Why Every Dance Studio Owner Needs to Get Financially Fit

Hello friends, I'm Amanda Barr. And I'm Rebecca Lou Brennan, and welcome to Dance Principles United, the podcast. Together, we are passionate about helping studio owners with the business of running their studio. Join us as we talk everything from marketing systems, studio culture, motherhood, life, and everything in between. This is the Dance Principles United podcast.

Hello everybody, and welcome to another episode of the Dance Principles Welcome back to the United Podcast. We are back in the studio today recording, and I have a new special guest with me today. Would like to introduce everybody in podcast land to Jess Bowles. Welcome, Jess, to the podcast.

Thank you. Thank you for having me. It's my first podcast.

Oh, well, I'll go easy on you. I'll go easy on you, I promise. Look, before we get in, because sometimes I tend to take over these things and start waffling, would love you to tell us a bit about yourself, Jess, and what your background is and what you do. Yeah.

So off at the moment, off to my new adventure. In my past life as a financial advisor, I was a part owner in a company, local company down the South Coast, 15 years. And I've just recently exited that and off to my new adventure. In a past life before then, my family ran small businesses. So know a little bit about Some things, I wouldn't say an expert in anything, but I know a little bit about, let's kind of say everything.

Absolutely. So we're bringing Jess on today as guest financial expert because chatting to Studio Growth Club members and Tribe members and so many people in our industry, we know that, you know, we don't get into this business, guys. I've never heard somebody yet say, hey Nathan, look, I opened my studio to crunch the numbers and work on making sure that everything's profitable and running a really great lean business.

Yeah.

We know that people are getting into opening their studios because of their love of dance and sometimes what we call accidental business owners. So what I'd love to, what I brought Jess on to have a bit of a chat about today is to get a bit of an insight into making sure that we are using our business to look after ourselves financially. Because at the end of the day, I know that All studio owners pour their heart and soul into their businesses, that it's often their, you know, their first child. And it's the thing that they have often built their lives— like it's their life's work. And what breaks our heart, myself, Amanda, and Bec, working with studio owners sometimes is not seeing them get the reward financially for that. Because whilst it's one thing to be in it for the love and the passion, at the end of the day, we do know that. Money makes the world go round. So, you know, whilst you haven't worked with a lot of dance studios before, Jess, you've worked with so many small businesses in your capacity as a financial advisor. What are some of the top things that you always end up chatting with small business owners around making sure that they are looking out for themselves financially?

Yeah, great question there, Nathan. And look, I'll start with not really an expert, maybe just done it for a very long time and see what works and what fails.

Yep.

It's a pretty common thing. One of the big things, I suppose I'll start, I have to say the general advice warning. Obviously talk to your accountants, financial advisors, mortgage brokers. We've always got to throw that one out there. I'm sure the disclaimer will come up at one point. But the biggest thing is being financially fit. And what is being financially fit as a dance owner or dance studio owner or a small business owner? It doesn't matter what you go into. You've got to make sure that you're paying, you've got a service or you're doing a product. In this case, a lot of these studio owners are doing a service. You do have some products with your merchandise. Yeah, little bits and pieces, but like that's just a little add-on sort of thing. But you've got to make sure that you're financially fit. So what's that mean? It means that, am I making money that's then leading to paying for my lifestyle? Because that's the other component of it, right? We've got, you've got your own studio, you're doing really well. But then the other part of it is, is my personal cash flow? Am I meeting that? Am I robbing the bank or robbing my studio of what it's worth? Or is my studio making a lot of money that's then servicing what I need to do? So being financially fit is making sure that I'm meeting my expenses every month. Am I being profitable? If I'm putting it into studio language, are my classes profitable? How do I know that? You know, that's really getting into the nerdy sort of little bits and pieces, which I know you and I both love. But a lot of studio owners, they're looking, going, okay, is my class— I've got a class of 20, I'm sitting at 12— is that profitable? Is my fee schedule Yeah. meeting out what it is? And I've noticed Through some of the studios that have been having a look through yourselves, is it profitable? Is it not? And that's the real key because otherwise you're going to spend— and I like to go back to when I used to, when I did a lot of planning for small business. So you go 5 years of building the business, 5 years of maintaining it, then 5 years to sell it.

Okay.

But at all points you need to know if something goes wrong in my life or I want to get out of it, Can I sell this asset? Because a lot of small business owners will, they're sort of bootstrapped it at the start. There's a lot of expenses. They're putting in time and effort. They're putting 100, 150 hours in it a week. And then they're getting to the point, okay, now it's set up. I've got my systems and processes. Now I need to start making some money. How do I do that? But if you don't know what your cost of service is, Yep. you don't know what your figures are. So that's being financially fit and Yeah. I know you teach a lot to some of your owners, but you need to understand those metrics. Not just, I do my tax return with my accountant once a year and work, okay, well, the profitability is this, I pulled out this, but what are you doing? Or what are those finer metrics? Okay.

So when we talk about sort of being financially fit, you're sort of talking about, because I think so often that we're talking to studio owners and understandably, like they're early on in their studio journey or they're still right in the thick of it and loving everything that they do. But there's not much thought given at any point to the fact that what they're trying to actually do is build an asset or to build something that is, as a business itself, financially fit. Because yes, whilst everything's great and rosy today, we don't know maybe what tomorrow holds, or we don't know, you know, there might come a big life event that means, oh, actually I need to move on and focus on other things. And if you've put your life's work into something, what we do unfortunately see too often is that after 10, 12, 15 years of running a dance studio, that a dance studio might look to be selling and move on to the next thing. And there's actually not a lot there to sell. Is that something that you see across other small businesses that you work with as well?

All the time. We would see a lot of people start with the love and the passion. You start, let's say your cup's full at the start and over time the grind beats people down, beats people down. Then they get to a point where they've had enough. So if you're talking about a service-based business, if you break it down fundamentally and you say, if I'm going to bring in $100, $10 of that's GST, it's gone tax, then another $25 of that gone for tax. Then in the old days used to be 10, 30, 30, 30 was the way to break it up.

Yeah.

So 30% profit, Or money to yourself. Then you had 30% of your running costs and then 30% for tax, which is the government's given us a little bit extra lately. But I would say most of that sort of gets wrapped up in the costs. So really cost is 35%. So of your $100 coming in, your $30 needs to come out to you to make money out of it.

Yes.

And then because if you are gonna build the business as a service-based business, it's either I can sell my studio that's doing $500,000. Okay, well, is that worth anything? Is that worth $500,000 to yourself, Nathan, to buy that? Or no, it's not worth anything. It's really just a turning over. It's a cash cow in a way, which if you think about it.

And so when you say $500,000, sorry to interject, are you talking about $500,000 revenue or $500,000 profit in there?

That's right. So you've got revenue and profit, right? So if you've just got revenue in and you're making that 30% profit on it, great, then that's a saleable asset. But if you are running that very lean and you just, making ends meet, really that asset isn't worth anything. But your $30 of your $100 we just spoke about, that's coming out and then you are investing that money to then build your wealth.

Yeah. So—

There's a key couple of metrics with it, right? Because you start to think, am I gonna, am I building, am I on a growth path? Am I increasing my studio? Am I doing more classes? Is it getting bigger and bigger that way? Which then comes with more stress and more costs. Or am I keeping it nice and lean to know that, hey, After my 15 years, I'm gonna get, let's say that you're 40, you got to 55, hey, I've had enough of it. I'm just gonna close the doors or I'm gonna give it, I'm gonna sell it to one of my students, which has been working with me for a very long time and I might sell it to them for $100,000, right? Which in the grand scheme of things, if you haven't paid your super and done all the really financial fit stuff out the side, you've only got $50,000 over 15 years. That's not a good outcome.

Absolutely. So kind of what you're saying is, You can either sort of look at your business in, and this is very generalized, in—

Put that warning back in there.

Sort of like in 2 ways. So if you are sitting there with your studio at the moment and you're really happy that you're paying yourself a really good wage, then that's, you're taking that profit out and you're putting that in your pocket. You're doing all the right things. You're paying tax on it. You're putting super, but you're taking a really good wage for yourself now to fund your own lifestyle and invest in your future.

Wealth creation.

Yeah, wealth creation. So that's one way to do it. And then the other side of that is that you are sort of struggling along a little bit. The money just seems to be disappearing and you're maybe not paying yourself as much. And everything, little bit extra that you've got is going back into making sure that the studio is turning over.

Yeah.

And that's like I said, that's sort of two ends of the scale. And there's obviously loads of different ways in between it. But if we're, if we're not making sure that we're profitable, then there's, there's not really that asset that's, that's worth anything for somebody else to come in.

Yeah, and exactly. And if you're putting $100,000 150 hours into it and you go to sell it and that person that wants to buy it's not willing to put that in because they don't have the love and drive for it, then it's gonna be a disaster when you do come to sell it. It's gonna be a hard one 'cause you've just said, oh, you know what? I'm just gonna close. My lease is up. I've had enough now. I'm gonna close the doors. And then you've gotta go, well, I wasn't disciplined enough or financially fit enough back when I first started all over those years.

Yep.

I haven't built enough assets or wealth creation out there to then supplement them So that's the big part with it.

Yeah.

'Cause a lot of people go, and this is going back very general with, if you're working for someone else, so takeaway studio owner or small business owner, if you go and you go work for somebody, they build up all superannuation all these years. Most people get into the, mate, they might strike $1 million in super. Great. That's 30 to 35 years worth of contributions compounded over so many years. Then they haven't been disciplined enough along the way. So what they've done is they've paid off their first house, then they've taken out another mortgage and then they get all the way to the point and they go, hey, I've still got a $500,000 mortgage at retirement. I've gotta now pay that off. So then their super balance goes from $1 million down to $500,000. And that really changes the dynamic of everything.

Yeah.

But if you've got a studio that's financially fit, they're thinking about day one with some bits and pieces, 'cause obviously at the start it's a lot more stress until you build your processes in. But once you get to that financially fit stage and you start building other assets outside, like if you're going into property or shares or what, there's plenty of asset classes that you can use. But if you're not doing that, then that's a big problem later on.

Yep. So look, we talk a lot on the podcast, in Tribe and SGC about getting your studio financially fit. So what does financial fitness look like, I guess, on a more So if a studio owner's thinking, oh, I'm doing things really well, like the studio's making great revenue and they're always like, there always seems to be enough to pay myself a good wage. What are sort of things in the past that you've seen successful small business owners do to make sure that their business is making themselves personally financially fit?

Yeah, great question. And this comes down to budgeting. Huge one that we always go with. So a lot of people go, well, at the end of the week, and let's say you're, I don't know, just easy example, $1,000 a week after tax comes in the bank account. And most people go, well, if I put $100 away over each week for 52 weeks over 10 years, it's gonna make me a lot of money. But what people do is they do it the wrong way around.

Yep.

So they go, you know what, at the end of the week, I then get my paycheck and then I go, oh, okay, I've got only $77. Oh, you know what, this week I won't do it. If you flip it round and go, when the money comes in the door, then we go, okay, and then I'm gonna invest that money or I'm gonna pay down my mortgage. Mortgage is probably the other way to think about it in most people's sort of financial lifeline, right?

Yep.

So you go, I'm gonna be disciplined to pay off some more mortgage than what I should. Okay, well, when that money comes in, we put it straight on the mortgage. Don't let it sit there in a bank account. Or a good one everyone loves, Sort of putting it against, not really offset accounts, but just being disciplined. Offset's a pretty good one because when you're a small business owner, you can park money in offset accounts because if you need it, obviously general advice, but you can put the money back if you need to, to help your business to grow. But if you're disciplined enough to say, I'm paying down the principal, the quicker you pay off that principal, the quicker you get ahead. That's the biggest one. And I see a lot of people doing it the wrong way around. So be disciplined upfront and do it. And then if you've made out for the week, all right, I've got another $77 left over. If you're that detailed orientated, then you can say, all right, well, what do I do with that? Maybe I'll put that in the offset. Or maybe that goes in your fun accounts. The Barefoot Investor has some great easy knowledge that you can go through and setting up accounts and being disciplined with it.

Yeah.

That's the easiest one because when you've got— people feel rich when you've got $1,000 in the account to when you've got $100 in the account, you've got a couple of days left. Your mindset's completely different. So you might spend more when you've got $1,000 in there because you think, oh, I'm good. I can go buy, I don't know, maybe a pair of shoes or a bag or whatever, these sorts of things. But then you go, all right, I can't do that anymore. I can't, when I get to that 2 days, oh, I'm scratching around. How am I going to pay this?

Yeah.

So it's just being financially fit and disciplined enough in both ways because one of the biggest traps as well I see for small business owners is using credit. Credit cards, point systems. Oh, I get these point systems, this benefit, that. That is just a massive— I see people getting so many traps. They're like, oh, I've now gotta rip out more money outta my business. So I've gotta pay more tax. A non-efficient way of investing because they went, oh, let's just go get that. 'Cause it's $5,000 for that overseas holiday. Let's put that all on the credit card, but I don't actually have the cash flow to support that.

Yes.

And then they go, oh, Now that interest is building. So it means I've got to take more money out of my business to then pay down the credit. So I'm paying more. So it's a double whammy. You're paying interest plus extra tax.

Yeah. And look, like this is definitely not financial advice because like I love a good point system as well. But within all of that, and we haven't chatted about this, so Jess might, this might be a longer car trip home, but I have also never paid a cent of interest on that card that is earning me points as well. So like, it's like you said, it's about being disciplined. We talk with our studio owners a lot about being disciplined in their businesses using Profit First. I talk about Profit First, great book, great book. by Mike Michalowicz a lot. So we talk about that from a business sense. And by the sounds of it, what you're talking about is just very similar strategies and methods, applying that to your personal life as well.

Easy. Yeah. They don't teach us at school. You know, when you were doing maths or they never taught you how to budget. And this is what everyone gets through and they sort of fumble through. And you and I were talking in the car, you earn $100 doing a part-time job, you earn a little bit more, you earn a little bit more, and it's just this spend creep.

Yes.

So it's like there's not, hey, I actually, my business made an extra $50,000. Did I put that money to good use?

Yes.

Speak to your accountant about some ways that you could maybe benefit from that. I did have a bit of a joke before saying if the government spent our money better or our tax money better, you might give 'em a little bit extra. But there's some good ways if you've got a good accountant that can help you out with those sort of things. Yes. 'Cause coming back to that financially fit part of you, point of view, is when you go, all right, I'm running my business very lean, I'm not paying much tax, which is in personal sense, not paying much tax, but then I wanna go get an investment property. I can't do that because I'm not showing any income. So there's a lot of metrics with it that all need to tie together. And that's where a good financial advisor, and I know there's plenty of good ones out there, or good accountants help you with those strategies. That help being financially fit on a business sense and a personal sense. And having a plan is a good one.

And I guess it does all tie back to though that you're pouring your heart and soul into this studio and that we always talk about it, that you've got to put your own oxygen mask on first. You've got to make sure that this business that you're pouring your heart and soul into is looking after yourself first. You've got to make sure that you're being financially looked after so that you have stuff to set you up for the future rather than, you know, it's just a classic thing of studio owners that we see them looking after everybody else.

Yeah.

And making sure that we are looking after ourselves first so that we have options, so that wherever our journey takes us, wherever, you know, whether we are building our business and like you said, then you get into that 5 years where it's profitable and you're like, Oh, like it feels really good. And like, that's where, like you said, getting good advice at the start. Like, you know, we are in a pretty nice financial position, Amanda and I, with our family. A big part of that is because she got great advice when she was 18. And this, you know, this is maybe showing her age a little bit, but like superannuation was only a few years old when, when she first started working at the studio. And, you know, The financial planner that she ended up chatting with just said, you're young, you're still living at home, you've got a good business making money, stop pissing it up the wall. And we're gonna—

It used to be everyone's grandfather, right? The grandfather would go to you, hey, you know, what are you doing? Are you putting any, are you saving your money? And you know what? They're the people that have done really well.

And he made her put it in. And especially at that time when superannuation was relatively new, I think it was like 7 or 8 years old by then. But the government was really trying to ramp it up and there were so many incentives. Like they were matching like dollar for dollar. I know they've just brought out something recently that if you put in, and I've just done it for my daughter who started her first job, is that we contributed $1,000 to her super last year. We opened up a little account for her. Equity contribution.

Yeah.

And the government's going to throw in $500 for her. Now, if that compounds for her at 8%, She's not accessing that for another 50 years. That's gonna be worth over $32,000 for her just by making a smart little decision now. And like I said, because Amanda had that great advice all those years ago, time is always our biggest friend around those things, right?

Definitely. Definitely. But it's all coming back to cash flow in the business. You'd hate to say, well, I've done this business for 5 years, I've made no money out of it and I've gotta close the doors.

Yes.

That's the worst outcome for everyone. Coming back to that $100, out of that $100, probably conversation to have with some of your Growth Club is to say, well, is my pricing schedule correct?

Yes.

Am I making enough money out of it? Because if you go the other way around, get my $100, I'm paying $95 in expenses, I'm making $5 on the other end. Wow, you would never do that as common sense. sometimes isn't so common, but would you go earn $5 over here when you could go work, I don't know, maybe for public service or something? You go, well, I'm going to go earn $70,000. I'm going to get wealth accumulation, the stress. So all these people go, well, what's my options? You want to make your love and what you built there is the biggest thing for you. That's your asset. So you need to make sure that that's fit for purpose.

Yeah, absolutely. So that comes back to, like I said, that's the biggest thing. We've been talking a bit about personal financial fitness there. We always talk a lot and we will definitely talk more about, maybe not in this podcast episode, but about all that stems from getting your studio financially fit. And like you said, the biggest part of that that we always see with studio owners is getting your pricing right.

Yeah.

And there was, if you go back a few weeks now, there was a specific episode that Bec and I did on all things pricing. So please make sure that if you're listening to this and you're thinking, how can I What's the easiest way for me to get more cash into my business is by getting your pricing structure right. So pop back a couple of weeks and listen to that episode from myself and Bec, and that will definitely give you a few ideas on how to do that. But, um, maybe one last thing, um, Jess, before we wrap it up. Um, what is maybe just one other little thing that you've seen from people in general, especially small business owners, to help with their financial fitness, even if it's something that maybe you shouldn't be doing?

Put your prices up. That's the number one. I know we laugh about it, but coming back to what you said before, the jaw, like you've got expenses, expenses are gonna go up 3% every year. Your rent goes up 3% every year. There's no reason why your prices from last year or last term shouldn't increase by 5 to 10%. You think about the jaws, the expenses staying low and the profitability going up in most businesses. But if every year, whatever the consumer price index, like we saw in COVID, prices go through the roof. Every year things go up. And if you're not being disciplined about it and putting your prices up, it might hurt a little bit at the start. And you think, oh, what am I doing? I'm going to lose people. I'm going to lose customers. If you've got a great business offering a great service and those children in those classes love what they do, there's no problem for you lifting your prices. You won't lose people. The people that are going to leave, you're gonna replace them with new people paying the higher fee, I suppose is the way to think about it. I think that's the easiest thing to do. Like, don't be afraid of lifting your prices.

Yeah, absolutely. I think that is a perfect place for us to end. But Jess Bowles, thank you so much for coming on. If you're listening to this, guys, and you have any sort of specific follow-up questions, things like that, Jess is no longer a financial planner, but do reach out. We can put you in contact with some people that we know and that we trust around the accounting and financial side of things for you to And there's plenty of other good professionals around.

Like you can go have a chat with these people at nearly— most people at no cost just to go have a chat. Or your account might have a good financial planner that they do. That's a great way of just starting the conversation and getting financially fit.

Amazing. Thanks so much, Jess. We'll chat again.

Thanks, everyone.

We hope you enjoyed this episode of the Dance Principles United podcast. If you'd love to learn more from our guests, From us, we have a special offer just for our podcast listeners. Go to the link in the show notes right now to get two weeks free in Dance Principles United Tribe. We would love to see you there.