Saving a Sinking Ship, Part 4: Understanding the Financial Structure of Your Business
Fourth in a series on how to rescue your drowning personal training business.
When you’re looking to build a successful personal training business, having a sound understanding of finances is a must. Most fitness experts possess exceptional interpersonal skills and are able to transform lives. But they often lack the ability to effectively manage and balance a budget and to use it to forecast and take advantage of financial trends. Financial mishaps and misunderstandings can lead to business failure in no time. In this article, I will share several simple strategies that you can implement today to get your business on track to financial freedom.
Throughout this article series, I have helped Jacked Up Fitness (our case study) redesign their facility’s aesthetic appearance by creating a more open and inviting atmosphere. I also placed a strong emphasis on improving the systems at Jacked Up through the use of staff handbooks and policies. Next, I spent time with the owners reviewing and discussing effective leadership and customer service tactics. The final item of business is to create a system for monitoring finances and developing an effective budget.
I found that Jacked Up Fitness took a “fly-by-the-seat-of-your-pants” approach to finances. The owners assured me they had a good understanding of monthly costs and expenses, but this approach did not offer any guarantee of business success. They had no way of truly knowing whether their money was being spent wisely. The truth was, if changes weren’t made immediately, Jacked Up Fitness would be forced to close its doors.
There are many items of great importance in a successful financial system. To make immediate improvements at Jacked Up Fitness, we focused on two major points: measurable items and budgeting. What I shared with that company has a place in your business as well. Read on.
As the owner or manager of a personal training business, you need to understand which “items” contribute to the organization’s successes and failures. Go beyond your normal financial stats to delve deeply into the core infrastructure of your business. Start by thinking of which statistics provide the greatest insight into the success of your business. Here are a few examples:
- Tracking leads. Each person who contacts you about your services can be considered a lead. Each lead costs money; think of the production and distribution of marketing materials, the time spent telling others about your services and so forth. But which method of lead generation gives the greatest return on investment? Implement a system to track the source of each lead and the number of leads that are generated each month, as well as the percentage of those leads that convert into clients.Tracking statistics like these shows you what marketing source is most profitable, as well as what your total cost is per lead. Knowing these stats can make you a more effective marketer and can ensure that you are not wasting money on efforts that are of no benefit to your business. The best way to track this is to ask new clients how they heard about you, then log this information on a spreadsheet. Every month, analyze the results to determine which of your efforts are paying off.
- Profit totals for all sources of income. Tracking your income and measuring it against your expenses will show you which services are producing the highest income percentages.For example, break down the income and costs associated with a one-on-one training session. Often, after payroll and other costs, the owner will make only $5–$20 per session. Measure that against the income potential of a small-group session or a boot camp program, and you will see where you should place more of your marketing budget. To learn more about pricing for small-group training, read “Small-Group Secrets: Pricing and Profits” in the January 2013 issue of IDEA Trainer Success.
- Retention and closing rates. If you have employees, you will want to track retention and closing numbers. This may sound like a scary control issue, but not if you use the data for encouragement and coaching opportunities. Tracking retention numbers (how often a client signs up for additional services) and closing percentages (how often a trainer signs a new client versus losing that client to another facility) lets you see which trainers possess certain strengths and where others could use coaching or encouragement. Often, I have trainers partner up with other team members when one has a strength that the other is weak on. This creates camaraderie, and it has been effective for enhancing employees’ skill sets.Use an Excel spreadsheet to track your statistics. Doing so will allow you to build a system specific to your needs and adjust it as necessary. If you’re not familiar with how to use Excel, take a course at your local community college or attend a workshop related to the program.
Having a budget is one thing, but being strategic in your plan and following through is another. When building your budget, start with what is most important to you. Ask yourself the following questions: What do you value the most? Financial security? Growth? Knowing what is most important to you and your business will help you structure your budget and stick to it. Here are several items to think about:
- Expenses (fixed and adjustable). Fixed expenses are expenses that stay the same each month, like rent. Adjustable expenses are items that change each month, such as office supplies, utility supplies, the power bill and driving expenses (gas). Make a list of all expenses, and get in the habit of tracking them. Once you’ve become adept at basic budget practices, you can begin to look at trends (future projections) and track inconsistencies. An example of a trend would be fluctuations in the cost of your utility supplies. Knowing “why” and “when” you spend money can help you develop a realistic forecast of your budget. This gives you a better understanding of when to give bonuses or raises, when you can take more income for yourself and when to protect your finances.
- Marketing and savings. Rather than having a static dollar amount that you try to save or spend on marketing each month, allot a certain percentage to both marketing and savings. This allows your budget to fluctuate when business grows or decreases. A good place to start is to put 6% of your gross income to marketing and 6% to savings. When your business is young, your marketing and savings budget will be small. As your business grows, so will your budget. The need for greater marketing will be met with your increased income. But never forget that having savings is vitally important: Among many things, you’ll need money on hand to replace, fix or purchase new equipment or to repaint and spruce up your fitness facility as desired.
- Paying yourself. One of the greatest mistakes I see owners make is not paying themselves. Yes, when you first open your business, the budget might be a little tight, but you still need to get paid. If you fail to pay yourself, then you are destined for burnout along with the possibility of personal debt.
Understanding the financial side of business can be a challenge. When you decided to open your facility, you became more than a personal trainer. To be successful, you must now possess the skill sets of a businessperson, a marketer, an accountant and more. This transition seems to be the most difficult for fitness professionals to make. Nonetheless, with support, understanding and a desire to learn, you too can become a financially successful fitness entrepreneur.
See part 5 in this series here.
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