One of the most common back office missteps occurring in the fitness industry is a lack of clear and consistent financials. It’s amazing how many businesses don’t keep them at all! Tax season presents the perfect opportunity to take a look at a business, determine where any gaps exist, and then devise a plan for improvement. Solid financials provide an owner with a strong understanding of the state of a business. From this foundation of understanding, strategies for improvement or growth may be built. Below we outline five musts to serve as a starting point for this planning.
5 Financial Musts for Any Fitness Business
- A Proper Business Plan.
You have a great idea; now it’s time to put pen to paper. Take the time to write a proper business plan. Think through all aspects of your business paying very close attention to a well thought out proforma. Put together some financial projections and compare them with your proposed capital expenditures. Know when you should reach break-even and when you’ll turn a profit. Have a plan to responsibly make distributions. It’s a lot easier to make these decisions when the money is conceptual.
- A Working Budget.
What will your revenue be? Are you making revenue projections or using sales goals? These are two very different things. Goals are pie-in-the-sky. Revenue estimates should be realistic and conservative. What can you afford to spend? Is your spending in line with your timeline for break-even that you outlined in your business plan? Are you over-spending? Throw in a line item for contingency. This will catch those unforeseen monthly costs. If you don’t need it, great; but if you do, you don’t blow out your budget. A budget provides a business with the structure/foundation upon which it can grow.
- Accrual over Cash.
Accrual accounting is a method that measures the performance and position of a company by recognizing economic events regardless of when cash transactions occur. The general idea is that economic events are recognized by matching revenues to expenses (the matching principle) at the time in which the transaction occurs rather than when payment is made (or received). This method allows the current cash inflows/outflows to be combined with future expected cash inflows/outflows to give a more accurate picture of a company’s current financial condition. Accrual accounting does a much better job presenting a clear picture of performance. It also may offer better tax benefits.
- Capital, retain some.
This is much easier if you head into a business having already thought through a retention and distribution process. Navigating rough business waters is much easier with a bit of a cash buffer. This prevents the dreaded capital call.
It’s easier to always think about capital retention in terms of preparation for a business down-turn, but it can be argued that it’s even more important to maintain a solid book balance for opportunity. This allows a business to be nimble and capitalize (get it?) on any exciting ventures that pop up on the horizon.
- Reconcile, reconcile, reconcile.
“Watch your pennies and the dollars will take care of themselves.” This old proverb still rings very true today. Businesses work so hard for their money: driving sales, watching retention numbers, and pushing for non-dues based revenue; yet, many times fail to ensure that all of those dollars are making it to their bank accounts. John mentioned that he’s witnessed occasions where merchant holders miss a remit and the reason is never found. When there are thousands of transactions happening on a given week, it’s easy to imagine a few slipping through the cracks. You can’t track down what you don’t know you’re missing. All invoices should be checked and signed off on each month. It’s amazing how many times over-charges occur.
Banking and check fraud are at an all time high. Only a full bank reconcile will uncover a fraudulent charge or check clearing your bank. It may also be prudent to consider a feature like Positive Pay or ACH filters. Positive Pay essentially serves to protect your account by allowing you to be the gate keeper for all outbound checks. Nothing clears without your approval. Though much more work on the front end, it affords the business owner the peace of mind that his account isn’t in jeopardy 24 hours a day.
Finally, if something can’t be reconciled, it’s a symptom of something wrong. Books should balance. A missing dollar today could be a missing thousand tomorrow.
Gym HQ / A Clubready Compnay