One of the most common back office missteps occurring in the fitness industry is a lack of clear and consistent financials. The beginning of the year presents the perfect opportunity to look at a business, determine where any gaps exist, then devise a plan for improvement. Solid financials provide an owner with a strong understanding of the state of a business. From this foundation of understanding, strategies for improvement or growth may be built. Below are five musts to serve as a starting point:
1. A proper business plan
Take the time to write a proper business plan. Think through all aspects of your business paying close attention to a well-thought-out proforma. Put together some financial projections and compare them with your proposed capital expenditures. Know when you should reach break-even and when you'll turn a profit. Have a plan to responsibly make distributions.
2. A working budget
What is your anticipated revenue? Are you making revenue projections or using sales goals? These are two very different things. Goals are pie-in-the-sky. Revenue estimates should be realistic and conservative. What can you afford to spend? Is your spending in-line with your timeline for the break-even point that you outlined in your business plan? Are you over-spending? Throw in a line item for contingency. This will catch those unforeseen monthly costs. If you don't need it, great; but if you do, you don't blow your budget. A budget provides a business with the foundation upon which it can grow.
3. Accrual over cash
Accrual accounting is a method that measures the performance and position of a company by recognizing economic events regardless of when cash transactions occur. The general idea is that economic events are recognized by matching revenues to expenses (the matching principle) at the time in which the transaction occurs rather than when payment is made (or received). This method allows the current cash inflows/outflows to be combined with future expected cash inflows/outflows to give a more accurate picture of a company's current financial condition. Accrual accounting does a much better job presenting a clear picture of performance. It also may offer better tax benefits.
4. Retain capital
Navigating rough business waters is much easier with a bit of a cash buffer. It's easier to always think about capital retention in terms of preparation for a business downturn, but it can be argued that it's even more important to maintain a solid book balance for opportunity. This allows a business to be nimble and capitalize on any exciting ventures that pop-up in the future.
5. Reconcile, reconcile, reconcile
"Watch your pennies and the dollars will take care of themselves." Businesses work so hard for their money: driving sales, watching retention numbers and pushing for non-dues-based revenue; yet, many times fail to ensure that all of those dollars are making it to their bank accounts. When there are several transactions happening on a given week, it's easy to imagine a few slipping through the cracks. You can't track down what you don't know you're missing. All invoices should be checked and signed off on each month.