If your books are up to date and your taxes get filed on time every year, it’s easy to assume your accountant has things covered. And they might be doing exactly what they were hired to do.
But if your CPA also works with dentists, restaurants and law firms, there’s a good chance they’re leaving thousands of dollars on the table, and you’d have no way of knowing.
The scary part? Most gym owners have no idea this is even happening.
We see it almost every time a fitness business owner switches to us, and by the time they find out, it’s usually been costing them for years.
Let’s go through a few quick checks you can do to see if you’re leaving money on the table at your gym, too.
Prefer to watch? Eric walks through the whole thing in the video below.
The Difference Between a Generalist CPA and a Fitness-Specific One
At this point, we’ve worked with over 500 gyms. We’ve seen boutique studios, Pilates, health clubs, franchises and swim schools, you name it.
So when a new client comes to us from a generalist firm, we can usually guess how the story goes before they tell us.
Their books are done and their taxes are filed. They get maybe one phone call a year, right around tax time (if they’re lucky). The rest of the year, they’re checking the bank balance each month and crossing their fingers that the numbers work out.
Does that sound familiar?
To be fair, that doesn’t make their old CPA a bad accountant. If your accountant has spent years working with law firms, restaurants or medical offices, they’re probably great for those businesses. Niche accountants have been around for decades for good reason.
But a gym is a different animal. Your membership revenue, drop-ins and intro offers don’t flow like a law firm’s billings. Instructor pay doesn’t work like a dental office payroll. And your cash flow has its own seasonal rhythm (hello, January rush and summer slump).
A generalist running a generic playbook on your gym is going to miss things, like the industry-specific deductions they should be looking for, and those misses add up to real money.
Where Is Your Accountant Costing You the Most Money?
So what does that actually cost you? Let’s get specific.
We usually see the biggest losses in two places: what you’re paying your trainers and instructors, and what you’re paying for the accounting itself.
Trainer and Instructor Pay
Labor is one of the biggest lines on a gym’s P&L, and it almost never jumps all at once.
We had a multi-location client with strong revenue, and over several months we noticed their labor costs creeping up. So we dug in. Their wages had gone up by $18,000 per location in just 12 months, and it happened $100 at a time.
It was a small raise for one employee here and another small raise for someone else there. Over the course of a year, those little bumps in pay added up to a real cost for her.
Now, it’s not complicated to find something like this, but you have to know what to look for. A generalist CPA doesn’t live in the fitness world, and they don’t live in your business every day. So they don’t understand how instructor pay works in fitness, or what a pay cap should actually look like in your market.
For our clients with group classes, we’ve found instructor pay should generally be capped at about $75 to $120 per class in bigger cities.
In a secondary market, it’s a bit less, around $50 to $75 a class.
If you’re running a team of private or semi-private trainers, we want to cap their pay at about 50% to 60% of the revenue each session brings in. We go deeper on this in our post on managing employee costs in a fitness business.
So if your accountant doesn’t know those benchmarks, how are they ever going to flag that something’s off, so you can do something about it?
An Accounting Package That Doesn’t Fit Your Gym
And it goes well beyond labor.
A generalist CPA might be selling you the Cadillac of accounting services for your small boutique gym, when all you really need at that size, at one location, is the Toyota Camry version.
Or worse, they could be giving you a cookie-cutter report that tells you absolutely nothing about what’s happening in your multi-location business or your 40,000 square foot fitness club. A bigger operation needs reporting built for multi-location gyms, broken out so you can actually manage from it.
The more experience your accountant has in your industry, the more valuable the insight they can give you.
But wage creep and the wrong accounting package are really just the beginning. Because even if your CPA catches everything that’s in the books, the next question we have to ask is: what else are they doing for you?
What Is Your CPA Doing for You the Rest of the Year?
Here at our firm, we definitely do the basic bookkeeping, payroll and tax returns for our clients. That’s because if all of your energy is wrapped up in admin tasks, your business is going to suffer.
Even a small fitness studio that outsources its bookkeeping is going to save about 15 hours a month on average. If you’re running a larger fitness club or a multi-location group, that number is easily closer to 30 hours a month.
That’s 15 to 30 hours you could be investing in managing your classes, checking out your competitors and onboarding new employees, instead of dealing with paperwork and reconciling books.
But where our team really thrives is giving guidance on the ins and outs of running your business. How do the decisions you make as a business owner affect your finances, and how do they affect your taxes?
That’s what most gym owners don’t even realize they’re missing. There’s a huge difference between the CPA who just files your taxes and the CPA who actually advises you on your business throughout the year.
Just this month, we met a three-location operator who was opening their fourth location. Good for them! They had already signed the lease and applied for a loan at the bank they’d been with for ten years. Unfortunately, their bank rejected their loan application just before construction was to start.
An advisor on our team could have helped them frame things in a way that got them that loan. So that’s exactly what we did when we prepared their presentation for a new lender. Two months later, the loan is approved. But because they had to go to an alternative lender, they’re now two months behind on their build-out.
That’s the kind of costly mistake that happens when you don’t have someone in your corner who actually understands your business, and we see it more often than you’d think.
So look for an accountant who wants to work with you collaboratively. If they don’t, that’s definitely a red flag. You want a CPA who’s looking at your labor ratios and your rent-to-revenue, and thinking about your cash flow and projections for the next couple of months. You want them bringing strategies to you instead of waiting for you to ask the right question.
And if your CPA is only calling you at tax time, that brings us to the next piece.
Your Biggest Tax Savings Happen Long Before April
We really wish more gym owners understood this. Heck, we wish more accountants understood it too. The biggest tax savings don’t happen in April. They happen throughout the year.
Let’s talk about one example.
The IRS requires most business owners to pay their taxes throughout the year as they earn their income. That’s required if you want to avoid penalties and interest.
We’ll be honest with you. We’ve been in tax for 25 years, and the logistics of making those payments are a headache. You have to calculate the amount, send in a check or pay online, hope it gets applied to your account correctly, and then do it all again four times a year.
So what we recommend, and how we set up our clients, is to look at your withholding instead. If you pay yourself through payroll, you can add extra withholding on your Form W-4 and pay the extra tax in through your paycheck each month.
That way, you’re not mailing checks to the IRS or logging in to yet another online account with two-factor authentication. (We know, everyone just loves doing that.)
When we make tax adjustments for our clients, we always send them in through payroll withholding. It helps avoid penalties and keeps interest to a minimum, even if we backload the amount we send in toward the end of the year. We go into more detail in our post on why gym owners overpay taxes.
It’s this kind of proactive planning that a fitness-specific firm is going to handle for you automatically.
But a generalist accountant who just shows up at tax time doesn’t even know these types of solutions are options for your situation.
The CPA Fitness Test: 5 Questions to Ask Your Accountant
We want to give you something you can actually use today. It’s five questions that should take about 10 minutes to ask your accountant, and they’ll tell you pretty quickly whether your CPA is really serving your business or just filing your returns.
1. Does your CPA understand how your membership revenue, drop-ins and paid intro offers flow from your point-of-sale system into your books? If not, your revenue is definitely getting misclassified.
2. Has your CPA ever brought you a strategy proactively, one you weren’t already using? If every conversation you have with them starts with you asking questions and showing them what you found on ChatGPT, that tells you something.
3. Does your CPA review your books monthly, or just at tax time? A once-a-year review means you’re flying blind the other eleven months of the year.
4. Can your CPA actually explain your financials in plain language? We can’t stand technical tax talk here at our firm. So if you’re leaving more confused than when you started talking to them, that’s definitely a problem.
5. Does your CPA have real experience in the fitness industry? We don’t mean a “we can do anything, we’re happy to help.” Do they have a dozen or more actual fitness clients, and have they built up that industry knowledge?
If you answered no to two or more of those questions, we’d encourage you to get a second opinion. Just do your due diligence and your research first.
The more experience your accountant has in fitness, the more savings and insight they’re going to deliver to you throughout the year.
If you want to see what a fitness-focused accountant looks at each month, our post on the checks the top 1% of gym owners run is a good place to start.
We’ve spent a decade helping over 500 fitness businesses master exactly this kind of stuff. If you’d like a second opinion on your numbers, reach out to us here or read more about how we work as accountants for gyms.
Until next time!
