In the January 2009 issue, this column uncovered ways for you to research new programs and products and use the information to make your C.A.S.E. (Consider, Analyze, Strategize and Evaluate) for adding a session or piece of equipment to your group exercise offerings. Now that you’ve built a case that will convince the “big boss” to say yes to your idea, it’s time to check that you understand the basics of budgeting, so that you can be sure the money is available.
A Budget Defined
We have all been exposed to a budget at some point in our lives, either in business or for personal financial matters. A budget sets expectations for the money that should come in (income) and go out (expenses) throughout the year. The objective is to keep the budget “balanced” by increasing favorable variance (the difference between the predicted expense and the actual incurred expense) and minimizing unfavorable variance.
A budget is typically determined by upper management and financial contributors to a facility and broken down by department. The numbers are always based on previous years’ performance, expectations for future growth and the need to keep the company financially solvent. You will receive an overall budget for the year, as well as a breakdown of your expected month-to-month financial performance.
The Budgetary Process and You
Your involvement in the budgeting process may be minimal, with a predetermined amount simply given to you prior to the start of the fiscal year. However, the more involved you can be in the budgetary process—explaining your needs for the upcoming year, providing your rationale for the previous year’s expenditures and revenues, and sharing creative solutions—the better you can proactively manage your department’s “business within a business.”
Find out when your annual budget is determined and how you can get involved. Are there reports you could compile to justify an increase for the upcoming year? Or meetings where you can state your case for new products or programs you want to introduce? Is it possible to review the preliminary numbers for comparison with your projected estimates? The more involvement you have, the better. If for some reason you are not directly involved in creating your budget, at least find out when the budgets are being determined and delivered—the sooner you know your budget, the better.
At minimum, you must know what expectations the company has set for your department. Clearly understand which line items contribute to your departmental budget, and then produce daily, monthly, quarterly and annual reports for upper management on how your actual numbers compare with the goal numbers. The better you are at explaining and managing your budget, the easier it will be to run your part of the club successfully. In addition, your programming and product decisions, staff pay raises and planning (including employee gifts, education, etc.) will be based on business facts rather than wishes—and will therefore be easier to explain or defend to all involved.
Education, dues and subscriptions are items that tend to fall off the radar screen. Sometimes they are the first to go when a budget is out of balance. In group fitness, however, these items relate directly to staff professionalism and morale. Dedicating money to these areas can set you apart from the club down the street and create loyalty among instructors. Make plans to justify and defend the need for these profession-enhancing necessities.
There will be times when your group fitness studio(s) needs a major equipment upgrade, such as new bikes or stereos. Most likely, an outlay of this kind will not come directly out of your department’s budget but will count as a capital expense (money spent to acquire or upgrade physical assets, such as equipment). As such, it will come out of the club’s overall budget. Determine the monetary amount that constitutes a capital expense. Then prepare to wait your turn, as there is typically a long list of items on a capital budget, and they must all be prioritized. These are the “big ticket” items that are bought during cash flow periods and postponed during slow revenue times.
The Bottom Line
At the end of each month, quarter and year, senior managers will want to assess the club’s net income. They will also analyze each department’s net income to compare budget projections with reality (projected vs. actual). You should monitor your budget throughout the year to know where you stand regarding income and expenses. To determine your net income, subtract total expenses from total revenue.
It’s probable that the number you get for net income will be “in the red,” or negative (expenses outweighing revenue). In budgeting speak, this isn’t necessarily a bad thing, because group fitness is not traditionally a revenue-generating department (most group fitness classes are included in membership dues). You are looking to compare your actual net loss with your projected net loss for the given time period. If the actual number is bigger (you lost more than you projected), this is considered an unfavorable variance. If the actual number is smaller (you didn’t lose as much as you projected), this is considered a favorable variance.
Keep in mind that the club is actually planning for group fitness to lose money. The budget is constructed in such a way that revenue generated in other areas will offset your expenses. Typically, managers and owners are looking at whether or not the club has a favorable net income overall. In non-revenue-generating departments, it will not necessarily be in your best interests to come in considerably under budget. If you do, you risk receiving far less money the next year as the “number crunchers” see that your department is capable of doing its job with less money.
Now that you are armed with your new budgetary vocabulary, get to work. Sit down with the club’s accountant, its comptroller or even the general manager and review your current budget. Make plans to monitor and work within that budget to achieve your program goals in a financially responsible way. With the economy in a crunch, every department is under a microscope. When you are knowledgeable and prepared, you will be better able to bear up under scrutiny and grow a top-notch program.
In our next column we will explore key indicators and prioritize needs to determine whether your program is succeeding.
Let’s take a look at the two main budget categories: revenue and expenses.
Revenue. The revenue category sets expectations for money you will generate in your department. Examples of revenue-generating items include fee-based classes (e.g., indoor cycling or yoga classes that you charge for), special programs (e.g., a 1-day yoga workshop or a 6-week prenatal class), product sales (e.g., yoga mats, DVDs) and private or semiprivate classes (e.g., boot camps). If you do not have a revenue goal listed in your copy of the budget, it may be that you are simply expected to run your department at a loss, and the task of generating revenue may fall under other departments, such as member activities or personal training. Investigate to determine expectations. Perhaps upper management has never thought of offering the types of programs mentioned above, and you could enhance your worth by adding revenue to the bottom line.
Keep in mind that being expected to operate at a loss is not synonymous with lower worth in the grand scheme of the club’s operation. Many clubs do understand that the group exercise department has an important role to play, including forming successful relationships with members, which directly affects attrition rates and helps grow membership. This indirectly adds dollars to the pot, something managers understand. By monitoring expenses and offering programs and classes that draw in members, we can contribute in positive ways.
Expenses. In many cases, the group fitness department’s expenses are lumped together under one line item—an amount you are allotted for expenditures, usually on a per-month basis (much like an allowance). If this is the case at your club, you will need to ascertain which of the items listed below are included in your expenses line item. If something is not included, you will have to find out where the money will come from to pay for it.
It is helpful if the group fitness department’s expenses are broken down into several smaller categories and sectioned out as separate line items. This lets you see where the money is being spent and makes it easier to determine where you can tighten the purse strings if your budget is out of balance:
Salaries and Tax Burden. Your salary, your assistant’s wages, and instructor pay. Taxes and benefits must be factored in.
Commission. Money paid out to instructors for profit programs, such as Pilates.
Education. Funds allocated to enhance staff education, including continuing education workshops, reference books, DVDs or licensing and franchise renewals.
Dues and Subscriptions. Professional memberships (e.g., IDEA).
Employee Promotions. Small staff incentive gifts, such as gift certificates or prizes.
Office Supplies. Items necessary to do your paperwork, such as paper, pens and folders.
Printing. Schedules, fliers and signs to market group fitness special events (be sure you share these expenses with other departments that benefit).
Marketing. Advertisements for special programs and employee recruitment.
Repairs and Maintenance. Repairs and maintenance for equipment like bikes and stereos.
Minor Equipment. Small equipment items, such as tubing, medicine balls and steps. Usually a specific dollar amount (e.g., $500) will serve as the cap for this line item.
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