no insurance expense item on here. You know, how are you paying for insurance or what do you know that your rent is that much? You know, really when we think about payroll and rent, those are typically the two largest expenses, right? So, don’t get caught up in how much money you can save on your telephone bill because at the end of the day, that’s probably not saving you a lot.

Now, if you’ve got everything else tweaked and you’re running like a well-oiled machine and you can save a couple of hundred dollars there, do it. But at first, really think about those big buckets where a lot of your dollars, your operational dollars are gonna go. And one of the things that can really hurt a business is paying too much for rent.

And that’s an important thing to think about too, because so often it is a lower cost to entry to be in a leased space, right? So you can lease a space, you can rent that space. If a bank is gonna do a lot of leasehold improvements, okay? that gets a little riskier for the bank, right? So, you know, I’ve got this business and I don’t have any collateral in it stuff. I’m putting dollars into that building as a lender, from my perspective as a lender, I can’t come and get that stuff. I can’t come and get those floors back out. I can’t come-

Joe:
Especially in a single use type of scenario like our industry is.

Schwanda:
That’s right, that’s right. And so think about that in a leasehold space where potentially if you were to purchase the real estate, pay or maybe you have a chance to acquire a pet services, you know, diversified business that does all of these things and it has real estate to go along with it. Have a conversation with your lender about purchasing that real estate because potentially you could go from a 10 year loan to a 25 year. When you take that loan term out that far, sometimes it doesn’t make any sense to rent.

Joe:
I mean, it makes, or there are scenarios where you can rent from your You can set up two different entities and rent from your…

Schwanda:
And I can’t say should because I’m not a tax attorney. So…

Joe:
But again, neither am I, but you could check to see are there advantages to setting up two different entities, one that owns a real estate and then the business is renting from…

Schwanda:
And SBA allows you to do that. SBA allows you to have an entity that is the real estate holding company and then you have an entity that is your operating company. This is the way we see most of those transactions set up. Your tax attorney and your accountant will probably advise you to do that. And that should be a conversation you have with them. But the SBA allows us as a lender to set the loan up that way so that you are essentially paying yourself rent and then receiving additional tax incentives as an owner of real estate plus being an owner of an operating.

Joe:
Well, there’s a certain interesting exit strategy as well and that you can sell the operation.

Schwanda:
Yes.

Joe:
But still own the land and take full advantage of the the equity that continues to build on the land. There’s all kinds of really great ways to position to your point. I always say, I’m not an attorney, I’m not an HR specialist, I’m not an accountant, all of those things, but I’m experienced. I’ve heard of things, at least to say, take this and ask this to those subject matter experts.

Schwanda:
Right, and quite honestly, when you call a lender to have these conversations, say, here’s what I’m thinking. This is what I’m thinking. We don’t expect our customers to come in, with the right questions. So if you don’t ask me about an expansion, I’m not gonna tell you that. We would never do that, right? So for us, that is the important part of having that conversation, is so that we can really think through, critical thing, problem solving, how do we make that work? What makes the most sense? Let me give you these options, here’s what’s available to you, and then you go back and think about that with your team. and come back to us with any questions, but we wanna be there to provide all of that information.

One of the things that happened this last year with SBA regarding down payments again was seller note changes. So there are lots of options now so that you can use a seller note to provide your down payment. if you’re gonna acquire a business. Wow, okay. And so that’s something that the SBA changed this year. And so you want a lender who’s staying up to date on all of those changes and the SBA can change those at any moment. So anything we talk about, right? So they could change the rules.

Joe:
Yeah, at the time of this session, it may already be outdated five minutes from now. So do your due diligence, right?

Schwanda:
That’s right. But your lender should know what is the latest, you know, standard operating procedures that are put out there by the SBA. You know, what are those great incentives? And, you know, although those government-backed programs may have a lot of paperwork involved, those programs are really great. And they are meant to help small business owners be successful, grow, expand, you know, enter that industry, whatever. And so the rules that are around that, those procedures, they really are there to protect that small business owner and protect you from a bank, protect you from, you know, other people. But they are there to protect that small business owner. And so that’s really important to remember.

And so when those rules change and when we see new things coming out, you know, most of the time, everything that I see is just really, I can understand why they made that change because I see how that can help that small business owner.

Joe:
As long as things are created to help small businesses, we should take full advantage of those. Schwanda, as we start closing up, one first. Thank you, thank you, thank you. I mean, I hope I’m speaking from everybody at whatever time or whatever place people are watching the vodcasts or listening to the audio version, the podcast of this particular session. I know it went a little long, but I just felt like it was so rich in information.

You know, one thing I just, I wanna make abundantly clear with the audience out there is that, I mean, what bank, what lending institution is going to sit down with you and say, how did you come up with that number? How many lodging nights are you planning? And what kind of rooms do you have? I mean, come on, that is so specific to our industry, right? How many dogs you think your tables can generate in a day? I mean, you’re not gonna find that as a run of the mill, box bank on the corner. And that’s one of the things that you’ll find with First Financial Bank.

So, Schwanda, I know you’re gonna provide some resources for the listener audience. So you can go to paragonpetschool.com to our resources page, go to the Hey Joe Pet Pro podcast. and you’ll be able to take full advantage of all of the resources and links and additional information that Schwanda is going to provide us about her wonderful partnership opportunities at First Financial Bank.

Schwanda, as we close out, if there’s that one thing, that one thing that you want the audience to take away from this session, what is that one thing that you just wanna leave as that sticking point for them?

Schwanda:
Yeah, so I think the one thing would be, ever get a loan with me or with First Financial Bank and my pet care specialist partner is Ashley Moore. But regardless of you ever get a loan with us, Ashley and I are always available for these conversations. And the reason for that is even if we don’t do your loan, if we are growing this industry, then we are going to be successful because of that, right? Because we are all in pet care services. And so we want Petcare Services to grow. We want the industry to be successful. We want the owners to be successful. And so you can call us, you can have a conversation with us.

If you decide to go somewhere else or you’ve got a different lending partner, that is perfectly fine. Because at the end of the day, we want people to have answers to their questions. We don’t want somebody to sit there and think, oh, I just don’t know how to do this, or I’m scared I might make a bad decision, or. you know, how am I going to know that this works? I have all these questions and I don’t know where to go and ask, call us, like, literally send us an email, schedule a time. Let’s sit down and talk. Let’s let, I will see you at one of these pet care services meetings, you know, across the country, but schedule a time with Ashley and I to really talk about “what do you want to do?”

And, and we are happy to have those conversations and give you some insight about what we’ve seen. what products we know are out there and available from us or even from others. But let us help you as you walk through that. And don’t sit there with unanswered questions, but know that you can seek some of those answers. If it’s in that financial and lending realm, we would love to be that resource.

Joe:
And that is, and I think you nailed it and we’ll close with this. And that is you as a business owner are not expected to be the expert in lending and financial spaces. That’s why you need a partner like First Financial Bank who can be your river guide, who can just allow you to have that confidence that you’re not on an island.

I mean, just to put it out there, Schwanda, that call you, talk to you, talk to your team, even if they don’t do business with you. I mean, you want them to be successful and that’s why we had you on this podcast because- That’s the kind of partner that, I mean, that’s together. What is it? High tides raise all ships, right? We wanna be a contributor and a partner with you in being a high tide. Schwanda, thank you so much for being part of this episode. And I think there’s some other topics we’re gonna have to unpack in the future.

Schwanda:
Yeah, yeah, absolutely.

Joe:
If I could put someone there, I would have liked to have had a whole session on. So we’ll definitely come back and have a round two.

Schwanda:
Yeah, I think that’d be great. Thank you, Joe. I loved it.

Joe:
All right. Great talk. Take care, thank you.