Budgeting in a Digital Age
Anne B. McDonnell
The good news is that, in this day of computers and software, facility finances don't have to be so complicated. Software companies offer programs that are specifically designed for the fitness industry, and that can create reports for many variables that help with budgeting. With these tools at your fingertips, you have more time to spend on what really matters in this business: personal relationships.
Creating a yearly budgetCreating a budget for your entire fiscal year can be a daunting task, especially if you've never done it before. The first time around will be the most difficult, since you don't really know what to project for revenue or spending. However, after the first couple of years, you should have a good idea about revenue trends throughout the year, including monthly membership changes and savings needed for "surprise" costs.
Brian Cavanaugh from Premier Fitness, Suffolk, Va., sympathizes with facility managers who are just starting out. "We are a start-up facility. We created an annual budget that [is] broken down into monthly anticipated expenses with income projections. We have done the best job we can in trying to create a fixed expense budget using industry standards," he says.
For established fitness centers, budgets are created based on performance from the year before. Explains Eric Oliver, co-owner (with wife Katrina Oliver), Knockout Boxing & Fitness, Riverside, Calif., "I created our budget this year based off of the club's performance last year. The budget was formed in December 2006 to be ready for the new year in 2007."
Michael Kamins, director of fitness, Level Fitness, Cabin John, Md., says that both owner and management participation are important when creating a budget: "Our yearly budget is a byproduct of current expenses and revenues. The owners, with input from our management team, meet in order to ... budget [appropriately]."
Fitness centers that are part of a larger organization, such as St. Mary's Wellness Center in Athens, Ga., usually have more people involved in the budgeting process, so it may take a bit longer. Says St. Mary's Manager Brian Evans, "Our yearly budget is set initially by our Accounting & Financial Planning Department, since we are a medical fitness center owned and operated by a healthcare system. My director and I are then given the preliminary budget to review, and we make recommendations for adjustments. ... This process normally begins mid-summer of each year."
Every type of facility needs to take into account changes in revenue and surprise expenses. Says David Hardy, president, ClubFit, Edmonton, Alta., Canada, "We complete a budget annually for each of our clubs, and compare results monthly against that budget. Our budgets are created before each year-end, and then updated based on our year-end performance." For start-up facilities, Cavanaugh explains how he is preparing for anything unusual: "We are budgeting for facility maintenance and continual improvements in the club, and we created special accrual accounts so we are prepared for 'goofy' expenses. At the end of the year, our accountant will help us compare our projections to our actual expenses/income, and create a new budget for next year, with goals for both controlling/lowering expenses, as well as income goals."
How does software help?Management software can't, of course, create a budget for you, but it can help in many other ways to make the process easier. Kamins says that he uses software from an industry supplier to help when creating his yearly budget. "It is very beneficial, as it allows us to pull all types of financial reports stemming from training, group exercise, membership and anything else we may deem needed to create a tentative budget," he says.
Cavanaugh and Oliver agree that using software helps the process along. "Software helps us create graphs and chart our financial numbers. It simply makes it easier to track and predict trends for planning purposes," Cavanaugh says. And Oliver says that software is useful for setting up budgets and reviewing reports. "There are graphs that can outline different areas of performance of your club that are easy to set up and read. The software is [also] beneficial because I can review last year's performance versus this year's performance," he says.
And, you don't need software specific to the fitness industry to help you out. Hardy says that his facility's budgets are created in Excel. "Each number is extrapolated from our various GL's that exist in our accounting program (SAGE/Mass90)," Hardy says. But he goes on to say that, of course, human effort is needed throughout this process: "We put thought into each projected number based on projected activity and unit cost; thus, if our actual performance resembles our projected activity, our budget numbers will closely model our financial performance."
Revising your budgetAs already mentioned, you can't simply create a budget and forget about it. You need to look it over every so often to make sure that you are still on track, and will have something left over for the yearly bonuses you promised your staff. Oliver looks at his financial plan every month. "I like looking at it monthly because I don't want to wait too long and get off track. I would rather catch it quick and make the necessary changes right away," he says. And, he points out that "this is where [the software's] reports are most useful." Evans also reviews his facility's financial performance monthly, to ensure that they are in line with the budget. "I will then design action plans if there are areas of concern," he says.
Cavanaugh explains why he revisits his financial plan monthly and quarterly: "In the fitness business, every single dollar counts. Money saved spends as well as money earned. ... We have to have an exact pulse on things to have total control of our cash flow. Cash flow is the name of the game."
And, if you have any extra cash flow, it's nice to know about it so you can plan how to use it. Says Kamins, "We revisit the financial plan every six months, at most, in order to decide whether future expansion plans are possible."
Membership dues and budgetingMost fitness centers gain the bulk of their revenue from membership fees and dues, so having a reliable system to monitor those accounts is of obvious importance. With that system in place, you can track monthly income and figure that into your yearly budget.
The trend for membership dues payments seems to favor month-to-month payments, especially using EFT — automated payments from a bank account or credit card. This way, fitness center managers have a more accurate view of monthly income. Says Troy Freet, IT manager for Gold's Gym, Las Vegas, Nev., "Our members have the option to pay up-front, but our focus is on the monthly dues model. By taking the money on a monthly dues system, we ensure that our cash flow will be consistent. Also, our members will not have to be bothered by a salesperson every year for the renewal process."
Cavanaugh and Hardy agree that a steady monthly flow of cash is preferable to one lump sum. Says Cavanaugh, "Only 10 percent of our members pay cash for the entire year up front. This helps offset expenses in the beginning, but we prefer a steady stream of monthly revenue versus large spikes in income." Hardy says that 80 percent of his members pay monthly, which is "something that we have worked diligently to achieve. We are now in a position where our monthly recurring dues stream more than covers our fixed costs in a given month and, thus, we are no longer forced to have to think about a cash number that we must bring in on a monthly basis. ... This scenario also has the advantage that we can more accurately project cash flow numbers on a month over month basis."
For fitness centers that do accept payments in one lump sum, it may help to divide that money over the course of the year. Explains Evans: "We offer monthly, three-month, six-month and annual memberships. ... For those who pay a lump sum, the revenue is divided out and entered in our general ledger for the duration of their membership term, so it more accurately reflects our monthly revenue."
And, almost every facility, with whatever type of membership plan, handles membership payments using EFT. Says Oliver, "I like [using] EFT so the club has a steady expected cash flow monthly. ... We do not send out coupon books — everything gets drafted automatically out of a checking account or credit card."
To outsource or not?Once budgets are working and a steady stream of income continues to flow, many fitness centers decide that it is time to outsource membership accounts in order to focus on other aspects of the facility. On the other hand, many fitness center also keep the job in-house, in order to feel more in control.
Kamins says that his member accounts are handled in-house, but with the use of industry software. "This way, we need not worry our clients with an outside source. Thus, the trust between a client and the club is greatly increased," he says.
Evans and Hardy agree that keeping things in-house can be better for the member. "This seems to work well, and makes life easier on our clients if they have questions regarding their account," Evans says. And Hardy says that handling member accounts in-house is better for his facilities, "as we find [that this job is] often as much about customer service as collections. We do send our collections to a collection agency only after we have tried to resolve the account in-house for at least three months."
Other fitness centers have decided to have member accounts handled by an outside company. Explains Freet, "Outsourcing the management of our accounts has allowed us to ensure that we are consistent with our policies and procedures, and provide the highest level of customer service to our members. Outsourcing our monthly member billing processes has allowed us to focus the management of our business on customer service, ... and has taken the focus away from the daily tasks associated with preparing billing files and processing returns."
Oliver agrees that having member accounts handled by an outside company allows him "to focus on delivering excellent customer service — we don't always have to be the bad guy. Allowing [an outside company] to handle the accounts also allows me to spend more time on the workout floor, making sure things are running smoothly. Handling more than 1,500 member accounts would be very time-consuming for me."
In addition to being able to offer better customer service, Cavanaugh likes to let the experts do what they do best: "[Billing companies] are industry experts, and the cost of using them is offset by the higher level of efficiency in collecting member payments. We also save a great deal of money by not having an in-house employee doing the work. Outsourcing is more cost-efficient and [causes] less headaches [for us] in the long run."
Making it easierWhile budgeting and financial planning may not be the most fun part of your job, there are ways to make it less stressful. Using a monthly payment plan for your members can help you to create a more accurate financial plan for your facility. And having management software that creates reports can help you when reviewing your budget each month. But, as always, a plan is what is important. Explains Cavanaugh, "It is like being a sniper who always hits his target, versus a knucklehead shooting in a general direction and hoping to hit something. We don't like wasting bullets — it's very expensive that way."
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