If you currently own a gym or plan to open one in the near future, understanding the financial aspects of the business is critical if you want to succeed. You probably opened a gym because you are passionate about fitness or because you have spotted a business opportunity.
But, building the business up is much more than renting a space, hiring trainers and buying gym equipment. Understanding the financial side means you are paying attention to the nuts and bolts of the business and the realities you are facing. Pouring over balance sheets, cash flow projections and budgets might not be your idea of running a fitness business.
Nevertheless, paying attention to the financial basics of the gym business will help both in the short- term and long-term. You might think this is hard but in reality you only need to focus on a few key items. Some of these are discussed in this article.
Understand Your Business Plan
Even if you do not understand the intricacies of financial management, understanding your business plan is a must. While understanding business plans can be a time intensive process, it pays huge dividends in the long run.
The business plan is a document which contains detailed information about aspects of your business such as costs and revenue projections, target market, customer base and growth forecasts, among others. Understanding this document provides you insights into how your gym should work and the milestones you should watch out for.
Another reason why you should understand your business plan is that when things go sideways, you have a document with assumptions against which comparisons can be made. This allows you to brainstorm, adjust your assumptions and make necessary policy changes. An advantage of really understanding your business plan relates to financing. Persuading creditors and investors as to the viability of your business is much easier when you understand your business plan.
Understand How Cash Flow Works When You Own A Gym
Another important financial aspect you should really understand when you own a gym business is the cash flow.
Cash flow is the bloodline of any business. Paying attention to this aspect is the sole determinant of whether you will be able to keep your business open and running on a day- to- day basis.
When establishing a gym, the upfront costs are much. Paying for franchise, gym space, trainers, structural enhancements, gym equipment and accessories will stress your financial resources. That's why it is important to have an income model that cushions the effects of costs and provides profits.
Understanding cash flow will help you make decisions on how to structure and price your memberships. This understanding will also ensure you avoid a model such as an annual prepaid membership plan or membership plans with no contracts backing them. These models lead to a risky income structure and should be avoided. A basic understanding of cash flow also exposes you to knowing your cost numbers and the early signs of bankruptcy and business failure.
Understand Tracking and Budgeting
Tracking the details of how a business receives revenue and spends money for expenses is important not only for planning purposes but to also have early warning signs for when the business is headed for trouble.
Tracking extends beyond revenues and expenses. It also applies to those aspects of the business that can be expressed in financial terms. These include:
- Daily Revenue
- Average Revenue per Member,
- Average Cost of Acquisition.
Naturally, if you are a newbie in business you might find these metrics hard to understand or compute. But practice over time makes you familiar with them.
Also, you might be scared that tracking involves burning the midnight oil poring over spreadsheets. In today's digital world, all you need are a couple of apps or software to track your revenues, costs and other metrics automatically.
Closely related to tracking is budgeting. You must understand that the financial health of your business requires preparing a budget based on realistic projections. Use this as the basis for your financial decisions. Having a budget before expenses occur and analysing the fit between your budget and actual expenses will go a long way in not only detecting problems in your business but also questioning the assumptions upon which your financial decisions are based. Like tracking, there are thousands of business software that can be used for budgeting.
Understand The Need for Professional Financial Advice
As already stated above, it is important that as the owner of a gym business you understand and master a few financial aspects.
However, your entrepreneurial bent might mean that you do not have interest in the technical parts of the financial side of your business.
In this case, hiring a financial expert is always a good decision. Such an expert will provide tremendous help in looking over the fine points of financial contracts, investments and the paperwork for loans and other obligations.
Naturally, an expert will understand financial metrics better than you and is positioned to give you objective business advice especially as related to the financial side of the business. A large number of business owners are tempted to do away with the services of a professional financial adviser but the benefits in the long run outweigh the costs.
In the end, understanding the financial side of owning your gym business takes research and commitment on your part. It is crucial to understand that finance plays a significant role in your business. Once you fail on mastering it, your business might be moving closer to bankruptcy than you think.
The gym business is competitive. Understanding the financial side of your business gives you an advantage when making decisions not only about your business but also on how to compete with others.