Forecasting Financials for Fitness Studios

Hi, today I wanted to go over 2 tools that we can use when we're trying to forecast or plan our finances for our fitness studio. What you're currently looking at is an Excel file that is broken out per month, and this is something that you can do to forecast. Again, we're talking about forecasting, which is different than looking at the past and taking the average of the past And just assuming we're going to do that going forward. Forecasting allows us to put our goals into the numbers while still using some of the historical numbers, the things that we've done in the past, in the process. So in the example that I'm showing you here, I am assuming that this is a fitness studio that is very relatively new. So if you can see here in January of this example, we're gonna say they're— they just started off and they ended up doing $1,500 in revenue. Now from a mechanic standpoint, I just want to illustrate any cell that is in yellow you can type in. The rest of the stuff is formula-based, and depending on the services that your fitness studio offers, whether there's group training or personal training, or you do nutrition or something else, theoretically you can change what these are. The idea being we just want to capture so it's clearly labeled. So in this example, I'm assuming this is a personal training studio. So they have $1,500 based on the expenses that they incurred like the month before, because again, we're pretending this is a brand new studio. These are the expenses that they currently have. They have, um, they're paying for an accountant. They're trying to grow, so they're spending $1,000 a month in advertising. They'll have some bank service charges. I'm just assuming they have $150 of something. I don't know what that would be. There's a whole variety of services that we can have as fitness studio owners. Um, but just for the sake of the example, I'm plugging that in. $3,500 in rent. They got a cell phone plan, it's expensive, and utilities on that rent as well. Right now, as they're starting off, they're going to be doing all of their personal training, which is why I've left this payroll expense column empty. Now, if any of you have seen me before, I'm a big fan of Profit First. I'm also a big fan of the owner paying themselves. And I believe if your goal is to grow the business in a way that you can pay coaches to do the actual services and you just need to focus on the studio growth and member service, that you need to account for paying even yourself on an example like this. So what we want to do is at least capture In this example, if the owner who's doing all the coaching themselves were to pay somebody else for that service, what, what would they need to pay them? So, I mean, let's just call it this first month is probably part-time work. So maybe it's, uh, well, and actually I'm gonna go back and Under this type of scenario, you'd probably set up a percentage type of compensation for your person because you don't want to be tied to the idea that, hey, I'm paying you a salary even though you don't have full-time work for that person yet. So I would say for these first couple months of this startup example that we're using, you're probably going to pay a percentage of income, and let's just go ahead and call it half. Um, so I'm gonna go $750 here, and of course I used numbers with 500s in them. Uh, this is gonna be what, $1,250? And this is gonna be $1,750, and then $2,250. Um, at $5,500 in personal training, you're probably getting to the point it's like, hey, you know what, Let me offer you full-time something. And just for the sake of the example, let's say from this point going forward, you've committed to paying them $3,500 a month. Now again, in this example, the coach is the owner, but we have to account for this because the owner needs to pay himself or herself $750. Because that's what you would pay somebody to do the work. Uh, and that's across the board here in this example. Whether that gets— whether this money allocated here is going to be paid to another coach or to the owner, the owner should be like— that money should be accounted for in your forecasting. Um, and so with that then Assuming you filled in all these numbers in January, if you're using this template, the rest are going to be blank. Well, you were just going to assume for the sake of forecasting, okay, I, I'm probably going to spend that $350 on the accountant all year. I'm going to probably spend $1,000 a month in advertising all year, right? And so on and so forth, which is why all these numbers go across from January to December. So now with that in mind, then we set our goals. Where do we, where do we want to end up as a gym? And this is where forecasting is awesome, because I'm purposely going to do an example here, and then I'm going to change it so that you can see you are allowed to change your forecast. You're allowed to type numbers into this file and change them after the fact. That's the beauty about being the owner. You can always change your mind. Nothing is ever Written in stone. I mean, very few things are, but in the accounting world, especially with forecasting, change away. So let's say I'm going through this and say my goal by the end of the year is I want to hit $10,000. And so I would type in $10,000 here in December. $10,000, which I already did. You just type the number directly in. And let's say I know I'm going to be able to close $1,500. Maybe by the time you do this, you've already done that. Now from there, I'm gonna say, well, I think I'm gonna be able to add $1,000 a month in additional revenue. So that puts me at $2,500 in February, $3,500 March, $4,500 April. You see where I'm going with this? $5,500, $6,500, $7,500, $8,500, $9,500. My goal is to hit $10,000. So now I'm saying, all right, let me get to the $10,000 because adding $1,000 would allow me to do that. and I carry $10,000 out the rest of the year. So I say, okay, wow, cool, $79,500, not bad revenue. Notice under the cost of retail items, I don't have any sales for retail sales, so I don't have any costs for retail items. That's why that's zero. But then I look down here at, with the expenses I've already put in and knowing Even if I'm the one doing the work, I got to be paid for doing that coaching stuff. I have to forecast for it. It has to be accounted for. Man, it looks like I'm still going to be $26,000 in the hole. Okay, well, what can I do? I'd look at this. So now you change— like, this is why forecasting is so powerful. You are able to see ahead of time just by looking at the numbers. Wow, what I just thought I was going to do is not going to work out for me. So now I need to change some numbers. Well, you know, I I have that cell phone plan. I actually there are some bells and whistles. Maybe I don't need all of it. I can I can drop that down to $100 a month. Okay. So I did that. You know, um, turns out my utility bill, I found a way to keep that down, especially in the beginning since I'm not going to be using it all the time. I overestimated the expenses anyways, and then I also know of ways I can cut back on that. So in January, rarely using the facility, I'm probably at— $1,000. $300, and then it's going to increase a little bit, but with, um, whatever I feel like I could do, I think $500 a month is all I'm going to need for that. Rent is set. I signed the contract. There's nothing I can do about that. Payroll expenses, I think, look pretty good. Um, bank service charge is pretty low. Advertising, I still want to push that. Accounting, well, I can cut that back as an accountant. I'm going to pretend that this guy realizes I'm not— if I cut back on this accounting, I'm actually not going to have anyone do the books for me because meaning they're not going to get done because I know I'm not going to take the time as an owner. I don't know how to do it. I wouldn't even know where to start. So that's a good investment. Not to mention, a good accountant is going to help you save more in taxes and save you money than in their overall fees. So then I look at this, I say, wow, I'm still down 21 grand, which means I got to get to $10,000 faster, or I'm gonna have to get to more than $10,000. So a couple things I'm looking at, and here's— there's no right or wrong with this, and there's not a real intricate formula that I can teach you per se. There is a bit of an art to this, and this is where you just have to, um, be comfortable with asking questions based on what you're looking at. So in this case, if I look at December and I say $10,000 of revenue, $9,000 in total expenses, that confirms for me I no doubt need to have more than $10,000 in revenue. I need this space to support probably up to $20,000 of revenue because again, I'm assuming as the owner, I'm doing the coaching. So I'm already going to make $3,500 a month here, but really I'd like to make $5,000 to $10,000 a month. So I I'm gonna readjust my goal and say, hmm, let's see if I can get to $15,000 by the end of the year. And if I'm starting at $1,500, maybe I need to increase by $1,500 a month. So, I'll go February's $3,000, then $4,500, then $6,000, then $7,500, Then 9,000, then 10,500, then 12,000, then 13,500. And it looks like at that pace, that gives me some wiggle room. Now I look at my expenses and I say, okay, in December with $15,000 of income, my net income is $5,885. So carrying, like, so for the end of a complete year, those numbers look good. Obviously I see the losses here in the beginning, but I'm starting out, so there may be a few months that that's the, that's the case. Okay. Um, well, if I change my revenue numbers, that means I also am going to need to change my payroll numbers, because if I'm going 50%, right, uh, in the beginning until I get to the $3,500, um, I need to change that number and I need to change this number. Now at $6,000 of revenue, chances are I'm going to be having someone full-time at that point, so I'm going to go ahead and plug in the $3,500. So you see what I did there. Again, these numbers are for you to tweak. The yellow cells, you can add it. I've given a whole possibility of expenses. As you can see in my example, I'm not using all of them because in a startup you're not going to have all those expenses. If you're a little bit more established and you're looking to forecast, you might have some of these expenses. But again, the idea being I can set my goal here I can back into it, and then I can see if based on my expenses that I'm forecasting, if it's going to work out ahead of time. And since I'm talking about 12 months down the road, I actually now have the ability to go and say, what can I cut back in this example? And then I actually make those decisions now. So I would go contact my cell phone company now and cut back on my cell phone bill. I would figure out whatever I needed to do to cut my utilities back. I would probably even look at this $150 and say, is that absolutely necessary? I'd be a hawk on calculating my return on investment with my marketing dollars that I'm spending. And then of course, I'm always with, especially in a growth mode as a startup or a young fitness studio, You always need to be tracking things like how many leads are you getting a week? How many, how many appointments did you speak with? Right? So lead someone who says they're interested doesn't mean they actually came in and had a conversation with you. How many of those are you getting a face-to-face with? Whether that's through video or on the phone or in person, you know, face-to-face one-on-one communication. And then how many of those become members? You probably want to see that on a weekly basis because it's your most critical metric in the beginning. You've got to get to the revenue to sustain the minimum of expenses that you absolutely need to have. So that's one tool. The next tool that I'll briefly describe for you is a 13-week cash flow example. This is a similar setup. Where we have cells that are in yellow which allow you to change the dates and input numbers, and then the rest is formula-based. In this scenario, uh, you put in the current week of life that it is. So I put in May— this is the week of May 30th— and then it automatically calculates out. So this 13-week plan is going to show me cash flow From week 1 to week 13. In this example, this is a gym that has revenue problems, but they've done great cutting back all possible expenses. They just still have revenue problems. So we have some revenue numbers here that have been typed in. Material costs. Now this is— the difference between this tool and the other tool is that the other tool is giving you an overview of what the next 12 months could look like, allowing you to set a revenue goal and then back into it. The goal of this one is to see what is cash flow, what are your cash flow needs over the next 3 months? Both are critical. Both should be used by a brand new or young fitness studio. But this one, instead of being broken out per month— January, February, March, April, etc.— this is broken out per week. So if you notice, this company, for example, does their own accounting, but they have an accounting software fee, and it comes out, uh, in the first week of every month, which is why you see every first week, or every week that there's going to be a first in it, Um, they have $75 there. So that makes— does that make sense? The week 1, so this is— they're using Sunday. You could use Monday, but we're just saying the week that follows May 30th. So every day that's in that week is included in this column. Advertising, these guys are deciding to spend $50 a week. On advertising, um, bank charges, $13 a month. They got some rent expenses coming out. Um, some utility bills. Again, you, you can kind of see when they pay their team members every other week. And, uh, looks like they have some monthly training education type of subscriptions that they're a part of. We start with the beginning balance, and you could type that in. So in this case, $3,800. Their beginning balance is $3,800. Now it's going to calculate everything for you based on the income that you put in, based on the expenses. Looks like by the end of that week, they'll have $1,100. Which happens to be the beginning balance here. And then after week 2, well, it looks like they're $1,600 in the hole already. So sitting down right now, I can see that this gym is going to need $15,000 on top of what's going on here, right? They'll need $15,000 to fund this shortfall. Okay, so well then maybe in that case, if we're here in this week, I'd be like, okay, well, We probably need leads. So in order to do leads, we better increase our advertising budget and we better do it right now. So starting today, I'm going to start running some new campaigns. I'll probably spend $150 by the end of the week here. And let's say I'm going to set a new goal to be $250 a week instead of $500. So then I can go through here and put all those in. I mean, I know I just made my ending cash balance terrible. Worse, I should say. Okay, well, by doing that though, let's say I was able to increase my income. So maybe I'm going to say it's going to give me a couple week or a week of generating ads to start getting some interest. So I don't think revenue is going to change in week 2, but I do think revenue is going to change in week 3. So yeah, let's jump I mean, as you can see, I kind of have that already put in. Let's say $2,500. But now that I'm spending instead of $50 a week, $250 a week, um, let's say that I'm able to sustain that at least for a couple weeks. Because again, this is weekly revenue. This gym bills their clients every week, not once a month. Okay, so let's say we sustain that, and then between that 4 weeks, we were able to tweak the ad and get even better results with the $250. Because when you're looking to grow revenue, you have to measure your marketing dollars like a hawk. And so I'm gonna be making sure I'm maximizing my ROI on that to my— the best of my ability. So let's say at that point, I've been able to add another couple hundred, $50, $250. Maybe now I'm getting to, after a few more weeks, I feel like I can get up to $3,000 a month in revenue. Okay. So $3,000 a week in revenue. That's what I meant to say. If I didn't, I come down here and I say, gosh, I've cut it in half. One, okay, going forward though, it looks like I have a scenario where over the course of 3— sorry, over the course of a month, I got $12,000 in revenue. And I have roughly, uh, $13,000 in expenses. All right, now that means I still need more revenue, or I need to even adjust my expenses even more. Um, Now, again, if I'm a younger startup thing, it could be that this $3,400 represents pay that's to me, and I might be able to accept for a short time period that I might only be able to pay myself $3,000 instead of $3,400. If you do that, you have to set a goal in your head of when, like, draw the line in the sand when it comes to if I can't pay myself X amount of dollars by X amount of date, then I need to make a decision. Like, I have a harder decision that I need to make, and that could be whether it's cut back on rent expense, sublease space, raise prices on members. There could be a variety of things, but you have to do that work ahead of time because if you don't— I've seen this— you will go on and on and on and on forever, for at least until you burn out. Accepting lower pay than what you could get away with if somebody else were coaching in your place. So at this scenario, I'd say, gosh, I mean, in the beginning over here, I had my total cash outflow was way worse and the ending bank balances were getting way worse. I'm making some progress here by having $3,000 a week in revenue. And so I'm trending in the right direction. So at least now I know I'm going to have to come up with $7,000 in this next 3-month period. Or you say, how do I get there faster? Is, is marketing Is marketing spend the best way to do it? Is there other things I can do? You know what? Maybe what I can do is I'm gonna have some come. I'm gonna have some events, and we're gonna get our members. Our members are gonna start referring people based on these events that we're doing. I just know it's gonna work. So let's say I'm gonna sponsor another couple hundred fifty dollars, but it can't be every week because then your members are gonna get burnt out. So maybe I'm gonna do one a month, a company event designed to bring in members and have their friends come in, and this two hundred fifty dollars of incentives are gonna get their friends wanting to come in. And through that process, so starting here. And this week too, it means I'm actually going to be able to increase my revenue. Um, I think I'm going to be able to get it up, at least close 1 or 2 members based on that. And those people are going to stay with me because we do a great job. So then when I do another event, I think this is going to increase again. Um, and then when I do another event, Or the 3rd event in this time period, I think it's going to increase again. So now based on that, I'm still $3,500 short, but I'm trending a lot better in the right direction. Now, yeah, in this week of payroll, it looks like I have $3,700 of cash outflow, but I only have $3,500 coming in. Well, in this week, I got the $3,500 of inflow and only $3,200 of cash outflow. So you see here, I made up a $3,000 difference. And so I think with this, with $3,500 a week in income, I'm sustainable. So that's how I'm forecasting. And again, this is just a tool. I walked you through a scenario. Obviously, the specifics of your life and the facts going on for your fitness studio are going to be a little bit different. But this is how you can play with these tools. Now, when I say I think I'm gonna be able to do this, if this is— we started with kind of a scenario of this is the reality, right? And they were gonna have to come up with $15,000. And based on that, we thought through what are some actions that we could take in order to increase the revenue so that we don't have to come up with all that short. fall of cash. And you, those action items that you choose to do for yourself are going to be different than what someone else may choose. But whatever that action item is, and you plug it into your forecast and you're like, yep, that's a plan I can live with, you have to take the action. So in this case, this gym owner would have to be sure that they are getting a return on that extra spend on their advertising. That they're actually going to host that event, which involves the work ahead of time to promote it. You see what I'm saying? Like, it's great to say this is what we're going to do and I think this is going to happen, but we have to put that into actual where rubber hits the road scenario, and you're doing the steps that give you the chance of hitting those certain goals. So again, those, those are 2 tips, uh, 2 tools That we use with gym owners, that I use to forecast cash flow needs, to forecast how the year may go so that I can then see numbers on paper before they become a reality. And I can see the numbers on paper in the future to see if that's a reality that I am interested in. Because if it's not, you're not going to get out of bed and approach each day with the same energy and focus. But if I can get on board and be like, oh my gosh, in a 3-month period, If I were doing $3,500 of revenue a week, I can get on board with that. It makes planning this event here in the next week that's going to take a little bit of time to see the results from, to enjoy the benefits from, it makes it a lot easier to do that. Because a lot of times as business owners, we have a hard time, uh, with like doing work that we know will turn out well in the long run. But we're not necessarily getting a short-term fix from it. Especially if you're in the scenario of this gym that I showed you where they're bleeding cash profusely. They need short-term fixes. And anyways, this 13-week cash flow plan, it gives you— that's a pretty short timeframe, 3 months. I hope this helps. If you guys want any of these resources, or any additional resources that our firm has, feel free to go to insighttax.com/wealth. insighttax.com/wealth. We have a bunch of tools, a variety of ways to help gym owners improve their profitability. Okay, thank you. And remember, profit is a choice. Have the courage and wisdom to choose it.