In this episode, John talks discusses one of the most important issues gym owners face, their own finances.
John isn’t just a #taxgenius, he’s a gym owner, and the author of Profit First for Microgyms. He also runs Incite Tax, a multi million dollar tax and accounting firm which is the largest firm serving microgym owners in the country. John has been teaching microgym owners how to improve their cash flow for 10+ years and deeply cares about helping gym owners get paid what they’re worth.
Dan Uyemura: Welcome to The gymOS Podcast, helping fitness professionals become better business owners, one episode at a time. Hey, guys, what’s up? I got a special guest for you guys today, John Briggs from Incite Tax, but you probably know him for his book Profit First for Microgyms. This one’s actually kind of important to me as you’ll hear when you check out this episode, but I make a lot of financial mistakes I’ve learned talking to John. Actually, I’ve known it all along, but he’s just really exposed it for me. I am not the best with my money. I’m not the best, in general, with being on top of stuff like John wants. And I think if any of you guys are like me and you’ve got these, like $5 recurring charges that just hang around for 10 years, this is one you’re gonna want to listen to. John kind of goes over the concepts of Profit First, he actually gives you kind of the framework for how you can do it yourself if you want to. Of course, I recommend you buy his book or check out his stuff online to figure out how to actually dial this in and do it right. But you know what? Any starting point is better than no starting point, so if you feel like you’ve got some financial problems or you’re maybe one big crazy event away from being underwater at your gym, check this episode out because John’s gonna give you some really good tips. I’ll catch you on the side.
Alright, here we go. Welcome, everybody. Another episode of The gymOS Podcast. This is Dan Uyemura, CEO of PushPress here. Today we got a pretty special guest for you guys. A lot of you might have trouble managing your money on a month to month basis. A lot of you guys might be one month away from maybe even going out of business. If so, I can tell you from experience, you’re not alone. The guest we have on today could probably tell you experiencing that alone too. He’s helped a ton of gyms fix their financial situation. Today we got John Briggs. John is from Incite Tax. He’s the author of Profit First for MicroGyms. And, a generally good guy, owns a gym in the community, and he’s been working hard to try and help other gym owners correct and fix some of the approaches that they have the money to try and shore up some of these financial situations they have. So without further ado, let me let John introduce himself real quick. Tell us a little bit about yourself.
John Briggs: Yeah. Dan, thanks for having me on here, so I’m a CPA by education, and I have a firm, I’ve owned this firm for 10 years now. Then, a couple years ago, I decided, you know, we’re having fun serving the gym owners, why don’t I become one as well? So I bought into the gym that I work out at because it was failing and thought it’d be a good experience to figure out if I could also help a gym turn over a new leaf from the ownership side, not just from a financial planning side. We have a great team here, there’s 20 of us, and we think the world is a better place, the more gym owners there are. The more assistance they can provide to people, the better the world is in general if you think about the benefits of health and what that does for the economy, for people’s take home pay, for what they’re able to do, how long they can live. So we’re super stoked about being able to serve the gym industry, and we want to keep them in business as long as possible.
Dan Uyemura: Yeah, I think that’s awesome you guys have that viewpoint. That’s exactly how we feel here. In fact, as you were talking, I was kind of thinking, one thing that’s cool about the CrossFit community, it’s almost like the church community in that, like you’re a CPA, I’m an ex developer, there are people from the professional realms that have found their way into fitness and these communities that are happening in these microgyms, and they love it so much that they’re bringing their professional skill into the arena. Churches probably the same thing too. I think that’s a pretty cool thing that you’re able to bring the financial planning aspect into the arena. Here, real quick, before we begin, I see a sign in the background, says “ck the IRS,” uh, what is going on with that? Can you pull that into frame?
John Briggs: Yeah, it’s actually a board game. Stick…
Dan Uyemura: The IRS…did you do that on purpose?
John Briggs: I did. Yeah, it’s a real board game, it’s modeled after Monopoly.
Dan Uyemura: Okay. Well, you got me with that because I had to know what it said. Damn, I had a question to ask around that church thing, too, and I forgot it because I got so distracted by “Stick the IRS.” But let’s dive into what it’s like to be a gym owner that’s struggling because you’re probably one of the few gym owners that I know that actually inserted yourself right into the point of struggling. Most of us, we started a gym, and then we realized there’s some stuff we gotta fix. You’re just like, “Hell, man, this one’s really in bad shape. I’m going right in.” So why don’t you tell us what it was like those first moments where you took over the gym that you already knew was in trouble. What was that like?
John Briggs: It’s funny, the moment itself, I would say it was months, many months, but yeah, certainly in hindsight, it would have been easier to create a profitable gym from scratch, but yeah you jump in and you’re looking at these numbers and you’re looking at the commitments that were made by previous owners, and you’re like, “Wow.” For example, they had way too much square footage for the number of members that they had. They made a classic mistake. They had, because I was at the gym when we were at a smaller location, 2000 square feet, and they had maybe one class that was at capacity, so automatically of course, that means we should jump into a bigger space. Well, let’s go from 2000 square feet to 7000 square feet. Yeah, we can handle that, the members will come because it’s a bigger space, we’ll get more. Well, that didn’t happen. Anyway, so we’re stuck with this rent obligation, it’s tied to the business with not a lot of members. We had a scenario where owners, the previous owners did nothing to actually create a vision or a culture, so each coach was able to do whatever they wanted when they showed up to coach their classes. Some of those became pretty entitled, and we used some passive aggressive techniques to get them out, like putting them on probation, taking away classes to see if they could improve or, you know, they chose to quit. But I can tell you, it’s stressful because, as I mentioned, health is a huge benefit for everybody and fitness is a big part of that. So we had this community that I was a part of, I enjoyed my workout routine, the location is great for where I work and live, but it’s like man, now there’s this additional stress. What do we do so that these people can keep this habit going in their own lives? You almost don’t even know where to start sometimes when you look at it, so we just started with revenue compared to expenses. We don’t have enough. Great, so that means we need to focus on sales. Okay, let’s look at our expenses though, and we just hatcheted through man, like surgical, I would say.
Dan Uyemura: So let me ask you this. If there’s a gym owner out there right now, who’s listening to this? And like those, there’s only so many levers you can pull to become profitable, right? You know, make more money, spend less money, are basically the two easiest ones for a gym owner. If they’re in that boat right now, what do you think they should attack first? Or is it both in tandem?
John Briggs: For most gyms that we come across that are struggling, they have enough revenue, and it just comes down to being more conscious and controlled and decisive about their expenses. Because what happens is sometimes when things are good, our expenses will increase with the good increase. But then, if it drops a little bit, expenses don’t drop at the same pace, and so we’ve added, you know, financial fat onto our gym, and it’s harder to get rid of it. So a lot of times it’s as simple as going through the expenses and identifying “these aren’t really good expenses.” I teach it this way. A lot of times, people have spoken to their accountants about their expenses, the accountant comes back and says, “Is it variable? Or is it a fixed expense?” This is accounting jargon, and I give gym owner’s permission to not care at all what those two words mean, because I don’t think understanding if your expenses are variable or fixed helps you make better business decisions. I think the two criteria should be: “Is this productive for my gym, or is this not productive for my gym?” I know it sounds really simple, but gym owners aren’t taking the time to actually ask those questions, “What do I get out of spending this money?” And if they’re honest with themselves, they’ll realize there’s a lot of expenses that they could cut back and still provide a great service to their members and allow them to be profitable, which then therefore allows them to stay open for us long as they want.
Dan Uyemura: And I guess, in order to even get to that point where you’re looking at expenses and deciding is this productive or not. I feel like I know quite a bit of gym owners who don’t even look at their chart of accounts, maybe don’t even know what their chart of accounts are, right? Like, what would you suggest if somebody right now is like “Okay, great, I’m going to look at my expenses…where are my expenses,” what would you suggest that they do?
John Briggs: Yeah, that’s a great observation. Their bank account is where I would recommend they start. Print off, and just look at the last 12 months. Let’s start small. Give yourself a little victory, right? Just like when a new member comes in, you want to give them some sort of small victory the very first workout. It’s no different with our financial habits. So look at last month’s bank statement. That’s it. And look at your expense items and you might even realize “I don’t even know what this expense is for.” That’s probably a good sign that you don’t need that expense.
Dan Uyemura: Yeah, so we can actually do that here at PushPress, my partner Brian does that, and it’s always the first, like it just happened yesterday, towards the first of the month I’m like, what is this expense? And what is it for? What is this expense? And what is it for? But it’s good because we just found that we had paid two months for some service that we didn’t even know. I think we got, someone took our card, it was like something in the medical field or something, totally random. Yeah, it’s a good idea. So, one thing that I would do when I owned the gym is I would print out that bank statement and I had a bunch of different highlighters, and I would go like yellow, green, and red, I would highlight them, I had a color coding system, and that way I can kind of scan and see. If I had a lot of red, then I’m like, “Okay, I need to devote time,” because time is an issue, and if I looked at my thing and I see one or two red lines, it doesn’t feel worth my time, but if there’s a bunch, then I need to sit down and fix all of these red things. So if you feel like you’re kind of strapped for time or you need a system, I need systems, so that’s kind of that could be one way to do it.
John Briggs: I think it’s a very simple approach that any gym owner is capable of doing, so that’s a great starting point.
Dan Uyemura: Yeah, I think that’s a good topic too about getting a little win. I mean, it’s in your gym. It’s so obvious, when someone comes in, you’re just like, “Hey man, let’s not try and lose 40 pounds today, let’s just get in and have a good time and just enjoy fitness for the first step.” But then, when we apply that stuff to our own lives we’re just like, “I want to become profitable tomorrow!” You’ve spent four years screwing up your books, so you’ve got to take the little wins. I think it’s a great piece of advice. Cool. So when you’re looking through these buckets of expenses and looking through this stuff, we’re gonna flip back to this chart of accounts mode. What do you see, in your clients, are the biggest offenders where they’re bloated out of proportion that can easily be trimmed back. Like just classifications of expenses, I guess.
John Briggs: Dues and subscriptions. You were just talking about that $12 expense, right? Those $12 expenses add up, and if you’re not paying attention to them, you don’t even realize that you’re paying for it because you’re not using it. Do you have some sort of service that maybe you’re paying for all the bells and whistles, but they have a less expensive version of what you’re actually using or music services, so many gyms have multiple music subscriptions. I get it’s only $10 to $15 bucks a month, but that crap adds up and with the margins that you have as a gym owner, especially if you’re not profitable, you’ve got to take the time to get rid of that first. I mean, those are the most common ones that we see. When I joined the gym, there kept being this $5 charge, and every month, I asked the other business partner, “What the hell is this expense?” He finally found out it was from a previous domain service they were using for their URL that we haven’t used for a year and a half, but this company just kept charging him. In other scenarios, I know a gym owner out in North Carolina, where he bought one of those bulldog machines, the floor cleaning machine, and he had a lease-to-own. Well, their contract stipulated, we will keep charging you regardless of how much you paid us until you cancel the payment.
Dan Uyemura: Even if you’ve come to own it?
John Briggs: Even if you’ve come to own it. It was in the contract, and because he wasn’t looking at his numbers the way you should have, we’re talking like, I swear it’s like $4000. He overpaid.
Dan Uyemura: That’s almost predatory. Because who A) understands that language in the contract and B) is like, “Okay, five years from now, in June of 2025 this contract should be over.”
John Briggs: There’s no doubt that there’s an ethical problem with that company who sold him that and did that type of agreement.
Dan Uyemura: Is that Bulldog itself or is that a reseller?
John Briggs: No, it was a reseller.
Dan Uyemura: I love my Bulldog machine, I was hoping it wasn’t them.
John Briggs: Yeah, not the company itself. But at the same time too, you can’t shirk from taking the responsibility of “Yeah, I should’ve been looking at my numbers and realized, wait a minute, why do I keep seeing this monthly lease payment?
Dan Uyemura: That actually brings me to a very pertinent question that I have, because my gym might be going through it soon or went through it. So we negotiated when we got our lease that we would get deposits back on certain times or certain kickbacks vested over time, like they gave us TI kickbacks, not on the first date, but, like every six months we get some. I’m pretty sure we forgot about that and paid the full amount of rent. Do you have a system that you, I’m not the best of this either guys, that’s why I’m talking to him, but do you have a system other than just, obviously, writing it on a calendar? Like what the hell should I have done to make sure that when that six months [came], because they’re written like it wasn’t six months, it was like, 18 months and 36 months or something like that, right? Like, how do you, and same with the Bulldog thing, how do you expect people to remember that? What is your system for that?
John Briggs: You don’t, but you actually said it, I literally would go into my calendar 18 months from now and put a task “your rent payment should decrease based on this,” it’s the simplest way. Everyone, well, I shouldn’t say everyone, you should have a calendar if you’re a gym owner.
Dan Uyemura: Like a big one on the wall?
John Briggs: Big one on the wall are just Google calendar, which is free. I would do it on my Google calendar, you could put a note in your cell phone. You can just set a note for yourself to populate on that date, but whatever system you need to remind yourself, that’s what I would do.
Dan Uyemura: I guess the point is to make sure to do it immediately.
John Briggs: Immediately. Yep. The second you have it set up.
Dan Uyemura: So something I want to kind of dive into that you brought up that I’m the biggest offender of, I actually need your help personally, my finances are not the greatest. But all of these $5, $12 dollars, $15 charges that add up, I would be the first to be like, not worth my time for $5, but as you were saying, I realize it’s actually super important to dial in those $5 charges because you’re actually training yourself to have the state of mind of being financially responsible right? Like, do you think, am I alone here or is this a common thread of people nowadays?
John Briggs: I think it’s a common thread, especially if you’re not bleeding profusely as a gym. From a financial standpoint, it’s easy to just say, “Look, my time’s worth more than that $60 a year or whatever,” like I’ll eventually get to it or something. But, I mean, think about, there used to be more of a kick in the CrossFit community, where people get infuriated when members would cheat reps during the workout and it’s, “Well, they’re only cheating themselves.” “Yeah, but someone else was competing against them and they’re gonna get mad at each other.” That’s effectively what you’re doing is you’re admitting that you’re cheating reps, which we know in the long run is not a good habit to have in your workouts because then every time you feel slightly exhausted, you’re gonna go ahead and give into the exhaust instead of pushing through and, you know, getting a better result out of the workout. This is no different when I look at $5 and say to myself, “You know what if I tolerate that $5, where else is this toleration showing up in my life?” And it could be showing up in areas that have more zeros attached to the number.
Dan Uyemura: Absolutely. Yeah, if I had a dollar for every time I said “it’s not worth my time,” I wouldn’t be in a bad financial spot, I guess. All right, cool. So let’s talk about Profit First as a system, so Profit First is a book that isn’t particularly pointing towards gyms, fitness or anything like that, right? That’s more of a mindset, a framework of financial management. Correct?
John Briggs: Yeah, totally. So we have Profit First, the generic system which is why I wrote Profit First for Microgyms specifically, so that it at least talks to the gym owner. But it’s a framework designed, like it’s structured to be designed for the needs of each individual owner, and there are some actors that just make sense for everybody. But then there’s other things that people need to tweak, that work best for the way their cash flow works, and the different things they got going on.
Dan Uyemura: Yeah, I mean, like every framework you can’t just wholeheartedly subscribe to a framework without taking your own personal circumstances into account. So why don’t you give us the top down layman’s version of Profit First and why it’s effective?
John Briggs: Well, I mean, the first one is just the gym owners work or they live paycheck to paycheck despite working a heroic amount of hours, and so this system helps them really make the time they’re sacrificing with all those hours of putting in, so they don’t stress about the paycheck to paycheck thing. From an overview standpoint, it’s really the idea of spending your money on paper before you actually spend it in real life. The challenge is is as humans we have, there’s this law that this guy coined called Parkinson’s Law, which says that the supply will always increase to meet the demand, and the way this works with business owners is that they have one bank account and their expenses are always going to increase to the extent they have money available to spend. And so we just say, “Hey, how about this?” Why don’t we set up some additional bank accounts for the big expenses that we know you’re going to have or should have, like owners paying themselves. That is the most important expense that a gym can have for you as a gym owner. Set up a separate account for it. So when income comes in and it gets deposited. Let’s take a portion out and put it in the owner’s pay account. Let’s take a portion out and say some for taxes. Let’s take a portion out and set a little bit aside for the equipment replacement that we know where is gonna have to happen at some point down the road. Now when I look at my operating expense account, I have less money in there because I’ve already spent it in other places with other commitments I have already made, and now it’s much more difficult for it to kind of screw us over because I could just look it at the “now” expense, and I can clearly see now how much I actually have available for operating expenses because I’ve set aside the money already for the other commitments.
Dan Uyemura: I assume in your book or through some of the workbooks that you have available, you kind of lay out all the different buckets of these pre-revenue spend categories that people need to pay attention to.
John Briggs: Absolutely.
Dan Uyemura: Okay, cool. So, I mean, that’s good, so if people can find that, then they could start looking at the things that they need to spend before they spend on paper before they spend in real life. Do you recommend one bank account or multiple bank accounts?
John Briggs: Multiple bank accounts.
Dan Uyemura: Are those bucketed in a certain way? Like this is for owners, and this is for expenses of the gym or how do you?
John Briggs: So we call them the “Essential Seven.”
Dan Uyemura: Seven bank accounts??
John Briggs: 1) An income account for all deposits to come into, and that’s its only purpose. 2) Owners pay, 3) Profit to distribute to you as an owner for the risk of being an owner, 4) Taxes, 5) Equipment, 6) Operating expense, and I’m missing an obvious one…
Dan Uyemura: Uh, what about coaches pay?
John Briggs: 7) Team member expense! That’s the one.
Dan Uyemura: I got it. Like family feud. Okay, cool. So you’re getting seven bank accounts, and you’re funneling income into one, and then you’re kind of spreading out. Does income also become your operational expense account?
John Briggs: No. We recommend keeping them separate.
Dan Uyemura: Okay, so does the income bucket get zeroed out every month?
John Briggs: We actually suggest you sit down either once a week or twice a month, but every time you sit down, it gets zeroed out. Yep.
Dan Uyemura: So you’re saying zero out that income account.
John Briggs: Income account. That’s right.
Dan Uyemura: So this is very interesting to me, because now it’s basically like your books almost become your accounting and you take everything from here you distributed across these accounts, this one ends up zero, and then the one account that you kind of get to discretionally spend from probably works its way down to zero, and then you just start all over again next month when the income comes.
John Briggs: So it’s actually a great way to not have to budget because you’re setting aside the money to the main buckets you know they need to go to because most people are really terrible at budgeting anyways. And this way, you’re covering all your bases, all the important things that the gyms gonna have, and it also forces you to see, because especially in the beginning, you’re gonna pay yourself a certain amount, you’re gonna transfer that into the owners pay account. Then you’re gonna compare what’s left in your operating expense account to the bills you actually have, and a lot of times you have more bills to pay, then you can afford to pay.
Dan Uyemura: What do you do then?
John Briggs: That forces you to actually ask those questions. Is this a productive expense? Or is this not a productive expense? And I’m obviously gonna pay the ones that are most critical first to keep the doors open and the service going. And I might find that I’m consistently pushing off certain bills. That tells me I need to cancel that service. Yes, pay the bill eventually, but you don’t need it because you’ve already told yourself this isn’t critical to my operations.
Dan Uyemura: For those gym owners who start doing this process and get to the end of it all and realize like, I paid all the bills, I still have some more bills that are like lights are going off, coaches aren’t showing up if I don’t pay it. What do you do then? Is there like, an order of precedence that you’re dipping out of the “profit first, pay first” type accounts?
John Briggs: Yeah. So the tax account would be the first one I’d take out off, and here’s why, not because, you wanna have money set aside to pay taxes. But if you’re doing this system and you don’t have enough left over, you probably don’t have a profit that you’re gonna pay tax on in the first place. So that’s why I say, out of the tax account first, the next one would be equipment because it’s not an immediate emergency. Those are the first two, then profit would be the one after that. Owners pay being the last one. But we think it’s more important that the owner pay themselves regularly, which is what the owners pay accounts for, then being able to give themselves a quarterly profit distribution. When in the beginning, there’s probably not a profit to distribute in the first place.
Dan Uyemura: And I’m gonna guess that it’s the same thing you want to put yourself in the mindset of getting in the habit of paying yourself.
John Briggs: Yes!
Dan Uyemura: Yeah. Okay. Cool. and I’m assuming also in this book, I haven’t read it, I have a backlog of books I need to read, this is on my shelf. I probably need to push this one forward after all these admissions I made. But I’m assuming in this book that you have percentages or some type of ratios where the money’s going different places.
John Briggs: Yeah, we have a table.
Dan Uyemura: Okay. We won’t give away the secret sauce here. Cool, so how many gyms are you helping right now?
John Briggs: We have a little more than 300 clients that are gym owners.
Dan Uyemura: That’s awesome. And that is like a bookkeeping client, like you’re working with them regularly? Or is that more like you’re consulting them how to become their own Profit First guru thing?
John Briggs: Yeah, all of the above, combination tax consulting, bookkeeping services, Profit First coaching.
Dan Uyemura: All right, cool. So let’s actually dive into that tax thing that you mentioned before. This is an ongoing question or debate I always have with people. I’d like to know your take on getting a refund during tax season.
John Briggs: Yeah, so I think it’s important that we understand if we get a refund during tax season, that means you gave a loan to the government and they’re not paying you interest on it. That’s all a refund represents now. Sometimes the refund is a component of credits that are earned, which means you didn’t pay money in and you just get money back. Great. We’ll take that all day long. But if you paid money in, during the year, and you end up getting a ton back, you’re giving the government an interest free loan, and I can tell you they’re not appreciative of your willingness to do that. They’re not benefiting your life because you’re so generous in doing that. So it’s always better, in our mind, to strategically plan, do tax estimates and figure out. It’s one of the reasons why the Profit First system works so well is because you’re setting aside money in your tax account, but you’re not necessarily always sending that money every time to the government, so you can rely on that balance and use it if you needed to for other emergencies. Plus, then when the tax bill comes, you now have the exact amount that you need to pay, and a lot of times they end up over saving, and they can then use that. So it’s like you issue yourself your own refund.
Dan Uyemura: Yeah, and I think that the concept of what you’re saying is really important. I get this argument a lot because people always assume the bigger the refund, the better. And I also understand that like there’s some people that if you don’t get a refund, you might really be hurting yourself at the end because you didn’t plan for it. But I think the key thing is, like you’re saying, is you’re gonna be accumulating some money in an account over time, you’re going to make some quarterly payments to the government for your taxes, but you might be saving more in their quarterly or, at worst case, you’re gonna have up to a quarter’s worth of money in there, and if an emergency happens in your life, the government is not gonna give you your money back so you can handle a medical bill. But if you’re accumulating this bank account and you can’t send it to them, you’re gonna owe them some interest, but it’s not the end of the world, it happens all the time with the IRS, but you have the money to deal with what you have to deal with, and I think that’s what’s important because I see a lot of people, not just gym owners specifically, a lot of people in general who are basically one life event away from, like a total catastrophe financially, like one accident they didn’t expect, one natural disaster in their gym they didn’t expect. And it’s just game over. That’s tough. So, I mean, if you’re listening to this and you feel like that’s you, these are the reasons why we want you to pay attention to people like John because it’s gonna take time, it’s just like any client you bring it to the gym, but you’re gonna start getting your stuff in order to the point where you do have a rainy day fund. This is super topical, and by the time people listen to this, it might be completely over but Coronavirus. There’s gyms in Italy that have been shut down for two weeks like the government won’t let them open, and I don’t know how that would impact some gyms. If your gym had to shut down for two weeks, and all your members asked for two weeks of their membership back, I mean, it could happen in the next coming weeks, even here. Anyway, outside of all that, what is a simple tax tip that you would throw out there for a gym owner to maybe be able to deploy to help themselves save some money or put themselves in a better position?
John Briggs: Yeah. So our favorite go to, some people call it the “Augusta Rule,” others call it “Corporate Rent.” It’s referred to as the Augusta rule on the East Coast because every year there’s a really big golf tournament out in Augusta, Georgia called the Masters, and Augusta is not a very big city, but during the Masters, it triples in population, and it’s just not a good investment for someone to own a hotel out there because they’d only have occupancy for, like, 2 to 3 weeks out of the year. So what happens is, a bunch of these people open their homes and they rent them out and they get paid an exorbitant amount of money. Well, I don’t know the actual history of how this law got into place but my guess is some rich person in Augusta pushed this through to a lobbyist and they created this tax rule in the tax code, and it says, if you have a property and you rent it out for less than 14 days during the year, you are not required to claim the income you make off of renting that property. So basically, it says, if you have a property and it’s more than 14 days, that’s a rental property, based on tax code, less than that, it’s nothing. So these people can rent their homes out for these two weeks during the Masters, and not have to claim the income. Well, that’s pretty cool. How can we get that to benefit a gym owner? Well, companies have board meetings and big companies spend money, lots of money, renting out hotels and convention centers and venues to have a company meeting. Well, you’re a company, doesn’t matter that you’re one employee or two employees you’re still a company based on the tax rules, so your company can rent your living space from you as a venue to hold its monthly corporate meeting because you’re renting it out once a month, that’s 12 times during the year, which fits into this tax rule I just explained. So any income you make off of that personally, you’re not required to claim that as income on your tax return.
Dan Uyemura: Is this Augusta rule a nationwide thing?
John Briggs: Yeah. They just call it the Augusta rule because people in Augusta do it.
Dan Uyemura: Oh, wow, so a company can rent out, or any entity, can rent out something, a property, a home for a maximum of 14 days.
John Briggs: Yes. So in this case, we’re looking at it from the angle of you own your living space, so you can rent out your living space.
Dan Uyemura: Oh the person not the company.
John Briggs: The person. The company is taking an expense because that’s what the tax code calls ordinary and necessary, which actually doesn’t make any sense, so they created definitions to further explain ordinary and necessary, which also don’t make sense. But basically, other businesses do this so you can do it. The company pays the rent expense, which reduces your taxable income, but it’s paying the rental expense to you but you don’t have to claim it as rental income.
Dan Uyemura: Okay, so I’m gonna follow up with a question that I know I’m gonna prevent a bunch of gym owners from really hurting themselves. What is the limit? You can’t say it costs my monthly mortgage, right?
John Briggs: You definitely need to do a market rate. We typically recommend going to Airbnb or VRBO, as they say now on their marketing, and just search for property similar to yours in your area and see what they’re going for for a day use. You could also contact a hotel and get a bid from them. In general, what we have found is $1250 is a pretty safe average for most people in the United States, but I have clients in New York and they could do $3000.
Dan Uyemura: Yeah, I was gonna say, if you’re in a really high rent area…
John Briggs: But it has to be market rate because if you are audited and it’s exorbitant and it doesn’t match market rate, you have now invited the ire of the IRS onto you, and you don’t want that.
Dan Uyemura: Yeah. I mean, I guarantee there was some enterprising gym owners right now thinking just like me, like cool. I’m gonna charge my monthly mortgage.
John Briggs: $10,000. ::laughter::
Dan Uyemura: Everything will just go away. Okay. Cool. This is why I think everyone needs to pay a tax guy personally, because who knew that out there? I didn’t know that.
John Briggs: Well, I can tell you to when some of these people go to their actual accountant, and they say, “Hey, I heard this on a podcast.” If the accountant is not aware of the tax code they’re going to be like, “You can’t do that,” because they’re gonna be thinking of a different tax rule that basically talks about you can only take expenses to the extent of your income and the hobby anyways, so yeah, it’s really important to have a good tax person.
Dan Uyemura: Yeah. The tax laws in America are very beneficial to business owners, and I think for good reason, because business owners create jobs and stimulate economy and all these things, so if you are kind of just like running through your business and just plugging all your all your business numbers into Quicken or something, you might, I’m not licensed to give tax advice, John is, but you might be overpaying, and you might be able to take advantage of a lot of these things that you shouldn’t know unless this is what you do, I would hope you didn’t know that, but you hire someone like John who does, and then you save a ton of money, right? That’s just how it works.
All right, let’s rapid fire through a couple of things, getting towards the end of this episode, what is your favorite podcast right now? Other than mine.
John Briggs: Other than yours, of course. Oh, gosh. I listen to quite a few, but there’s one with his name is Dan Sullivan, it’s like a technology one, that’s how good I am with things I don’t even know their freaking names.
Dan Uyemura: I’m kind of the same way. I listen to so many podcasts I get them mixed up, I get the titles confused, I get the authors confused…
John Briggs: Exponential wisdom.
Dan Uyemura: Oh, that sounds good,
John Briggs: They’re really good. They always discover, they’re talking about new technologies and how it’s changing the world, and I just find it fascinating every time.
Dan Uyemura: Yeah, I think that’s a good thing to dial into. Do you have a mentor?
John Briggs: I do have a few mentors. I’m currently working with a company, the Kelly Roach Team is how they call themselves, that’s mainly on the Incite Tax side, and then we have Two Brain as our business mentors on the gym side.
Dan Uyemura: Okay, Yeah, I just did a podcast with Chris, and that was really fun. Chris is a great guy. Okay, so I’m gonna tee that one up, do you feel like people out there listening right now should have a mentor if they don’t?
John Briggs: I absolutely think you need a mentor, and here’s why. As the owner, you’re the least competent person in your business structure, and here’s why, because wherever you’re currently at, you’ve never had a business at that size before, so how do you know how to run it? So, like when we first hit, we crossed the $1,000,000 point at Insight Tax, I had no idea how to run a $1,000,000 business, and now I don’t know how to run a multimillion dollar business. I need a mentor to help me see what I’m not seeing. Also go through moments of second guessing yourself, and you need someone to basically give you the confidence when you need that or to give you the direction when you need it. I think as an owner, you need mentors in your life for sure.
Dan Uyemura: Yeah, I say that all the time to people. I am further along this business than I’ve ever been, and I think for some people out there, that’s a hard thing to admit, to be able to look at yourself and be like, “Well, I just took another step into the into the forest and I’m one step deeper and I don’t know where I am.” Sometimes it’s hard for me to say it and weird to say it, but it’s the truth. I do think, hopefully, if you’re running your gym, you’re farther along than you’ve ever been, because if you’re not, that means you’re kind of going backwards. But if you are and you feel that way, I think it’s something to be proud of, not ashamed of, and your ego shouldn’t get in the way of talking about that because all the best people who have done all the best things have somebody in front of them helping them save time and save them from making mistakes.
John Briggs: Yeah, I don’t think anyone should be ashamed of that. It’s just a reality, as the owners, we’re the least competent. My team members know what to do because they do the same thing, it’s just more of it, but I’ve never had this many members before, I’ve never had to deal with a poisonous coach, you know.
Dan Uyemura: And if you really, really want to dive deep into running a business and being a leader, you should be trying to build a business where you aren’t the best coach anymore. And you’re not the best front desk person or the best sales, you’re the best leader. You’re the best person putting all the butts in the seats and getting the bus driving the right way. But if you’re still looking at your gym and being like I’m the best coach, I’m also the best salesperson, I’m the best janitor. Then the gym is struggling for that, right? That actually leads me to a really exciting one that I want to ask you, and I’m gonna hope that this works because it might not. Are you watching or have you watched the show, Narcos Mexico?
John Briggs: I haven’t…
Dan Uyemura: Damn, it didn’t work. Okay, I’m, like, obsessed with this show right now, and it’s basically, you know, about the drug trade in Mexico and this guy who took it from an idea to $15 billion a year, and I’m watching it like, oh, he’s a CEO and his biggest mistake in the show is he’s the most important employee for every section, and that’s why it all eventually has problems because he doesn’t have the leadership to put people in place to handle all these things for him, and I just think it’s funny, like I’m watching this and I’m, like, trying to learn for PushPress, and now that we’re talking about, I’m like, yeah, if the gym owner is also you know, the best mule, then…problem.
John Briggs: You bring up a good point. So I think a lot of times there’s three things that we misunderstand as owners in general, the difference between the word delegation, abdication and decision making. A lot of times when we delegate we’re actually, we ended up abdicating the responsibility, and we don’t have them bring accountability back to us. We just hope things get done. Then when we take a step up, we’re like, oh wait, that’s not good. Now, instead, we have people coming to us. We make the decisions for them and then they go out and do the work. But the reality is, if you want to own a business, you need to delegate the responsibility, they need to feel responsible and accountable to you, in order for you to really meet the vision that you have for your job.
Dan Uyemura: Yeah, I mean, it’s a scale thing. Like if you really want to take your gym to the next level, you can’t be making every decision for every person. You have to be training people to the point where you can trust that they’re making the right decisions and have them tell you, and then maybe you guys talk through it and help them, my thing is, I want to help you find you find the better decision, not me tell you what the decision is. I still have a comment that myself, honestly. It’s tough, it’s hard.
John Briggs: It’s really hard. I still struggle with it, totally.
Dan Uyemura: So actually, that’s a good take away from me from this because I never realized there was three. I thought there was two like, either I’m telling you or I’m giving you the power to do it. But that’s a big thing with me is trying to get people to help.
All right. Cool, man. Hey, this is a super cool episode. I learned a lot, I hope you guys learned a lot. Thank you, guys all for joining another episode of The gymOS Podcast. We’re here trying to help you guys become better business owners, one episode at a time. This is a super cool one, we had John Briggs in From Incite Tax, author of Profit First for Microgyms, if you guys haven’t caught that, you might want to get out. I’m sure it’s on Amazon. One of these days, I might get around to writing a book, it’s on my to do list. Super cool for you doing that, I give props that must have taken a long time. Hey, if these guys want to check you out or know more information about you or what you’re doing, how can they find you?
John Briggs: Profitfirstformicrogyms.com or Insighttax.com. Those are easy ways to find out where I am or what we’re doing.
Dan Uyemura: All right, Cool. All right, guys. So hopefully, you guys learned something, if anything just understand that if you don’t understand the tax law, you might want to consult tax people to help you save some more money when the tax bill comes along. We are in tax season right now, so this will be especially poignant for many of you until next time, see you guys later.
Boom. There we go. Another episode of The gymOS Podcast done. I know you took some good stuff from that. Like I said, I did. And that’s kind of the mission here is every day we’re trying to learn a little more, we’re trying to become better owners a little bit more, and I’m glad you shared a little bit of time with me today and John Briggs to work on your own business. We all, as gym owners, are spending so much time in the gym trying to work on everyone’s physical fitness and their movement patterns and the things that they’re doing in the gym or out of the gym to improve their wellness, and you need to spend more time working on your own fitness. And by fitness, I’m talking about your business fitness. So I hope you enjoyed that episode. If you liked, hey man we’re working on something new this time, we did video, so if you like that and you’re watching the video hit, hit that like button or subscribe to the PushPress YouTube channel. We got all kinds of good content coming out all the time. It is our mission to put out content to help you become a better gym owner. If you’re listening to this on the podcast, make sure you subscribe, don’t be a dummy, you know you need this every week. We’re doing it every week, putting out new content right into your ears, so subscribe, like it, give us five stars, you know the whole deal. Help another gym owner find us, help Apple and Spotify and them know that we’re relevant, and we’re helping gym owners, give us the props. Thank you. We’ll see you next time. Until then, keep on grinding guys.
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