By Rick Caro, President – Management Vision
Rick is hosting the GGFA Webinar “How Does 2012 Shape Up For Your Gym & Company?” on 1/18/12. Click here to register or see below for registration information.
All health clubs have been doing budgeting for years. It is an annual event, sometimes dreaded by club owners. In many cases, it is viewed more of an academic homework assignment than a real road map to a successful year ahead. It is often a mere tweaking of the past year with little analysis or real insights provided.
There are some key principles that should be considered. First, all department heads, the club’s General Manager and the owner need to be involved in the process. In fact, ideally the owner and club GM provide a general mandate: increase each department’s revenue (where applicable) by 5% (or 10%) and increase the department’s net contribution total (or bottomline) by 10%. Then, each department head thinks of how his area can be improved and sets a 12-month (month-to-month) budget by line item. If the department brings in revenue, it gets precise and defines its different sources of revenue with back-up written assumptions for each month. If it only has expenses, it offers assumptions on the different expense categories. The goal is to push the projection process down into the organization, where the detailed expertise resides (sales, fitness, child care, group exercise, front desk, juice bar, cleaning/housekeeping, repairs & maintenance, bookkeeping, athletics, aquatics, office management, etc.).
The GM and club owner are coaches in helping to create these departmental budgets. Once each one is finalized, the bottomlines for each are cast in stone. The department heads should be incentivized based on achieving their respective bottomlines. Actually, if they exceed the budgets, the club has incremental dollars to pay those bonuses. They can range up to 20-25% of their annual salaries. The key is to have those written line-by-line assumptions to go with the numbers.
Then, each month each department head and the GM (for the categories he is responsible for) fill out a Variance Analysis sheet for each line item where there was a difference. This means that they compare the Budget $ total versus the Actual and then explain the difference (or variance). The goal is to allow them to make mid-course corrections along the way as long as they still make the year-end total that they committed to for their department at the outset. These variance analyses should be done in the first 3-4 days of the next month, so there is time to still make changes and not trail by losing a month in the delay of disseminating the month-end results.
There is a real opportunity to push the Club GM and each department head into taking a fresh approach in his area to create a better bottomline, serve more members better and more efficiently, find ways to save money even for departmental cost centers – rather than simply accepting the past year’s totals with minor tweaking. Laziness should not be rewarded. Accepting the past is a fatalistic approach. Even maintenance and child care departments can be winners in this scenario.
A separate capital budget must be created with actual timing spelled out for any physical, plant changes or improvements, since they may have a direct impact on the club’s operating budget.
There is a real opportunity for a club to be better, more efficient, more creative, more involved with its members and more empowering with its staff. Budgeting is a process that can literally be the monthly plan to take the club’s leadership and all staff on a path to a more successful 2012.
Rick is hosting the following GGFA Webinar on Wednesday, January 18th:
“How Does 2012 Shape Up For Your Gym & Company?”
Please join us and register today by clicking here!
Rick Caro is President of Management Vision, Inc., a consulting company which specializes in market analyses, independent club valuations, club finances and expert witness testimony. He is a 39-year club industry veteran with experience as an owner, operator and consultant. He has more experience than anyone else in the industry in conducting independent market analyses, club valuations and serving as an expert witness in club legal matters. He has been a Chairman & Director of club companies as well as an Advisory Board member of smaller club groups. He is considered a guru of club finances.