Sometimes Profit First Is NOT The Focus

Hey everyone. Um, today I wanted to share an experience I had with my GM. I came into the gym the other day and he's like, hey, so I was listening to you on the Active Life Podcast. Um, he was excited about it. I don't normally share with, uh, the GM all the stuff that I'm doing on the Insight Tax Profit First side, but he's like, man, it's really interesting. And then he asked this question, which is what I wanted to talk about. He said, so when are we gonna do those things? So the podcast that I had with Sean Pastoche on his Active Life Podcast, we talked about Profit First and cash flow management and things like that. And my GM's like, how come we're not doing those things? So I wanted to share with you the scenario of our gym and like, does Profit First work or not work? And are we actually doing those things or not doing those things? So, uh, our gym has yet to figure out how to consistently bring in leads. And we— I mean, we are just doing all that we can. I am not good at bringing in leads to a gym. So I don't know if you've read Mike Michalowicz, he has a book called Fix This Next. It was his most recently published book. And I love it because he compares Maslow's hierarchy of needs where, you know, air is like a base foundation and then self-actualization is the top of the pyramid. And he says businesses have a hierarchy of needs as well. And the base foundation of a business is sales. Above that is profit. And then above that is where systems come into play. And oftentimes when we're working in business, we just, oh, that looks like a problem. Let me go fix that problem. Mike is trying to give us a tool with this pyramid by helping us see, you might have problems across the board, up and down the pyramid. But if you have a problem in the base layer sales, that should become your priority. So in our case, in our gym's case, we have a sales problem. We don't have a profit problem. So I had to explain to our GM, well, we are doing Profit First to the greatest extent that we possibly can, meaning we've cut back on expenses. We are super lean. I mean, our rent and our team member expense, those are basically our expenses. We're not spending very much money outside of that every month. So I've gone through the exercise of analyzing expenses and cutting back to only the expenses that are productive and absolutely critical. But we still find ourselves in a problem because profit can only happen by maintaining or retaining or holding on to a portion of your sales. And we simply just don't have enough sales for the size of the facility that the previous owners got us into. We just don't have enough members to support that space. And COVID really put a damper on us on, uh, in the area. People just didn't seem to want to find a new fitness solution during COVID I have a whole list of excuses and maybe they are excuses. I can tell you we have tried a whole bunch of stuff. We have done new challenges. I have never, we haven't tried everything. I don't want to try a bait and switch type of tactic, but we have done a lot of stuff and since we work with a lot of amazing mentors and people who know how to do this stuff, we have also tried those things that I know are giving crazy good results to other gym owners because they're our clients as well. We just haven't figured it out. And so I had to explain to him, like, look, we have our Profit First system in place to the extent that we can, but right now we don't have profit. And so setting aside a percentage of sales for the purpose of profit would just be us taking money from our pockets because we're contributing money into the business every month to keep it alive and then returning some of that to ourselves once a quarter. And it just doesn't make a lot of sense to do that. So again, we've cut back everywhere that we can. So if you find yourself in a position where you also are struggling with cash flow, sales isn't always the solution, but there are definitely times that sales is the next step that we, that we need to focus on before you can even get too heavy into Profit First. Now, that being said, like we've done the exercises of consistently cutting back expenses, keeping sure that, that the expenses matter, that they're productive, that's an exercise you can definitely do. You may find after doing that exercise that you actually are in a good place and you can be profitable. But it's a possibility that once you do that, you still realize we're still short on cash, meaning we literally need to fix the base of our pyramid and get sales in. I also think about this concept in terms of the book Founder Farmer Tinker Thief written by Chris Cooper. On many levels, our gym is in founder stage, so I may be a tinker in the standpoint of Insight Tax and what we do as an accounting firm. But our gym, because it hasn't reached a point of breakeven, we're in founder stage. And in founder stage, the owners do a whole bunch of work. They're grinding, they're working the long hours, and the goal is to get out of that stage as fast as possible. But ultimately, if I really wanted to like buckle down and, hey, can I figure out, can I really do this as a gym owner? I would be working in the gym probably 10 to 12 hours a day right now. Now, I don't technically have the skill set to do it, but, you know, if we were coaching other Clients, we would say, look, you need to be coaching all your classes. We technically stepped out of coaching classes too soon. So, we would be coaching all the classes. We would play the role of the GM. We would be constantly interacting with our Clients. We would constantly, for 10 to 12 hours a day. If I'm not actively coaching a class, I'm figuring out a way to bring in leads. And that's what the founder stage is all about. Then you move to farmer stage where you can start leveraging some of your profits to then basically get a return of even more profits. So I love those 2 concepts. Those are great books. I just wanted to share this with you. If you're a gym that's struggling, Profit First still has a place. But it's not to say there's not other things that, uh, you may need to fix. Even though I wrote the book Profit First for Microgyms and I believe in the system, I know that there are other components of running a business and business ownership that are not just focused on cash flow management. And sometimes those are the things that need priority. So again, like in our case, sales is the priority. Systems are great, but honestly That's 2 rungs up the pyramid. Sales is what I need to focus on because all of our great systems don't matter at all if we can't have enough revenue to cover the basic needs of the business. Anyways, hope that helps. I don't know what else to say, but I feel like I want to say something. Stick with it. I can tell you from our standpoint, me and my business partner, we have other businesses that support our family. And our goal was to build a Community. And really, his initial goal was to keep a Community alive, giving them their fitness home without shutting it down when his previous business partner made a bunch of bad decisions that could have really crippled the gym. Um, I mean, in some places they did cripple the gym, but he wanted to do that. I wanted to figure out, can the Profit First system turn around a failing gym? And right now my conclusion is Profit First can help a failing gym be as efficient as possible with their cash, but there are other components that a failing gym also needs to focus on. Cash flow is really important. And certainly as your sales come in, you want these types of boundaries in place so that your expenses don't expand at the same pace as your sales, but sales are needed. And I'm not, definitely not a sales expert, as evidenced by my confession to you guys that we do suck at this. I have not figured it out after more than 2 years trying to do it. I don't know how to get new leads into the gym. I just don't. We've done affinity marketing. We've met with seed clients. We've done the Facebook ads that were working really well for gyms. We've done new challenges. You know, I know there's a few things that we haven't tried yet, and we're considering that. But anyways, profit is a choice. Choose to be profitable and just know that sometimes the choice to be profitable may lead you down a path of fixing something else first. All right, you guys have a great day.