Managing The Flow…Cashflow That Is

When I first started in the fitness industry nearly two decades ago there certainly didn’t seem to be the many marketing tools, programs and gurus that there are today. (And if there were I sure didn’t know how to find or use them.)

One of the many gaps I still see in the education for fitness professionals is in the actual mechanics and systems of running a business. The last five years have been a whirlwind, it’s hard to believe that our training studio has even been open that long. What’s more bizarre is thinking back five years to the countless hours painting and getting ready to open. Though we had a business plan that was all we really had. We didn’t have an elaborate marketing plan, in fact our whole opening strategy was an ‘opening soon’ ad on the radio, a small mailing list, and our network of past clients, friends and family.

Fast forwarding a few years I can’t even imagine a day going by without having an operations manual to turn to, many documents that ensure a consistent measure of service for our clients and an understanding of and frequent review of KPIs or Key Performance Indicators.

Key Performance Indicators (KPIs) in my opinion are a critical component to the long term health, predictability and success of your business. As you know we’re all emotional creatures and many of the decisions we make in life are greatly influenced by our emotions. In my short time as an entrepreneur I can tell you that every day is a rollercoaster of emotion based on the many things that occur, from victories and client successes, major breakthroughs, praise in the community as we’ve won awards, to an unhappy customer, uncollectible accounts, staffing issues and relationships, and the list goes on. You can’t afford to make the major decisions in your business solely on emotion, it’s critical you have a list of KPIs that are quick and easy to review, that eliminate as much erroneous information as possible, that are easy to understand, and that you are comfortable reviewing often.

Some of the KPIs we track in our business are: session/usage volumes, prospect generation, lead conversion, EFT growth/decline and cash flow planning.

Cash flow planning has always been one of the most confusing to me and I think depending on who you talk to it can be referred to in many forms. I know what is now my cash flow plan has taken the form of: expense tracking, budgeting, a simplified income statement and ultimately now what I’m pretty sure is an actual cash flow statement.

When it comes to cash flow planning I consider the following four things primarily:

1)   Revenue Sources – Depending on the products and services you offer you may have multiple sources of revenue. Within our studio we only have two currently: services and merchandise.  (Don’t confuse yourself by thinking that each service you may offer is a different revenue stream. For the purpose of a KPI you want to simplify and minimize the amount of additional information to be able to look at the raw performance.)

2)   Fixed Costs – Your fixed costs are all the obvious things like a lease, utilities, and consistent monthly expenses. They are an expense whether you do business or not and they don’t fluctuate greatly based on the volume of business that you do. At first it may seem confusing but things like front desk employees and even class instructors are fixed expenses if their wage isn’t fluctuating by the number of customers. (ex. Instructor costs the same if there is 1 participant or 20 and you have a consistent class schedule.)

3)   Variable Costs – The only real cost I consider to be a variable cost is the wage/session paid to my trainers. Because the revenue they generate versus the wage they earn is completely dependent upon how many sessions of service they provide this cost may fluctuate significantly.

4)   Service/session Volume – The final consideration for my cash flow plan is another of our KPIs, total session volume. Total session volume helps me

Once you’ve organized and have separated and organized your revenue streams and expenses this historical data can really aid you in the acquisition of your crystal ball. For instance if you look back over a year of historical data in the areas described above you will likely notice peaks and valleys. Though each year is different you’re going to find the general pattern of your business, an example would be higher revenues in January with the New Year’s Resolution craze. Each year forward you might begin planning for these ebbs and flows with an increased marketing campaign frequency or tighter spending to ensure the long term health of your business.

There is also a number of interesting pieces of information you can extrapolate. By dividing your service volume by total revenue you can find out approximately what each visit by a customer is worth to you, this helps you plan for and predict revenues or growth based on volume. You could then divide total fixed costs by your total volume to understand what the average customer interaction costs you whether it’s a consultation to a training session. This can be useful when considering pricing strategies or promotional pricing.

There is a number of other ways this information can be used, the more you work with it the more you will find it can give you an instant snapshot of the health of your business and a glimpse of the future.

I highly recommend identifying the KPIs of your business and finding simple ways to track, evaluate and separate them from all the erroneous information that many forms of club management software provide. This is one of the many things  I focus on and teach within the context of the Profitable Personal Trainer mentorship program.