Overcome these 10 financial mistakes and you’ll not only grow your fitness business, but build wealth in the process.
If you’re making any of these mistakes, don’t get down on yourself. Instead, see it as an opportunity to take your business to the next level. Here’s the deal, you get these things right, your growth potential is limitless.
That’s why John Briggs, the Founder and CEO of Incite Tax, breaks these common financial mistakes down for you. Incite Tax is a multi-million dollar tax firm and John’s the author of Profit First for Microgyms. He’s not your typical tax guy. His expertise is specific to you and your gym.
Let’s get right into it…
Financial Mistake #1: Ignoring Cash Flow
This goes beyond your typical profit and loss (P&L) sheet. What cash is coming in and what cash is going out—you want to be diligent with all of it.
When you purchase equipment, that might not show up on your P&L but it’s cash leaving the business. Or, let’s say you have a loan, the amount you’re paying specifically towards the principle probably isn’t showing up on your P&L either.
How to Fix It
So when we talk about cash flow as a financial mistake, it means being more intentional about how, why, and where money moves throughout your business.
Another thing you can do, if you’re using QuickBooks, is to produce a Statement of Cash Flows for you.
“If you’re doing 20% in net profit, you’re doing very well as a business,” Briggs says, “but anything below 10% and you’re in trouble.”
Check out this FREE training on how to 2X your profits in a single day:
Mistake #2: Leasing a Larger Space Before It’s Necessary
Another way to put this is—as Briggs says— “maximize your current space as much as possible.” For example, Briggs tells the story of a CrossFit gym that gave up their 2,000 square foot location for a 7,000 square foot location because one class was over capacity.
That put them at a massive disadvantage financially. So here are some ways to avoid this financial mistake and maximize your space:
Spread the Wealth
See if other classes could be a better fit for members in the over-populated class. Some people just go out of routine, but likely have time that they’ll enjoy better.
This happens a lot. A member started at the 5:30 pm class, met some people, and anchored in. But then attended an early morning class and realized how much they love exercising in the morning.
Increase Your Prices
If you’re maxed out on a class or two, it could be worth exploring a price increase. There’s demand for your space, which means people are willing to pay more than you think.
The flip side of this is to offer benefits, whether it’s financial or not, to members who participate in your lower-filled time slots.
Tap Into Your Ancillary Sales
With so much demand for a single class, it’s a great opportunity to sell more gear and supplements. This helps you increase revenue rather than taking the financial risk of finding a bigger space to fill.
Move People Up
Take a look at attendance consistency and talk to those members about moving up a tier. If they’re low or mid-tier and in a heavily populated class, but they consistently show up, they might be a fit for your next-level service option.
These are all ways to squeeze more juice out of the lemon rather than spending money on a new lemon.
Another Financial Mistake with Locations
One thing Biggs says he sees a lot is gym owners looking to open a second location before they’ve maximized their current location. Something to keep in mind…
Get as close to your highest capacity and profitability as possible before ever considering another location. Learn more about what this looks like in Matt Kafora’s audiobook Fitness Presale Secrets. Matt owns seven 7-figure gym locations.
Financial Mistake #3: Pricing
The first question to ask yourself is, what did you base your pricing on? Is it what other gyms in the area charge? If so, that’s probably not the best way to go for you, your space, or your target members.
It’s like cheating on a test from the person next to you but you have no idea if they know the answers or even studied.
Here are some best practices for establishing the ideal price for your fitness business. The purpose is a gym with healthy margins.
What’s your goal?
If it’s 20% profit like we mentioned earlier, then you take a look at your P&L, your cash flow, your necessary expenses and determine what price and member count gets you to 20%.
This doesn’t take attrition into account (it could), but you’re likely accounting for that in your necessary expenses—lead generation, for example.
Provide More Value
Always keep in mind that the price you set is also the amount a member is willing to pay because they believe you’re the one to help them achieve their desired outcome. That’s key.
Inflation isn’t the reason the iPhone costs hundreds more than it did in 2008. The reason the price is so justifiably high is the value it provides the consumer.
Not Having a “No-Brainer Price Point” is Also a Financial Mistake
Some gym owners only have one price point. Others have tiers but they’re way too linear. For example:
This structure is too obvious. The less you pay, the less you get. More often, people will still choose the lower price here.
The key is to have a no-brainer price point. To achieve this, check out this FREE training on Decoy Pricing:
Mistake #4: Hiring Too Quickly
“The phones are blowing up, we need someone to take this on ASAP!” This urgency not only gets gym owners in trouble, but business owners in every industry.
What should happen is, you hire slow and fire fast. Take time to find the right person. If someone’s not a good fit, it’s okay to part ways.
But how do you know if someone’s the right fit?
Systems and Processes
Briggs says “it’s important to have certain metrics and ways to track those metrics to know if an employee is actually doing the job you’re paying them to do.”
The fact is, great companies are not run by great people. Great companies have great systems run by great people.
In other words, you’re the coach. Create the right plays and find talented people to run those plays. So you get the right people in the right seats doing the right things right.
Mistake #5: Inefficient Inventory Management
This is about knowing what your members actually want to spend money on in ancillary sales. Yes, it’d be nice if everyone there wore your shirts…
What’s not nice is to spend a ton of money on apparel only for it to sit in a storage closet. Same thing with supplements.
The good thing about supplements is that some vendors now only send you what you need based on what members actually order. That way you don’t have to buy in bulk and “hope.”
Financial Mistake #6: Bad Books
It’s important to make sure that your transactions are consistent and accurate. Otherwise, you could find yourself making harmful decisions based on bad financial information. But here’s the deal…
Chances are, you didn’t become a gym owner to show off your accounting skills. You’re not alone. For most owners and entrepreneurs, this isn’t their strength. And that’s OK.
Time Over Money
What you want to do is know enough to be dangerous, and find a high quality person who loves it, to run it. As long as they’re qualified and you’re able to understand it, you’re not likely to make this financial mistake.
Your time is valuable. Which means, spending the time to not only learn, but manage your books on top of running your business might not be the best use of your time.
However, if you can pay someone who knows what they’re doing for one to two hundred bucks? That allows you to double down on your strengths.
Mistake #7: “Shiny Object Syndrome”
Impulse buying doesn’t work.
Buying without analysis also doesn’t work.
As fitness professionals, it’s easy to get caught up in what’s trending… rhino squat machines, peg boards, you name it… but it has to answer this question:
Do your members actually care about it?
This question is always worth exploring. Especially if the member can get the benefit of the new shiny object without you spending thousands of dollars to own it.
Plus, trendy equipment could lead to other financial issues like members getting unnecessarily injured. So it’s good to have some data backing your purchasing decisions.
How Do You Know a Big Purchase is a Financial Mistake?
- Do members actually care about it? YES.
- Is it more risk than reward? NO.
The final question is a two-parter:
- Can I see a return on this investment (ROI)? If so, how?
Map it out. The goal is to get more members, keep them for longer, and have them spend more with you. If this shiny object becomes a financial burden, even if some members want it and it’s not risky, then how and when will it pay off to actually benefit your business?
Mistake #8: Overlooking Subscriptions
This one’s simple. In fact, you probably do this with your personal budget at home.
Every week (rather than waiting 12 months), take a look at your transactions and make sure you’re not paying for any subscriptions or services you no longer use.
At the end of the day, if we’re not using something or we signed up for a “free trial” but forgot to cancel when the payments kicked in, it’s our fault. We own that financial mistake.
One guy bought a cleaning machine for his gym. In the contract it stated that he was responsible for canceling payments (even after the cost of the machine is paid off). He didn’t realize that, thought he paid the machine off two years ago—it ended up costing him $15,000.
That’s why this weekly audit of your subscriptions is simple to do and 100% worth doing.
Mistake #9: Living Beyond Your Means
Pretty self-explanatory, right? Usually, it’s the little things that you might not realize. Whether it’s funding your lifestyle through debt or not being aware of those personal expenses being written off for tax purposes.
Awareness is key. Don’t let these seemingly insignificant things become invisible to you. The reason is, your business becomes more valuable when you’re not doing things like, “Well, yes it was a family vacation, but I did some work while I was there.”
Let’s be honest with what expenses are business expenses and what expenses are personal expenses.
Financial Mistake #10: No Plan for Wealth Creation
Your future self wants sh*t too. Don’t deny them for a prize today. So…
Use the healthy cash flow that you get from your business and invest it in other things, diversify. Have your money work for you, not the other way around.
Once you achieve healthy margins, the future is wide open.
If you want to avoid these financial mistakes and build significant wealth through your fitness business, then our Mastermind program is the place to be. It’s exclusive, so not everyone gets in, but worth applying for.