Most gym owners can tell you their revenue down to the dollar.
They know their member count… what labor cost them last month… but when we ask how many months of cash they actually have for a rainy day…
We get radio silence.
That’s the difference between knowing your revenue and understanding your financial position, and it’s where the top fitness operators separate themselves from everyone else. When the most successful gym owners decide to raise prices, invest in their staff or open a second or third location, they’re working from a clear picture of the business, while everyone else is guessing.
In this blog, we’re going to walk you through a few short checks you can run yourself that will help put your business in the top 1% of gym owners.
And luckily, it comes down to knowing just a few specific numbers.
Prefer to watch? Eric walks through the whole thing in the video below.
But First… Why Are These Numbers So Important?
Think about the people you know who always get where they’re going on time. They don’t just get in the car and hope for the best. They know where they’re headed, and they’ve set the route before they ever leave the driveway.
The top 1% of gym owners run their business the same way. They have a set plan for the year, they know exactly where their money is going, and they know how the business is doing at any point along the way.
We like to compare understanding your numbers to the GPS in your car. If you pull out of your driveway without ever setting a destination, you’re probably never going to get there.
And that’s exactly what running a gym without understanding your numbers feels like.
You’re grinding and exhausted at the end of every day, but you have no idea whether there’s going to be money left in the bank account at the end of the month.
And the thing is, your revenue numbers probably look okay. The revenue reflects your hard work.
But the problem is there’s not much of it left for you at the end of the week or month (that’s your profit).
So where does all of your money go each week? The top 1% aren’t waiting around until the end of the year to find out. They check their numbers all year, so they always know where the money went and whether the business is on track with their plan.
So, let’s talk about the numbers you need to be checking regularly.
The 3 Financial Checks You Should Be Checking Regularly
Burn Rate
Let’s start with the first one: your burn rate.
Your burn rate tells you how much room you have to make decisions before money pressure starts making them for you.
It’s simple math that takes about a minute, and almost nobody does it.
Why? Probably because the answer can be scary. But owners who know their number sleep better, because they’ve stopped wondering.
So, get out a piece of paper and do this quick math:
Take your total cash on hand today and divide it by your average monthly loss. If the gym is losing $5,000 a month and there’s $25,000 in the bank, you have about five months.
That’s your burn rate.
And when next month looks tight, you won’t be one of the gyms running desperate promotions on ClassPass or discounting everything they sell. You already know how much time you have, so you can make the call with a clear head and think about the road ahead.
It’s always better to have the cash in the bank and not need it than to need it and not have it.
Balance Sheet Checks
The next numbers to check aren’t actually on your P&L. They’re on the balance sheet.
That’s why we ask almost every new client when they last looked at theirs.
While it’s the lesser-known financial statement, the balance sheet is extremely important because it shows you where the business actually stands on a single day.
We like to think of it as bloodwork for your gym, because it tells you what’s going on underneath, including the problems a good revenue month can hide.
There are four red flags on the balance sheet that will tell you more than a year of P&L statements, and you can check all four on your own books this week:
- A low cash balance. If not enough cash is coming in to keep this line healthy and growing, the bills in the months ahead get harder to pay, no matter how good revenue looks.
- High liabilities. Debt payments are cash going out the door every month. A business, like a family, is healthiest when its debt is low or being paid down consistently, because every dollar of debt payment is a dollar you can’t put back into the gym.
- Thin working capital. The textbook definition is short-term assets minus short-term liabilities, which is a little boring. What it really answers is whether you can cover the bills and debt payments coming up in the next few months. Gyms with thin working capital are the ones that end up scrambling to make rent or payroll.
- Negative owner’s equity. This one is sneaky, because it sits at the very bottom of the balance sheet where nobody looks. If you’ve taken enough distributions that your equity has gone negative, think twice before committing to an expansion or any new monthly payment. It’s usually a sign that something else is going on.
Finding one or two of these doesn’t mean you’re in trouble, but each one is worth a closer look.
The top 1% of fitness businesses review their balance sheet every month, or have their accountant do it, and use it to decide when the business is actually ready to grow.
A clean balance sheet is what tells them a new location or a bigger distribution is a safe call. We go through each flag in more detail in our post on balance sheet red flags for gyms.
However, even when the balance sheet looks fine, there’s one more place where money can be slipping out.
So, we saved the best check for last.
The Small Charges
We’ve talked through your burn rate (cash flow) and the red flags to check on your balance sheet.
Now there’s one more place where we see gym owners leak money… and it’s all of the small charges you aren’t really paying attention to that start adding up.
We call it death by $50.
The gym needs a Spotify account, then somebody wants Pandora too, and before long the business is paying four or five hundred dollars a month for things it doesn’t really need.
Wages creep up the same way. An instructor gets a $5 raise here and a $10 raise there, and none of it feels like a big call at the time. But before you know it, labor costs have climbed $18,000 by the end of the year without anyone deciding they should, and you didn’t even realize you couldn’t afford it. (Yes, this happened to one of our clients before we pointed it out!)
That’s why every expense needs a deliberate look at least once a year.
Here’s what you can do now:
Pull out your P&L from the last 3 months, grab a pen and paper, and go through it line by line. We typically recommend starting with your subscriptions. Or have your accountant do it for you.
You may find hundreds of dollars a month that can go back into your bank account.
The Owners Who Pull Ahead Are Always Looking Forward
Your burn rate, your balance sheet and your expense review all look backward, and that’s something accountants are very good at.
What separates the owners who pull ahead from everyone else is the habit of looking forward.
When you’ve already thought through what might happen this year, you get to decide how you’ll respond while you still have options, instead of reacting once the pressure is on.
It starts with sitting down and asking yourself what you think is going to happen. You don’t need a fancy spreadsheet. Use last year as your baseline and work through a few questions:
- Will the business need more cash this year, or is it producing extra cash?
- If you’re producing extra cash, how are you going to pay down the debt at your locations? Forget owner distributions for once and decide how the debt gets paid off.
- If your situation changes, could the business pivot?
Your answers turn into two projections. Plan A is your optimistic one, and Plan B is the more conservative one. Every month, or at least every quarter, compare your actual results against both. You’ll know early whether you’re ahead of plan and have room to invest, or drifting toward Plan B and need to adjust spending, staffing or pricing while it’s still a small change.
And it’s important to note that these plans have to stay flexible. As the saying goes, we make plans and God laughs.
Remember that GPS? Even with a destination set, you can hit construction and need a detour.
If you’ve ever taken a detour that wasn’t marked very well, you know the feeling of driving around aimlessly, hoping the next turn puts you back on the main road.
A conservative set of projections is your GPS for when the business takes a wrong turn.
Most owners hit a sticky stretch at some point, and the ones with a Plan B can pull out the map they already made and find their way back. If you need help, our outsourced CFO services team builds and tracks these projections with owners every month.
The Most Important Thing The Top 1% Get Right
If we had to sum it up, we’d say that the top 1% of gym owners who pull ahead tend to have one important thing in common, and it’s a clear picture of their numbers.
That clarity is what gives them the confidence to make moves other owners are still guessing about, like raising prices, investing more in their team or opening the next location.
You don’t have to do all of this at once.
This month, pick one: work out your burn rate, pull up your balance sheet and check it for the four red flags, or sit down and sketch out a Plan A and a Plan B.
Even doing one of them gives you an edge most of your competitors don’t have.
After that, fifteen minutes a month with the right numbers will take you a lot further than hoping things work out, because hope is not a strategy.
If you liked this blog, you’ll probably also like our post on why gym owners overpay taxes.
We’ve spent over a decade helping 500 fitness facilities get clear on their numbers. So, if you’d like help seeing how healthy your gym really is, reach out to us here.
Until next time!
