I am both passionate and blunt about financial tracking. As a gym owner, and frankly as a manager, coach/trainer, admin, or anybody else in a fitness business, you must understand how to track your gym’s financial performance. Financial tracking is one of the best OUTPUTS to show you how you are doing.
In this article, I have a sole focus - to help you greatly improve how you track your financial performance inside of your gym or coaching business.
To get to that outcome I’ll walk you through these major sections:
- What does it mean to track financial performance in your gym?
- What should you track to properly assess your gym’s financial health?
- How (broadly) “should” you track those metrics?
- What can you do to improve your gym’s financial performance?
- How do you get your team to help you improve your gym’s financial performance?
A little bit about me so that you have context of where I’m coming from with my arguments as well as how I “see” the fitness world.
I’m Jim Crowell. I have been the CEO of a global fitness education business, OPEX Fitness, I have successfully owned and sold multiple gyms, and I was a successful hedge fund trader. I earned my MBA from the University of North Carolina in 1.5 years while working full time, and I was a double major in finance and economics from Penn State where I also played Big Ten Men’s Tennis and ran a large fraternity. I’ve competed at the CrossFit Games, and now I have the privilege of working with outstanding fitness and wellness companies bringing world changing products that help people live better lives. I LOVE fitness and wellness and I love helping people and companies who help their customers get healthier and happier
OK, let’s get to work!
What does it mean to track financial performance in your gym?
When you open a for profit business, in theory I am making a few assumptions:
- You are attempting to make profit
- You believe that the money that you are investing into your business is the “best” place to put your money to work
In practice, many small business owners open businesses because they want to maintain a specific lifestyle more so than make profit. I respect that greatly, but we must align on an outcome for this article to make sense.
With that, let’s agree on something huge; if you open a business, you want it to be sustainable. Some want sustainability in the form of higher profit year in and year out, some want low stress and low work hours per week (ie “freedom”), and some want sustainability in the form of outstanding client results where financial profit isn’t “important” to them. Most people I talk to want all three haha; what you must decide is what YOU want to achieve financially so that you can set yourself up to track and improve the metrics for the success most important for YOU.
Simply stated, you need to understand two things in your financial performance:
- Where are you financially?
- How did you get to where you are financially?
We’re not going to go down the financial forecast rabbit hole, but know that if you properly track your financial performance, you can setup a simple forecasting tool to help you gauge where you will (or may be) “x” number of months or years down the road.
What we are going to discuss are the big 3 financial statements - the balance sheet, the income statement and the statement of cash flows! We don’t need to get more complex than those statements for you to have a very keen understanding of where you are and how you got there.
The Balance Sheet = Where You Are
Think of the balance sheet as a snapshot in time. The balance sheet is what you have and what you owe. It is made of and “controlled” by the accounting equation
Accounting equation: Assets = Liabilities + Shareholder Equity
All that means is that your assets - which are things that should help you make more money in the future - are equal to your liabilities - what you owe to others + your shareholder equity - what is invested in the company
If you’re newer to accounting and finance please re-read that last section and let it sink in for a few moments. When I digested the accounting equation, my entire perspective on financials changed forever. They began to make sense, and I began to understand WHY I was tracking what I was tracking. I understood that if I “bought” an asset, perhaps fitness equipment, I either needed to lower another asset, perhaps cash, or I needed to take on debt, a liability, to pay for it. The equation MUST work! You (or your accountant) can make a mistake, but if your numbers are correctly input, your assets must = your liabilities + shareholder equity
Whew! Are you as excited as I am about this?? Haha
Now, what are we really paying attention to in the balance sheet? We need to see how our business is made up. Do we have a lot? Do we owe a lot? Did we invest a lot? Are we building up our assets by taking on new investment, taking on debt, or earning (we’ll get to operating success shortly) money from your customers?
The balance sheet shows you the result of how you’ve built your company financially
The Income Statement = How Is Your Operating Business Doing & How is it Changing
If we know where we started + where we are now via our balance sheet, we now must understand how profitable we are over periods of time.
The “best” way for us to understand how our operating business is doing is to look at our income statement. Btw, you may have heard this called a “Profit and Loss Statement,” a “P&L Statement,” or quite simple “P&L.” All are the same thing
What we’re looking at here is how your business is operating as it relates to a few major financial areas:
- Revenue - how much “money” is coming in by selling your products and services
- Expenses - how much it costs you to serve your customers. Those costs are broken into two categories
- Cost of Sales (or Cost of Goods Sold depending on the business type) are sales directly attributed to serving your customers. For personal training or 1:1 coaching businesses, personal trainer commissions/costs would fall into this category. Also, credit card costs from charging your customers would fall here
- Selling, General, and Administrative Expenses - or SG&A - are the costs to the business regardless of how many customers you served that month. Typically, this is where items such as rent, insurance, gym cleaning, etc expenses fall
- Profit (or loss) is merely the difference of revenue and expenses
A quick example to hammer this home: In a given month, if you earn $30,000 in revenue and it costs you $20,000 in total then you would have earned (or profited) by $10,000 over that month.
Your income statement shows your profit or loss over a specified period of time. Most business owners look at their profit and loss statements on a monthly, quarterly (3 month), and annualized basis.
How does your income statement “connect” to your balance sheet?
This is something that is often an eye opener for gym owners, so it’s worth a quick touch here. Your balance sheet contains a line item most commonly referred to as Retained Earnings within the Shareholder Equity section. Think of retained earnings as how much profit/loss your business has made minus any dividends (owner draws would be considered dividends here) over time. In our above example of earning $10,000 in profit over a month, where does that $10,000 in profit “go” after that month? Simply stated, when you “close” the month (this happens automatically in accounting software such as Quickbooks, Xero, Freshbooks, etc…) that $10,000 goes from income to retained earnings assuming you don’t pay a dividend out to investors on it. And, if that $10,000 was earned in cash - ie your customers paid you $10,000 in cash vs owing you $10,000 for services rendered, aka “Accounts Receivable” - then your cash account, an asset, would go up while your retained earnings account, $10k profit in this ex, would also go up. The accounting equation balances! How exciting!
*Please note that we could go down some serious rabbit holes relating to taxes, owner draws vs salaries, cash vs accrual accounting, and more clarity on how the income statement “connects” to the balance sheet, but those topics are outside of the scope of this article.
The Cash Flow Statement = Where’s My Cash?
If you are reading this article, you are likely a coach/trainer or gym owner, and the preponderance of you track your business using cash based accounting - ie when cash comes in, and when cash goes out of your business, you account for it then. There is another type of accounting called accrual accounting. People who use accrual track their accounting when events happen even if cash doesn’t change hands at that moment. Neither is write or wrong generally speaking, but it changes how a business looks at their statements.
For most small business owners, their income statement resembles their cash flow statement because they are running cash accounting. For this reason, many small gym owners do not pay attention to their cash flow statements. In my opinion, I still like to look at that statement because it gives me a different perspective of my business, but if you’ve never looked at this statement don’t worry, you’re not alone.
The cash flow statement tracks how cash runs through your business via three main sections of your business:
- Your operations - how does cash work through your business simply by “doing business?” This is where your customer revenue, your normal business expenses, etc “travel”
- Your investments - if you are investing in assets such as buildings you would track cash movement here
- Your finances - if you take on debt or pay debt down, that cash movement would happen through this section
The reason why this is so important is because you can see how cash is entering and leaving your business, and cash flow is absolutely critical to your business. Without cash, you cannot pay your people, and you certainly can’t grow your business.
In our above example of earning $10,000 in profit on the income statement which ends up as retained earnings in the balance sheet, that cash flow - assuming it was paid in cash vs owed later - would all go through the cash flow from operations section of your cash flow statement.
Financial Tracking = Clarity
You want to track your financial performance because it gives you clarity on where you are and how you got there. Once you know where you are and how you got there, you can design what “levers” you can, and should, pull in order to effectively grow your business to where you want to go.
Typically speaking, businesses want to:
- Increase their revenue - more revenue = more options. If you have more cash coming into the businesses, either you can spend that cash to grow your business or you can pay that cash out to investors (ie YOU!). Revenue is important for all businesses except those that are in the very late stages of their operating lives. That is another conversation, but know that sometimes businesses reach the end of their lives and they decide to lower their cost structure significantly in order to earn more profit - ie cash for investors - even on lower revenue.
*Notice that I didn’t say “decrease expenses” here. There are certainly times it’s important to lower expenses, but if you have a “flywheel” - ie a business model that grows on itself - you will actually need to increase your expenses to support significantly higher revenue, and that’s good. You are earning more profit even with more expenses
- Increase their assets faster than their liabilities - That means equity is growing as well as assets which should support higher earnings down the road
- Increase their cash flow from operations - essentially this means make more profit in the form of cash. Simple enough, right? Haha! As a small aside, you should know that investors scour the world for businesses that “spit off” - earn - a lot of cash after everything is said and done.
If your business earns a ton of cash after paying all employees (owner operators included), paying all interest on debt, etc...you are building a business that could be sold one day.
There are many ways to run outstanding businesses, so don’t get too hung up on specifics of “what is good,” just take in the broad principles of what these things mean so that you can determine what makes the most sense fro your particular business(es).
What should you track to properly assess your gym’s financial health?
We cannot have a great discussion on what you should track until we define the difference between inputs and outputs.
Your financial performance is an output. Performance, in and of itself, is the result which means it happens AFTER the work gets done. You may have launched a new service that helped you earn that $10k in profit in our above example. The work you’re doing make up your inputs, and the results you achieve by doing that work - and also either having some luck or not - yields your outputs
With that delineation in mind, we’re going to discuss the financial performance outputs in this section, and I’ll dig into the inputs in subsequent sections of this article
What Financial Performance Outputs Should You Track?
If you’ve never tracked your financial performance, take a few calming breaths and hang with us because putting a system into place that works for you will hugely impact your business.
If you are not currently using an accounting system such as Quickbooks, Xero, Freshbooks, or another quality provider, I encourage you to begin to do so. I also encourage you to speak to an accountant to help you produce your annual taxes (and things such as VAT if you are outside of the United States). They can help you get your books setup, and there are more and more services today who can actually produce your accounting statements for you for a few hundred dollars per month. At any rate, you need to have accurate financials, and you need accurate tax preparation if you want to maintain a stable business, so I encourage you to get this setup well now if you’ve not already
You need to track your financial statements and the sections within your financial statements. That means you should, by month, produce accurate statements depicting:
- Your balance sheet showing where the business was after the last day of the previous month
- Your income statement showing what your business produced, profit and loss-wise, last month
- Your cash flow statement showing how cash moved in/out of your business last month
When you have that cadence down, I then like to aggregate those statements into a few more views:
- Annual views - How is your business doing this year. Then, after December 31st (assuming that is also your fiscal year) you would have an entire yearly view to look at vs prior years
- Rolling 12 months - This shows the previous 12 months aggregated together so that you can see if you are improving on an ongoing basis
- Quarterly views - Similar to annual views, this helps break the business success/failure into shorter time periods for you to take action on
Once you have those views setup and a consistent process of producing monthly statements, you need to look at a few important components that makeup those financial statements:
Income statement components to track
You need to understand your revenue trend first and foremost. Are you making more or less revenue than you were “x” months ago. We won’t dig down the rabbit hole about why you’re making more or less, but the purpose of looking at these components is for you to gauge not only what is changing but why it’s changing. You should track the total revenue and you should also track the percentage increase/decrease of your revenue over those time periods
You need to then understand how your costs are increasing/decreasing, and you should understand how they are changing as a percentage of your revenue. More specifically, you need to track your cost of sales, your SG&A as outright amounts as well as percentage increases/decreases, and you then need to track each of them, individually, as a percentage of revenue. For ex, if your cost of sales was $10,000 and your revenue was $30,000, your cost of sales as a percentage of revenue is 33%.
Finally, you need to understand your margins. The margins I want all gyms to look at are:
- Gross Margin: revenue - cost of sales
- Gross Margin Percentage: gross margin / revenue
- Operating Margin: Gross margin - SG&A
- Operating Margin Percentage: Operating margin / revenue
We don’t typically discuss “net margin” because that is more often tied to a profit number AFTER taxes, but most small gym owners run their companies as LLC’s or LLC S-Corps meaning the business acts as a pass-through entity. That means that taxes do not get levied onto the business, itself, they get levied onto the owner as an aggregation of all of their taxable income. It would be too complex and annoying to figure out specific taxes vs business profit, so I tell owners to look at operating margin and talk to an accountant / wealth manager (be discerning with who you speak to) to optimize their individual tax exposure
Balance sheet components to track
When you think about tracking your balance sheet, you want to think about the short term - less than 12 months - and the long term - more than 12 months.
From the time range then comes the safety of the business. I’ll define safety as the combination of short term assets and short term liabilities. You may see this called liquidity. Whatever the name, you are must determine if you have enough assets, typically cash, to cover what the business will owe. What are some examples of this:
Working Capital & Current Ratio
Working capital = Short term assets minus short term liabilities
In the case of most small(er) gym owners, this will essentially equal cash minus short term liabilities such as current (within 12 months) portion of any debt, rent that is owed, taxes owed, salaries/commissions/etc owed to your staff. When you pay attention to this metric, you’ll quickly learn if/when you’re running out of cash to keep the business properly operating - ie if you’re running out of runway
Current ratio is similar to your working capital except its your current assets divided by your current liabilities. It’s merely another perspective to help you understand where you stand, liquidity-wise.
You can see that within your working capital and current ratio exists amounts of cash, inventory (if you have it), prepaid expenses such as rent (if you have it), taxes owed, salaries owed, current debt, etc...so it stands to reason that you should have a good idea of what those numbers are if you want to be clear on what makes up your liquidity.
Longer term I like to watch solvency and capital structure ratios. Those ratios include
Debt to Equity
Debt to equity, although it can have different definitions depending on company type, typically is calculated by taking your total liabilities divided by your total shareholder equity. This ratio is very helpful in showing you how you are financing your business - via debt or via equity investment. I have seen thousands of sets of numbers for coaches and gyms, and no two sets of accounting books are identical, so it’s a helpful metric for all gyms to look at even those who do not intend to finance their business with any debt.
There are many other ratios, be them liquidity, solvency, operating efficiency, etc... ratios that may be helpful to look at, and there are plenty of other metrics that companies can watch, but I would prefer you look at far fewer metrics highly effectively than trying to track dozens of metrics poorly.
Cash flow statement components to track
I am going to keep this one very simple for gym owners. I only want you to track your ongoing cash position as well as the cash flow statement, itself. Small gym owners are lucky in that their business models are simple - not easy, just not overly complex haha - so we don’t need to get too fancy with how we track cash movement.
Please note that I do not believe that there is one perfect set of numbers that gyms should hit, and I also believe each different type of fitness business model will yield different financial performance outputs. However, here are some broad metrics I like small gyms to strive to meet or exceed:
Revenue - $30,000/month - of course this depends on how long the gym has been in existence, the costs of the business such as rent
Cost of sales as a percentage of revenue - below 40-45%. Your business needs high enough gross margin percentage to be able to make enough cash flow with a smaller number of customers than a big box gym can handle
Gross margin percentage - 55-60+%. If you’re thinking “Jim, that’s just 1 minus the cost of sales as a percentage of revenue, you’re right haha
Rental expense and rental expense as a percentage of revenue - I almost hate to put a number in here, but I will make a broad statement, you must get rent expense to be 20% or less of revenue when you are “optimized.” If rent eats up too much of your revenue each month, it’s just too hard earn enough cash flow to offset that
Operating margin - 15% or more. Now, it’s important to note that for accounting purposes (not tax purposes), I am figuring that the owner operator of the gym gets paid as part of SG&A expenses. I have seen countless gym owners not pay themselves a salary but say they are making a profit when, in reality, that “profit” is really just their salary for their work. I understand it may be tax efficient to pay a gym owner in part/full through owner draws, but I encourage gym owners to factor in their salary as an expense just as a helpful visual into their business when figuring their operating margin
I am not going to list specific asset or liability amounts nor am I going to list exacts on debt ratios etc because of the number of different structures possible, but it’s important that gym businesses have plenty of cash on hand to support their cost structure. I like for gym businesses to get to 6+ months of SG&A expenses (and debt interest payments) in cash on hand for safety purposes. It may take a little bit to get there, but that is a very good place to be for safety purposes
Summary of what to track to understand your financial performance
Track all 3 financial statements - the balance sheet, the income statement, and the statement of cash flows - each month, each quarter, each year (and during the year on an annual basis), and a rolling 12 month average.
Within the financial statements, keep close track of:
- Cost of Sales and cost of sales as a percentage of revenue
- Gross margin and gross margin percentage (vs revenue)
- SG&A expenses and SG&A as a percentage of revenue
- Rent expense as a percentage of revenue
- People expense (you included if you’re the owner) as a percentage of revenue
- Operating profit/loss and operating profit/loss as a percentage of revenue
- Bonus - see what percent you pay in taxes (for your business only) vs the amount of profit you make. If you can’t find that number, don’t sweat it, that’s why it’s bonus
- Total Assets
- Short term assets
- Long term assets
- Total Liabilities
- Short term liabilities
- Long term liabilities
- Liquidity measures
- Working capital
- Current ratio
- Capital structure ratio such as debt to equity
- Shareholder equity
- Retained earnings which is just your profit from the income statement minus dividends paid
Cash flow statement
- Just track the statement along with your cash amounts from the balance sheet
While this may seem like a lot, I encourage you to simply get your accounting books setup to surface these metrics for you on a monthly, quarterly, annual basis. Once you get setup, it’s just about looking
How (broadly) “should” you track financial performance outputs?
Good accounting and financial tracking is all about the quality and consistency of your data entry. If you use one of the accounting systems I mentioned, the process I’d encourage you to use is
Track your expenses weekly. If you use a newer system that pulls in your credit card data, you’ll likely only have to check that the expenses are properly categorized to the proper expense lines (a few clicks at most), but if you are using a system that doesn’t track spending or you make purchases via cash or checks that you need to input, you should make sure all of those expenses are input into your system each week. While monthly may sound a bit more efficient, we’ve found many gym owners lose their receipts/notes of their spending with anything longer than a week.
Get all clients onto an auto-renewing credit card or electronic bank transfer monthly (or weekly). This means you need to utilize a system such as PushPress to auto-bill your clients and then send those funds directly to your bank account once they’ve cleared.
Input any sales (revenue in) into your accounting system weekly along with your expenses.
Reconcile your expenses and revenue vs your bank account weekly after inputting your revenue and expenses. Again, this is a huge reason why good accounting software is so important. Good software now basically allows you to reconcile automatically because it’ll pull in revenue and expense info in while simultaneously pulling in bank transactions. It’ll then look to see if they match; if so, you’re good to go. If you’re not good to go, you’ll need to see what’s incorrect, fix it, and then finish your reconciliation.
*Note that with revenue your processor will typically pay you with multiple (or numerous) transactions aggregated together. When this happens, you may need to add up revenue from those same transactions to properly reconcile. This is another reason why many gyms choose to use cash accounting; they simply don’t count revenue until cash hits the bank. While that is logical, do make sure that all of your clients are paying you properly - hence, another reason to use a system such as PushPress to organize and bill your clients properly.
Account for any debt repayments, investments made or paid for weekly along with your revenue and expenses
“Close” the books is when you’ve confirmed your reconciliation and produced your financial statements. You’ll close your books right after the end of each month; at this point, you should know that your revenue and expenses have reconciled, and you should have accounted for any asset or debt changes in the month.
Review your financial statements and ratios that I mentioned in the previous section to gain a very thorough picture of your business.
Factor your financial perspective into your strategy moving forward. Will the trends that you’re seeing in your financials continue? Why or why not? Will the work that you are currently doing be enough, or the right work, to drive better results in the future, are you properly reinvesting back into your business to grow your profit over the long haul, are you maintaining or growing your financial safety.
What can you do to improve your gym’s financial performance?
Remember when we discussed inputs vs outputs. Here is where that conversation comes alive. It’s very important to remember that you don’t fully control your outputs. If you do all of the work necessary to grow your revenue and profit but then a hurricane strikes your gym, all of your hard work will likely not pay off in the form of higher profit at that time. Alternatively, you may know somebody who runs a gym with terrible processes, who doesn’t take care of their people, but who lucks out when a celebrity endorses the type of fitness they provide. All I’m saying is that you are NOT in full control of your financial outputs.
What you are in control of, however, are the inputs that directly and indirectly lead to your outputs. What are some of the main financial inputs I see being critical for gyms:
Fully controlled inputs
You have full control of (in most cases) the business model you run, the experience you offer, and the processes you put into play to serve your stakeholders - namely your staff and your clients. The fully controlled metrics I want you to track:
- Consistency of the experience in your gym - if you have mapped out how you want your gym to run, you need to track how often it runs that way. Do you have coaches lead warm ups? If yes, are your coaches doing that 100% of the time? And so on…
Note that things such as the cleanliness of your gym, the organization of your gym and business processes, the way you bill/charge, how, when, how often, and how well you answer client questions, and many other components fall into this category of experience
- Consistency of your care for your staff - do you have weekly meetings? If so, are you prepared for them? Do you do quarterly reviews and mentoring with your staff? If so, are you always prepared for that? And so on…
If you are asking yourself “how can I possibly track these things” I would say something as simple as a google sheet (or excel document) is a great starting point. What are the top 3 things you want to track for your experience, how can you and your staff check boxes and score yourselves on those 3 priorities, and how can you ensure you get daily/weekly/monthly feedback
Partially controlled inputs
Here is where you connect your fully controlled inputs to your financial outputs. Some of these inputs are more in your control than others. Regardless, we want you tracking them. Here is a helpful list of partially controlled inputs to track:
- Client success
- Client Net Promoter Scores (NPS)
- Number and severity of client complaints
- Client Retention - by month
- Number of clients your gym has
- Number of clients your gym lost this month
- Percentage of clients lost
- Client acquisition
- Number of clients acquired in the month
- Number of sales consults had
- Number of new email addresses (leads) and/or phone numbers acquired
Just as with your financial outputs, two things are important to remember here. One, wherever you are today, your goal is to improve as you go forward. Don’t get too hung up on exacts, get hung up on improving your inputs month in and out. Two, there are many many more metrics that can be tracked, and many of them can be helpful. However, until you are highly consistent with a process, do NOT try to bite off more than you can chew.
How do you get your team to help you improve your gym’s financial performance?
I would be remiss if I didn’t include a very quick blurb about how to achieve both these inputs and outputs. As with all businesses, whether you are an owner, a manager, a coach/trainer, an admin, or anywhere in between, you have a finite amount of resources, time being a huge one, with which to achieve your financial goals. You need to allocate your resources to so many different things on a daily, weekly, and monthly basis. It can sometimes feel like you just don’t have the time or money to do what you wish you could do. I understand that deeply; I’ve faced the same challenges in all of the businesses I’ve worked for or owned.
In every successful business I have studied and/or been a part of, the businesses that have done 3 major things consistently well have all grown their financial success over the long term (including short term downturns such as 2008 economic collapse and the 2020/2021 pandemic):
- A very clear, and clearly articulated vision and mission for the company with a clear set of directives articulated to the company that align with the core values of the company
- Relentless consistency of improving their ongoing processes
- A deep commitment to the care and betterment of their clients
If you lack one of these, you can be successful but that success has a shelf life. I’d argue, however, that if you lack two of them that you’ll never gain any short or long-term momentum.
What do all 3 of of these priorities require?
Buy in and quality execution from your staff. As a leader, regardless of your title, you owe it to yourself and your team to take the requisite time to think through and explain where you intend to go. When your team understands your goals, your plan to get there, and how you’re going to do it, all of you can hold each other accountable to get there. These metrics are the starting point to get there, but your consistency of earning company buy in with both the financial inputs and outputs are critically important to your ongoing success. Take the time to ENSURE your team is with you and you’ll get there faster and improve for longer!
Thanks and best of luck getting to work!