Ryan Vaughn explains the two financial statements gym owners need: the balance sheet, which shows assets, liabilities, and equity, and the income statement, which tracks revenue and expenses. He uses a fruit-tree analogy and walks through the accounting equation: Assets = Liabilities + Equity. Most gyms should keep 12 to 20 expense accounts.
In today's tip, I wanted to review financial statements in general. You hear accountants refer to your financial statements often. What are they actually talking about? They're talking about your profit and loss statement, or your income statement. Those are— both those titles mean the same report. And they're talking about your balance sheet, which, if there's anything more accounting in the world, I don't know what it is. Other than the title balance sheet. The reason they call it that is because it has to balance, and I'll get into that in a second. So think about a tree, like a fruit tree. You have the trunk, the roots in the trunk, and that is what sends nutrients to the limbs, which then allows the tree to bear fruit. Your balance sheet is like the roots and trunk of a tree. So your balance sheet is going to report to you the different things that exist in your business that allow you to make money. So for a gym, your equipment is going to be on your balance sheet. Your cash in your bank account is going to be on your balance sheet. It's also going to report how those things were purchased. Did you have to take out a loan? If you did, the loan is going to be on your balance sheet. Or did you put money in yourself? Do you have another job and you funded the equipment through that income? That's going to be reported in your equity section. So your balance sheet is going to be listed in 3 separate categories. The top of the balance sheet are your assets. And those are things like your bank statement, your cash balances, inventory if you have that, that you resell things, and your equipment, and the different types of equipment, type of those things that you have. Underneath your assets, you're going to have your liabilities. This is money that you owe other people. So it could be money you owe vendors, could be credit card debt, Could be lines of credit. All of those liabilities are underneath the assets. And then the last section is your equity section. This represents money that you've put in as the owner and money you've taken out as the owner, and it also is going to reflect the taxable— well, not taxable, it's going to report the net income of your business that is on your profit and loss statement, which we'll talk about in just a second. So the reason it's called a balance sheet is because the assets need to balance with the liabilities and the equity. So the actual equation is assets equals liabilities plus equities. So my assets, my assets are here, my liabilities and equity are also going to be here. My assets are here, my liability and equities are here. It always balances. That's why it's called a balance sheet. Okay, so that, that reports the different things that allow you to make money. And for a lot of gyms, it could be as simple as the owner put money into the business, they bought equipment, the equipment now allows the gym to sell workouts as a service. Like, it's still reporting the same thing, right? The cash that came in is the trunk of the tree, and the fruits are going to be what now is going to be on our profit and loss statement or our income statement. And that is in order of— it's first going to list your income accounts, and then it's going to list your expenses. Your expenses can be broken out. Some people have under your income account cost of goods sold. Which are direct expenses related to specific income items like selling supplements or selling Kill Cliff or, you know, whatever those types of things that you want to sell, even apparel, t-shirts with your logo. You have income from that, that's listed in the income section. You have direct costs on that for buying the t-shirt, for buying the drinks, the supplements that you then resell. Those are your cost of goods sold. Everything else is expenses. As I mentioned in a previous video, this is— these are accounts that are also going to show up on your chart of accounts. When it comes to your income account, we recommend— or your income statement, we recommend, you know, 15 to 20 expenses at most. At most. We have some gyms that are totally happy and content with 12 to 15 accounts. You don't need it to be crazy. The purpose of the financial statements is that you can look at them and know what's going on in your gym, that you understand the names of the accounts, what transactions are in that account, and then therefore what that number you see, what that actually represents. So there are your financial statements. Tried to compare it to a tree. Maybe it worked, maybe it didn't. If you liked the tip, go ahead and subscribe to our YouTube channel, and we'll see you around. Thanks, Ryan.
