Personal Trainer Business Tips: Cash Flow

Whether it’s a fitness business or any business there are some things you need to learn and understand. I can’t think of really anytime that anyone (other than maybe my accountant) has talked to me about establishing a proper cash flow reserve. Cash flow is serious stuff, not just the name of a board game created by Robert Kyosaki (though I do suggest you search for that online and check it out.)

I think back as I grew from being a self-employed personal trainer to opening my first training studio. I went from business expenses that were just a couple thousand dollars a month to tens of thousands of dollars per month and still no one had really explained the importance or ever given me any ideas about how much cash my business should have on hand.

As I’ve moved to consultant these last few years and coached a lot of trainers and fitness entrepreneurs all over the world even I hadn’t thought to talk to them about socking away money in the bank.

Recently a colleague and I were discussing some of the challenges of successful individuals, for many it can come with hard lessons. You have greater success, you gain more time and freedom, you’re making more money, you can afford a better lifestyle.

I’ve met some entrepreneurs that after a year or two of dramatic and rapid growth they find themselves just as financially stressed as they were before or sometimes even more so.

I’ve met a number of entrepreneurs who had major tax burdens that they were now paying high interest and penalties on, or that had large amounts of consumer debt as a result of an expanded lifestyle.

This can be a hard lesson, it might even be one you’re experiencing now, which is all the more reason to develop a disciplined plan of action right now.

Ask your bookkeeper or your accountant for your income or profit and loss statement for the most recent quarter. Better yet ask for the two most recent quarters.

Look through your revenues and expenses. I find it really helpful to look at expenses quarter by quarter for large changes (either up or down) as a way of getting a sense what to expect in the coming months from my business.

Is your bottom line positive; if so by how much? Be sure to remove any additional money you pay yourself over and above that for hours or time you commit regularly (the equivalent what you would pay someone else, this can be referred to as a normalized salary.)

Now make a plan from the remaining proceeds as to how much you can save or put away each month, I suggest a second bank account for this. Consider taxes while doing this (if you don’t make monthly installments) and make it a reasonable, practical and sustainable amount.

How much should you save? There’s no right or wrong answer in this regard, I’m a Jim Collins fan and recently I’ve been listening to his book “Great by Choice” which is what got me thinking about this.

My previous rule of thumb used to be a minimum of 60-90 days of operating expenses, but I now think of it a little differently.

Here’s my updated cash flow reserve strategy:

Cash flow reserve = zero to two times fixed operating expenses, this is what I now think of as “the Death Zone” as summarized by Great by Choice. It’s a time where major unexpected change in my business could result in catastrophe. Failure to have enough cash means added stress and stifling of enthusiasm and creativity.

Cash flow reserve = two time fixed operating expenses or more, this is “Calm Before the Storm Zone” it’s where we begin to coast and relax spending a bit, it’s where I for many years seemed to be content to be. With this much cash on hand a little bad luck is fine, you can begin to take your hands off the wheel knowing you have time to adapt. If you are an “active owner” (meaning you work onsite at your business each day) this may feel like it’s enough. You’re there in the trenches and your greatest strength (and weakness) is that your involvement allows you to be nimble and reactive. However, if you are an absentee owner like me (which isn’t this the goal for most of us?) this is still not enough as it affords a little extra time to acknowledge problems, the freedom of not being present at your business all the time comes with a cost, you’re not as nimble, you need to allow your team time to sort through challenges on their own or you may just flat out need to the cushion to invest in your infrastructure to ensure it can work well without you.

“The Domination Zone” Cash flow reserve = 15-25% annual operating revenue. At this level unseen economic factors are mostly negated, you have time to miss the signs without lasting concern. If you seen an opportunity for growth requiring substantial investment you have a potential means of doing so. Being capitalized in this manner will make it very difficult for your competitors to keep up.