I want to continue a theme by devoting this column to a mentor of mine, and one of the original innovators in professionalizing the martial arts industry, Nick Cokinos.
In this column, in a recent interview for sounds of success, and constantly in NAPMA Squared I’ve warned of a disturbing trend in our industry. I’ve stopped counting the number of bankrupt and near-bankrupt schools I’ve come across in the last year caused by a combination of several factors.

Those factors:

First, becoming a “high pressure – sales” organization.

Second, focusing on cash-outs.

Third, poor cash management without a “contingent liability fund.

Fourth, an extension of point three – spending money received, but not earned on extravagances not investments or savings.

In the past I’ve attributed many of my ideas to Martial Arts Business Master Nick Cokinos so today I’ll just include his recent article in it’s entirety:

For whom the bell tolls
by Nicholas Cokinos,
EFC Chairman
After considerable deliberation and research, I have decided to express my views on this fairly new “cash-out” selling procedure being advocated by certain individuals. The allure is almost too much to ignore. It is similar to the ancient Greek legend of the siren song, according to which, while sailing along the isthmus, sailors were tied to the mast to prevent them from giving in to temptation.

You can easily envision certain school owners salivating down the chin at the prospect of getting their hands on a lot of easy cash. I guess by now you’ve figured out that I am not a great advocate of the cash-out scheme. But you are entitled to know all the serious and important facts involved.

Let’s start with the legal term “contingent liability.” To translate, this simply means that I have received a substantial amount of money for which I have rendered no service and accordingly I have not earned it. When a student registers for a one-year program (100 lessons), I must agree to provide the student with a competent instructor and appropriate facilities in exchange for the tuition of $1,500, payable at the rate of $125/month. In such an arrangement, I am being paid as I earn the money. At this point, after hearing tales of a spectacular way to get my hands on a lot of money, I am encouraged to romance this student to pay the entire sum up front, which is affectionately known as “cash-out.”

Let’s jump ahead for a moment and proceed to persuade 50 students to cash-out. I now have a ton of money and I am basking in the light of my newfound riches. But wait! I have also accumulated a contingent liability of 5,000 untaught lessons. I have put the money to good use, i.e. my wife got her nose fixed, my child is going to an expensive pre-school, the living room desperately needs new furniture, and lord knows I want to purchase that new Porsche.

Question: now what am I going to do about fulfilling my end of the contract of providing facilities and a competent instructor for the next twelve months? These 50 students are no longer sending in a total of $6,250/month. That’s gone, but the obligation/liability is now staring me in the face. Panic time! So I start to scramble, needing cash to meet my bills and maybe, just maybe, I start to high-pressure my students to raise some money, even offering as much as a 20–30% discount. (There goes my profit.)

Have I become a selling organization? Am I combing the ranks to see who will be my next victim? Perhaps I should cut down on the payroll and let a teacher or a receptionist go. What about my life-long pledge of dedicating myself to student service? I have always found great joy in helping my students grow in mind, body and spirit. But I can’t be bothered with that right now because I have some serious problems. I have a cash flow problem, and to top it, I am not getting new referrals these days.

My vast wealth was short-lived. Down the road, my problems are compounded because it is getting harder and harder to get cash up front, and my profits are down. To add to my woes, my head instructor, who I can tell you loves teaching martial arts, walked in to inform me that he was leaving, giving no reason for his departure. I think I have made a serious business mistake.

I hear ringing in my ears: “For Whom the Bell Tolls….” My friend, it tolls for thee. Nick Cokinos is founder and Chairman of Educational Funding Company. EFC may be contacted at 301-654-8677

Stephen Oliver, MBA 8th Degree Black Belt. Is the Author of several books on marketing for martial arts schools, is the developer of the NAPMA Squared “Maximum Impact Program” and founder and CEO of Mile High Karate. He was formerly an EFC Board Member from inception to 2001. He can be contacted at www.MileHighKarate.com NAPMA: http://www.NAPMA.com