Massage Therapist’s Lack of a Plan Puts Squeeze on Savings

Anthony Manniello has a dream to run his own business. The problem is that he doesn’t have a plan.

The 33-year-old Santa Monica resident launched a new career last summer as a self-employed massage therapist. He also enrolled at a graduate school where he aims to earn a master’s degree in traditional Asian medicine, with hopes of eventually making acupuncture and herbal remedies sidelines to his massage business.

But Manniello forgot a crucial ingredient for starting a successful business venture--a business plan. As a result, his efforts to keep his massage studio afloat are depleting his already meager retirement savings. And with costs running ahead of income, he finds himself heading in the same direction that led him to file for personal bankruptcy in 1996.

“I know I’ve probably rushed into business,” he said, “but that’s the way I am.”

Timothy Wallender, a Manhattan Beach financial planner who examined Manniello’s finances, was more blunt. He said Manniello’s entire course of action is ill-conceived, and urged him to quickly reassess his situation. Attempting to launch a business while attending school could send Manniello crashing into another financial abyss, the planner said.

“I think it’s decision time for you, Anthony,” Wallender said. “Take a close look at both your time and your money and how it is best spent.”

Manniello has been down this road before. Seduced by the lure of easy credit, he piled up debts in the mid-’90s buying furniture, bicycle equipment and a car.

“Money used to make me restless,” Manniello said. “Any time that I had it I would spend it right away.”

By 1996, Manniello owed more than $40,000. Unable to pay his bills, he filed for bankruptcy protection.

“I felt embarrassed because it was like I was taking the easy route out,” Manniello said. “But even though going bankrupt was shameful, it was also very liberating. I was suffering so much with those debts and there was no way I could pay.”

With all obligations apart from a $13,000 student loan discharged, Manniello received a fresh start financially. But his current monetary woes threaten to send him into another tailspin.

Unfortunately, Wallender said, Manniello’s predicament doesn’t lend itself to easy answers, in part because of the missteps he made getting to this point in the first place.

First, Wallender noted, Manniello was hardly in a financial position to launch a business. With virtually no savings, he decided to cash out $5,000 from the $16,000 individual retirement account he accumulated while working for five years as a technician in a sleep-disorder clinic. That decision brought with it a federal 10% early withdrawal penalty, plus another 2.5% penalty tacked on by the state of California--not to mention the deferred state and federal income taxes that had to be paid.

Tapping retirement funds to start a business is a risky strategy for someone in Manniello’s situation--or anyone else, for that matter.

“It took you many years to build up that money,” Wallender told Manniello. “Putting it into a business is a mistake. You shouldn’t think of it as a regular savings account to draw upon. You’re going to need it for your retirement years.”

Another problem is that by quitting his sleep-technician job, Manniello’s monthly income fell by more than half--from $2,300 to around $1,000--and he lost his benefits, including health insurance.

“You’re young and healthy now, but there’s always the potential for health problems that would be a major problem for someone with no insurance,” Wallender said. But purchasing health insurance may be impossible for Manniello.

“I’m already living a very minimal lifestyle,” he explained.

Which leads to Manniello’s biggest problem: He’s spending more than he is earning, and there’s little prospect of that changing any time soon. His expenses are by no means exorbitant, leaving him little room to cut back. He pays just $250 to share a guest house with his girlfriend and drives a 1987 Nissan Sentra. Other costs, such as auto insurance, utilities and groceries are necessities.

The largest item in his $1,500 monthly budget is $600 for rent on his massage studio, and that’s hardly a luxury. Attempting to get the massage-therapy business off the ground without a studio was impossible, he said.

“Before I had a studio, people would contact me and I’d have to tell them I only do out-calls,” he said. “That seemed to make a lot of people leery and they’d never call back. The studio provides some legitimacy.”

Manniello dipped into his IRA-derived savings account to secure the studio. He also has been using the account to cover his monthly shortfalls. The savings are now down to $1,300.

Certainly, the consequences of not drawing up a business plan--which covers such crucial topics as start-up costs, cash-flow projections and growth prospects--are beginning to reveal themselves. For instance, Wallender said, starting a business on funding as thin as that available to Manniello invites failure.

“In general, a self-employed person needs anywhere from six to 12 months [of expenses] as a reserve when getting started,” the planner said. “Otherwise, they could quickly find themselves in trouble.

“One thing that kills small businesses is cash-flow problems,” Wallender added. “I don’t want to put a black cloud over you, but that’s the way it is. I think you’ve been premature in trying to start a business.”

Manniello acknowledges that the cash situation is already crimping his plans. He can’t afford to decorate his studio or own a cell phone to make himself more available to clients. Finding money to print fliers or buy advertising in local newspapers is a strain.

“I’ve probably got another couple of months [of cash] before I’ve got to figure out if this is going to work,” he said. “Maybe I was a little impatient to get my own business.”

After raising serious doubts about Manniello’s business prospects, Wallender also expressed reservations about his education plans.

In general, Wallender and most other financial planners consider education a wise investment. Gaining knowledge and qualifications tends to increase earning power and open new opportunities.

But it’s unclear how valuable a master’s in traditional Asian medicine will prove to be for Manniello. Some recent graduates practicing acupuncture are earning little more than Manniello earns as a massage therapist, he said.

“In Los Angeles, there seems to be an acupuncturist on every block, just like there is someone who does massage,” Manniello said.

Given that reality, Wallender urges Manniello to reconsider his plans--especially as he is likely to finish school with at least another $25,000 school loan debt to go along with the $13,000 he already owes.

“When it comes to graduate school, you need to take a long and hard look at the payback period,” Wallender said. “Some people coming out of medical school might be able to pay off loans in just a few years if they get the right job. I’m not sure that will be the situation in your case.”

Wallender’s recommendation is to put the school and the business on hold. A better idea, he said, is for Manniello to find a job, perhaps in a gym or at a salon that will allow him to practice his massage therapy but also might provide some benefits and a steady paycheck.

Along the way, he may be able to develop a loyal clientele should he be in a better position to launch his own massage business later.

If Manniello wants to continue his education, he should look into weekend seminars or other lower-cost solutions.

Manniello agreed that he might have been a little hasty with some of his plans.

“When I first got into mountain biking I just threw myself into it. I’d spend $4,000 a year on equipment and clothes, it was almost like a drug to me,” he said. “It’s been the same for starting this business and also for the school. Whenever I have a little money, I always find something to spend it on.

“I guess I just try to take too many things on at once.”

*

Graham Witherall is a regular contributor to The Times.

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This Week’s Make-Over

Subject: Anthony Manniello

Occupation: Self-employed massage therapist

Gross annual income: $12,000

Financial goals: Increase his massage business; achieve financial stability.

Assets

* $1,300 in savings

* $11,000 IRA invested in Domini Social Equity fund

Liabilities

* $13,000 student loan

Recommendations

* Consider shelving massage business for a job that offers health insurance and other benefits.

* Build a six- to 12-month emergency fund before launching own business.

* Stop dipping into IRA funds.

* Reconsider his enrollment in graduate school unless it will eventually increase his salary.

Meet the planner

Timothy Wallender is a fee-only certified financial planner specializing in no-load portfolio management. He is president of Strategic Index Money Management-Wallender & Associates, an advisory firm with offices in Manhattan Beach and La Quinta.

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