Eryn Smith- Why Profit First Is Essential For Microgyms

Ryan's my marketing guy, as we call him, or the booth babe, for people who don't know Ryan or ever met him.

Is it snowing today?

It is not snowing today, no.

We're getting dumped on with rain.

Oh, I was like, you're getting dumped on with snow?

Yeah, no.

It rained a little bit and washed away all the snow down here in the valley, but a lot of good snow for those skiers.

Good, we're coming for it.

Yeah. Um, okay, so let's get started. And just as a reminder, if you're, if you're listening, feel free to make a comment. We'd be curious to know who of you listening are using Profit First already or aren't. So this is Erin Smith. She is one of our newest team members. She's our Profit First Ninja. Erin and I met through Profit First Professionals. And I remember it was funny the first time I actually met Erin. We were at ProfitCon and she just comes up to me and says like, okay, so like, what was your workout today? Or, so you're like working out, right?

And I was also very pregnant.

Very pregnant. So I'm gonna let Erin tell a little bit about her story and then I might interject, but you'll, you're gonna get to love Erin as much as I do. She, she's a rock star, and you're going to hear why based on her story. So, Erin, give us a little background about you.

Yeah, so I mean, typical story as far as when I decided to open my gym and kind of just going for it. So I found CrossFit, I think, in 2012. I ended up opening my gym in 2014. I have what I would call a bit of a moving problem, and then I lived in Hawaii and California. I was from New Jersey originally, and just moved around quite a bit and, um, wanted to move to a new location to open up a CrossFit gym. So I ended up landing on North Carolina. I decided that the Southern women needed me and I was on my way to go and open a gym. And I ended up in the Charlotte area, just north of Charlotte in a town called Mooresville. Um, I moved here in May of 2014. And I, um, opened my gym in August of 2014. So I just jumped right in. And I had told myself that as long as I had money in the bank, consistent money in the bank, that I wouldn't fail at it. Because I think that was the big thing that scared me was like, well, I had the balls to do it, but like, could I do it? And could I be successful at it? And I said, well, as long as you have money in the bank, then you won't Then you won't fail. So that's what I focused on. I had cash to start and that's where I got the equipment and all of that sort of stuff. And next step was getting people in the door, keeping them happy. And again, just making sure that I had money in the bank because if I didn't, I wasn't gonna be able to pay my bills. And that was what I kind of devoted my time and energy to.

So at what point in that journey did you find Profit First?

So what's interesting about that is I mostly got connected to Profit First towards when I decided to get out of the gym business. Um, I was in this transition phase where now we're talking in 2017 when I decided that I was interested in maybe selling my, selling my gym. So I was actually invited to, to the BoxPro Leadership Summit and I was invited there. Um, and forever, if you're not familiar, BoxPro usually puts on an annual leadership summit and you kind of had to know somebody in BoxPro to get invited. And I knew Stu Brower because he was my consultant in 2016. So Stu was like a major, major help for me and my business. So he ended up getting me connected with BoxPro. I get invited to this leadership conference and I'm kind of in this middle ground of like, I'm going to sell my gym and maybe do my own thing and with on the financial side of owning a gym and helping people. Um, so I end up going to this conference and 2 people had mentioned Profit First. And the one who did mention it initially was Chris and Andrea Smith of Trident CrossFit, who ended up being my first clients with like helping them implement Profit First. But I was like, man, there's just something going around where now I'm just like, I'm hearing Profit First all the time. It's like the story with like with the, with the car, you know, like you decide that you want to buy this certain car and now you see it everywhere. And that was how it was for me with Profit First. So when I decided to sell my gym, I was still— I still had the entrepreneurial spirit. And that was when we decided to open a smaller bookkeeping business in the North Carolina area. And we decided to add Profit First as a service, and I wanted to get certified in it and that whole deal. So But it was kind of like, you know, you look back in your story, like hindsight is 20/20. I look back at my story and I see all the things adding up to where, like, I have the toolset to help people today when it comes to implementing Profit First and just my experience on the gym ownership side and just my acute sense and awareness of, like, money and how to spend it and how to be good about it. But, you know, looking back, I didn't hire a bookkeeper. I did it all myself. I was incredibly like anal about my numbers. I downloaded all of my bank transactions because I didn't understand QuickBooks. I categorized them myself. I like made my own P&Ls because it just kept me accountable. But it was just all those things kind of culminated into where I'm at today. Like with having now sold the gym, with starting that smaller business, to meeting you and knowing that we needed to team up, you know. And that's— it's been an awesome time since then.

Well, so we, we also know that you're a Zen Planner ninja. Like, I mean, you really geeked out on that stuff. She's— Erin's been able to help me on our side to run better reports through ZenPlanner. So that was awesome. Tell me, so 2014 to 2017, obviously you didn't know about Profit First. Did you have any good financial habits or looking back, do you see that you had some bad financial habits that you see other of our clients having?

Yeah. So that's what's interesting because like I wasn't, I didn't implement Profit First in my gym business. We implemented it in the bookkeeping business that we had after. And obviously now I do it in my personal finances and all. that. But so where I think I went wrong was I was like a hoarder. Like, I hoarded my money and I could have hired help and I didn't. And because I was so afraid, like, I'm, I'm almost like the opposite of where a lot of people are at, where people will be more willing to spend. And on my side, I was less willing to spend and more on the saving side of things. And I look back on my 2016, I'm like, man, I should have I should have hired some extra help. I could have taken a little bit more off of my plate. On the flip side of that, it's like I did have a tax obligation that year. I owed $10,000 and I was able to stroke a check for $10,000 without batting an eye. And I had money, like plenty of money left over. So that was the good side of it. I didn't even know what I was doing when I was doing it, you know. But obviously then—

any bad habits?

I don't, I mean, my bad habits with money have preceded me owning the gym. Like I, so like I lived this, this picture back there was my bad habit with money. I used to live in Hawaii from 22 to 25 and I lived off, you know, a very small salary and basically credit cards. And when I came back, to reality and life. I realized that, you know, I was basically like, my monthly expenses on the credit card were what I was paying every month, and it was just cycling over and over. So I learned my lesson then. You can't, you can't spend money on what you don't have money to spend it on, especially for those little ancillary items in life, you know.

Yeah, so that's interesting. That reminds me, um, I heard this debate between debt versus equity. And let me just talk about that for a second, because I think what you just said relates. A lot of times people wonder, they want to grow, or sometimes they feel like they aren't growing, and so they need an infusion of cash, or they're looking to go to multiple locations. Maybe they need an investor or whatever. And so, they wonder, well, do I— should I borrow money or should I bring on the investor and have him buy equity? And then, we use that money to expand. I don't think there's a right or wrong answer. I also think when I hear gym owners ask this question, they need to make sure that they're asking the right people. I mean, if I say, talk to a bankruptcy attorney, Guess what? There's a strong likelihood he's going to recommend bankruptcy as the solution, right? If there's someone who has a propensity to just borrow money and they're leveraged to the hilt, they're probably going to answer with, you should borrow money. So it's always good to make sure that if you're choosing between debt and equity when it comes to growth or making a change in the business, that you're asking multiple sources and people who actually have credibility, not just, um, you know, I don't know what it is, it's maybe celebrity status or whatever.

Um, well, it's just, it's a complicated topic that I think people like— it's not always black and white, and there's so many things that I feel like factor into people's situations that should be taken into consideration. And, you know, I was on a call earlier this morning, we were just talking about how Like, money is such a personal thing, and how people interact with their money is more than just black and white. Like, everyone has a relationship with money, um, and it's like taboo to talk about it. And I said this to you privately, but I think it would be interesting if people walked around with a little, little thing over their head, a placard, like, what's in your bank account, you know? And it would— there'd be so much more exposure. If that were the case, and there'd probably— there'd obviously be more shame and judgment and stuff like that. It wouldn't be— but like, you know, we don't talk about these things because there's just this taboo associated with talking about your money and your relationship with money. And I feel like it's important to have people that you trust that you can ask those questions.

Well, and not just people you trust, but people you trust that have the credibility to answer that question, right? I mean, I trust my mom, but I'm never going to ask her a question about business finances or how to run a gym or, you know.

Yeah.

On the debt side though, so in my book, I was able to interview Clay Ferrer with Rig Equipment because he obviously deals a lot with lending to gym owners. And we had a great conversation. If you're borrowing money to increase the asset and you have a plan that that's going to generate revenue, that's generally considered good debt by most people. If you're borrowing money because you have to keep the lights on, like, that's a problem.

Right.

Like, when you're talking about your credit cards, man, if you're— if there's a gym owner who's just racking up credit card debt, every time they do that transaction, and they add more to their credit card balance. The gym is screaming at them. They cannot afford all their expenses. And what they're doing is further perpetuating the need to borrow money because now not only did you borrow money, you now have an interest burden, which takes cash, right?

Yeah.

And then you have to pay it back. And if you already can't afford the expense anyways, it's like, You know, that's going to happen next month, and soon it's going to be this exponential problem. So yeah, borrowing money to keep the lights on, that's a big problem. And that's one of the reasons why we love Profit First. I mean, I don't know if you want to share briefly the experience you had with Chris. I think it's a phenomenal story and gives a lot of hope to gym owners.

Oh yeah. I mean, it was, it was really awesome meeting them too, because Again, it was like right in my start with Profit First, and they entrusted me with like being a guide for them. But in some weird way, I just felt like I was like in tune to know what to do. But basically, we when we first got in contact, I had their you know well-known gym, a large gym. I remember like seeing them on the COVID of Box Pro magazine, and like from the outside looking in, you would think everything was perfect. And I think that's a lot of people's stories from the outside looking in. Like everything looks. great. And then when you get to that back end, it's like, oh man, there's like this big issue and I don't, you know, somebody doesn't know how to deal with it. So in Chris and Andrea's case, they were forced to move and because of that incurred a lot of debt and had to put things on a credit card. And it just, it got to the point where they were carrying this $60,000 balance for 2 years. And what that equated to was like every month they were getting an interest pay— like an interest charge of $1,000 and their monthly payment was, you know, $7,000 or $8,000 plus that interest charge on top of it. So it was just like, it was around $10,000 a month that was getting like funneled to this card on top of the expenses that were— it was just cycling, you know? So they just made, you know, some extreme changes. Uh, they took a hard look at their payroll. They had like a really, high-paid coach that wasn't like really working out and they wanted to do something about. So they considered like lopping down his hours and changing his pay scale, which was really helpful. They went through all of their dues and subscriptions. They stopped taking owner's pay distributions for a while. And we tackled their debt in 5 months. Uh, we got it from $60,000 to zero. Um, it was the most satisfying thing and we, we did it. with weekly allocations. So we focused in on doing it every single week, so every Friday. And still to this day, I send them allocations every Friday morning. And that's just a rhythm that works for their business, which I think is another interesting thing about Profit First is like, you know, we have this framework, but, you know, you're, you're allowed to operate within that framework and customize it to meet your needs. And that's what we did with Chris and Andrea. We customize it to meet that need.

Yeah. That's what I love most about the system, the framework. Yesterday I was talking to Shannon Simmons and she asked the question, why should people read Profit First for Microgyms? Because, and this is part of the answer, was, well, the original book, it's a framework for all industries. And now we're taking the framework and making it more specific to gyms, but it's still a framework. And so if sitting down once a week is better for the gym owner instead of doing it twice a month, then the gym owner should do that. Today we did heavy as possible clean and jerk for our strength portion in the workout.

That sounds fun.

And I've had a lower back injury for the last year. And so I've been really careful about any sort of movements Sometimes, a lot of times I'll just do dumbbells instead of barbells and I'll actually put them on a box so I don't have to bend over to get them. But I mean, I've been— it's been a year, so I'm still— I'm trying to work it back in using the back a little bit more. But, you know, I— we— Ryan and I, my marketing guy Booth Babe, we're kind of the same level on the clean and jerk and Uh, you know, we got up to 205 and it felt pretty good. Like, and so I was thinking about it, like, it's interesting. I've modified the framework of our workouts over the last year, but I'm not weaker because of it.

Yeah.

I've actually gained in strength, even though I'm using dumbbells instead of the barbell, or I, you know, I've always modified the workout to work so that it's friendlier on my back. And I'm still like, that concept that gym owners see with their members is the same way that Profit First will work for them.

Well, it's wild. There are so many similarities with Profit First and the gym environment. It's actually insane to me. I mean, obviously even the original book was written with like nutrition focus in mind, but I mean, the crossover is kind of hysterical. There's just so much.

I know. It's actually great. I think in the book I mentioned that it's almost like cheating for gym owners because of the similarities and what they've already seen in their fitness industry, how easily that's translatable into finance. So they kind of get like a head start.

Yeah. Yeah. Well, they sell it all day long. I mean, it's like the same It's the same thing that they present to their people, like financial health, physical health. It's the same, like, same concept.

Yeah. So let's end with, um, maybe some favorite tips you have about Profit First or something you saw that, or good things you see that give gym owners a real bang for their buck when it comes to implementing the Profit First system.

So, I mean, one of the biggest, like, low-hanging fruits for people, and usually the first thing to implement and deal with, is getting the rhythm down for when income comes in. So generally, most gyms, we all kind of operated the same way when opening our doors. If you came in today and you signed up, I would just, like, run your membership for today to next month. And then that's just when the money would trickle in and it would be like all over the place. So I would say one of the first big steps is to get billing done on either the 1st and the 15th, or just 2 days out of the month versus sporadically coming in. That will also cut down on merchant processing fees and batch fees. There's really no need for a gym environment to batch transactions at the end of every day. That's mostly necessary for restaurants and retail and stuff like that. And batching transactions, for whoever doesn't know, just means at the end of the day, your merchant processor will take all the money that you collected and batch it and send it to your bank account. And you pay for that every single day. So another way to cut costs is just being mindful of your merchant fees and understanding how and what they are and how to work your business around them. So making that decision to like, hey, we're just going to bill on the 1st and the 15th or whatever days that you decide will help create a flow for your income so that you can create flow in your expenses. And I think that's one of the most important places to start. But a lot of times too, that takes the gym owner some time because you've got to make all those changes in Zen Planner or Wodify or PushPress or Utribe or whatever, you know. And that's a pain in the butt, but, but getting it done, I always say this, once it's done, it's done and it doesn't have to happen again. And you've just saved yourself a ton of time for the future. And then you set up a good system for when new people come on board, you know, you just don't give them that option. Like, this is when we bill, the 1st or the 15th. Um, so that's, that's really, I think, the best place to start. And then in that same token is, you know, if you can take payments via ACH, it's so much better than credit card payments because of the amount of money saved. And again, it's one of those things that you kind of dig through the muck of it in the beginning, but once you do it, it's done and you save hundreds of dollars every single month generally.

No, and that's a— I mean, that's really good because Like, I was just looking at our numbers at our gym and our merchant processing is roughly 4% because of the batch fees, because of the credit card transactions, because we're basically forced through our— ZenPlanner wants you to use PaySimple, and if you don't, there's an even higher fee.

Yeah.

Which is crazy because from the tax side, I mean, we're used to really closer to 2% because of the volume that we can do. Yeah, man, I would rather be closer to 2% because when you buy into a failing gym, every percent counts.

It counts. It counts. Yeah, I really think that that makes a big difference. And some people will say too, like, the, the counter to this is, you know, when someone buys a FitAid or a t-shirt and, you know, if you don't want to— like, like Zen Planner has the self-service kiosk and stuff like that. And yeah, it would be great to have all that stuff hands-off. And I'm sure there's a— there's different ways that you can do workarounds for it. But when I implemented 1st and 15th at the gym, at my gym, because I did do that, I did, I did switch everyone from all the sporadic billing to 1st and 15th. I switched everyone to ACH. So I saw the benefits and they were huge. Um, so what I did was Um, I did. I had the, the list and the punch cards for fit aids, and I just would go in twice a month or whatever before that billing was about to hit, and I'd put everything on people's accounts. And they would get charged for everything that they consumed on those dates. It wasn't like you leave the gym and I run your credit card for $3.20 for your fit aid, and then that cost me 30 cents to get that money from you. Like, And you only profit a dollar on a fit-in anyway. So it's not worth it.

No, I mean, tab restaurants do tabs all the time. So that's really what you're talking about. Yeah. Well, that's great. Um, Erin, I'm grateful you came on today. And, uh, if you guys have any questions for us or Erin, please email us. Um, I'm john@insighttax.com. Erin is erin@insighttax.com. Imagine that.

E-R-Y-N.

But hey guys, thanks for tuning in. And again, if you have questions, let us know and we'll find a way to respond.