The art of planning a fitness club budget

“If you fail to plan, you are planning to fail” quoting Benjamin Franklin, which means that if you don’t have a good action plan, you increase your chances of financial failure. As a result, no cash at checkout to pay current payments and fees for late payments. Relationship with employees on the knife-edge due to the lack of payment. Slow bankruptcy in the end. The vision of every entrepreneur’s armageddon.

How to fix it?

Plan your budget. If you are at the stage of considering investing in your club, start with a budget forecast. If you are unfortunately sinking, do not grab the razor, just analyze the costs and revenues from previous years and plan a new budget based on them.

What exactly is the budget for a fitness club?

The budget is a combination of planned inflows (cash flow in +) and expenses (cash flow in-). If you consider it in a long, e.g. annual perspective, it has a strategic and investment dimension, and if in a short, e.g. monthly, then you can define it as an operating budget aimed to regulate current fees. Whether it balances or shows a deficit depends on many variables. However, a well-planned one will increase your chance for better cash flow and stable revenues. What else will you gain by concentrating on it early enough? You will determine the rate of return on investment, you will gain a reliable base of information about strengths and weaknesses, necessary to make effective business decisions. The budget is also an effective tool for forecasting finances in your club and planning all activities precisely enough to achieve your sales goals and restrain costs.

A well-planned budget for your fitness club will give you information, e.g. on the maximum rate per 1 m2 you can pay. How many people to hire and on what contracts? How many machines to buy and whether to bet on new or used? Where can you cut costs? How much can you spend on marketing and office supplies per month? What types of membership to introduce, extra services or products at the bar? In total, by answering these questions, you get all the necessary information or reliable data to determine them. Everything to make the business pay off.

What is the art of budget planning?

This art involves a realistic and accounting approach, meticulous recording of all data and implementation, referring to the created plan every day and its adaptation to changing circumstances.

The description of the budget and the realization of the action plan consists of several simple steps, including:

• Analysis of costs and revenues from previous years broken down by month. Thanks to this, you won’t miss any important data, you’ll notice seasonality and remember events that have disturbed your liquidity (such as the appearance of competitors in the area). If you are just starting and don’t have data from previous years, you skip this stage or use data obtained from friends running clubs or search the Internet and focus on forecasts.
• Re-planning costs taking into account current data. Determining the optimal range for the individual costs in which you should move. Arrange them in a hierarchy from the obligatory ones, without which the business will not balance, to the less important ones.
• Forecast of desired revenues, their quantity, and sources (memberships, additional services, products on the bar).
• Finally, create an action plan based on the previously obtained information. This plan must be written very precisely. In a word, every employee, including you, needs to know what and when to do so that you can achieve your sales goals and keep costs under control.

Does the process look simple? Nothing could be more wrong. Always beware of potential traps in the back of your head.

What mistakes avoid when planning income in a fitness club?

When you have an analysis of all costs and you start to forecast revenues, which is the nicer part of working on the budget, keep in mind the list of mistakes to avoid. These are:

• Your exaggerated optimism, by which you can omit such important data as, e.g. the risk of outflow of customers in the summer or the fact that a strong competitor appears in the area, so you will not prepare a B or C plan for this occasion. Daydreaming is also a reason for creating unreal revenue forecasts that will collapse after the first few months of operation.
• Too superficial approach to analyzing market data, competition, your club data on revenues and costs from previous years, which will result in unreal or incomplete data. On this basis, you can make the wrong decisions.
• A trivial approach to the implementation of the budget in previous years, consisting of not ensuring tasks that stabilize cash flow, meeting assumed sales goals or the lack of writing down the effects of this work.
• Lack of cash reserves for emergency situations and investment funds that will push your club forward, increase sales or improve image, increasing retention.
• Lack of discipline in marketing activities. Both inactivity and its excess in this matter, as well as its improper conduct, can result in the uncontrolled outflow of cash and problems resulting from the weakening of your club’s cash flow.

How to calculate costs in a fitness club?

Full and constantly updated information on fixed and additional costs that you incur in your fitness club will warn you of exceeding them and will also give a real picture of the profits you generate. That is why their precise description and hierarchization is so important. The costs of a club consist of three basic categories:

Personnel costs, which should constitute a maximum of 30% of planned revenues:

• They include remuneration for permanent employees, including the club manager (approx. 3-5000 PLN / month), people serving the reception and performing sales (approx. 2-2300 PLN / month), trainers on duty (approx. 2-2 2600 PLN / month). In addition, there are payroll costs for employees working part-time, such as instructors of additional classes (40-80 PLN / 1 hour), personal trainers (you can settle accounts with them in 3 ways -% on income, rate for 1 training or lump sum monthly) and a team or an external cleaning company (from PLN 2,000 / month).
• Personnel costs also include costs arising from the type of contracts with employees, but also occasional training, the cost of recruiting new employees as well as prizes and bonuses to motivate for the best work.

The costs of renting the place and utilities should not exceed 20-25% of the planned revenues:

• The price of m2 of the place depends on several variables such as location, area, standard, parking availability and ranges from 20-50 PLN / m2.
• The price of utilities includes electricity, water, gas, internet and the fee for the public playing of music.

Other costs should not exceed 25% of planned revenues, they include categories such as:

• A bank loan for club retrofitting, banking and leasing costs for machines and their maintenance
• IT and telecommunications services
• Costs of marketing activities
• Insurance
• Amount spent on products sold later in the bar and cleaning products

How to forecast revenues in a fitness club?

The revenue forecast in your fitness club is an aspect susceptible to excess optimism and the errantry of the club owner. Therefore, when planning future profits, focus on making your forecasts more realistic and even lowering. In the end, it’s always better to be surprised than to be disappointed.

How to approach forecasting? First, we determine the potential revenue-generating for each room in your club separately to finally add these opportunities for the entire club. To determine the potential use of simple calculations.

Example of calculation for a gym room:

Data needed to perform the calculation:

• room area (e.g. 600 m2)
• space needed for 1 machine (6 m2)
• the number of machines that will fit in the room (600 m2 / 6 m2 = 100 machines)
• average room occupancy (approx. 20%)
• opening hours for club members per month (420 h / month)
• the number of hours that one club member spends on average in the gym (6 h / month)
• membership price (PLN 100 / month).

Calculation:

• the maximum number of club members’ visits per month – 420 hours x 100 machines available = 42,000 entries
• maximum number of clients per month – 42,000 visits / 6 visits per client = 7,000 clients / month
• real number of clients per month – 7,000 clients x 20% average occupancy = 1,400 clients / month
• monthly income forecast from fitness room – 1,400 customers x PLN 100 membership price = PLN 140,000 income / month

Similarly, you calculate revenues from each surface separately (gym, exercise room and additional classes, sauna, swimming pool, etc.) and add all possible additional revenues (e.g. from personal trainings, dietary supplements, dishes available at the bar and profit from cards partners) to add them together to get a revenue estimate for the entire property.

What can improve the cash flow of a fitness club?

As in any business, a well-planned fitness club budget must include a financial bumper that optimizes cash flow. So, what is this all about? It is the ability to pay current liabilities on time, guaranteeing the functioning e.g. salaries, loan and leasing installments, rental of premises and utilities, or bar stocking. Maintaining this ability, apart from generating current profits, is extremely important. The club cannot function without it, further costs are incurred, e.g. penalties for late payments, trust in the club as a contractor decreases, and eventually it will fall. Fortunately, there are tools that help maintain financial liquidity and optimize budget assumptions. These are a few of them:

• A well thought-out policy on the types and methods of payment for membership offered by the club. A good solution is to encourage customers to use prepayments for the entire duration of the contract in advance and to extend contracts that are about to end, in exchange for their more favorable terms. Thanks to that you will obtain cash in advance for the operational activity of your club.
• Introduction of recurring payments. A simple solution, which can clearly impact on improved cash flow and increase retention in the fitness club. This is because the customer only has to “do” something during the first payment. He provides his card details, e.g. Visa (debit or credit), these data are securely registered and subsequent payments are made independently, without the customer’s participation, directly from his account. This is pure convenience for a club member because he no longer has to remember about the monthly transfer and payment guarantee for the club because they are done on their own.
• Continuous monitoring of all liabilities, consisting of daily checks on ending payment deadlines and sending reminders of the need to make a transfer, as well as prevention of potential problems with future payments. Activities in this category can be largely automated. From the classic debt collection work, you can go to automated emails or sms that will be sent thanks to the club management system, to the hire of an external factoring or debt collection company.
• If you want to repair the state of finances at your fitness club in a real crisis situation, only options such as recapitalization from your own resources, looking for an external investor or working capital loan at the bank remain.
• In addition to ad hoc tools, it is also worth getting into the habit of constantly monitoring all information on costs and revenues. You should also track financial flows in the short and long term, which will make it easier for you to assess the scale of profitability of projects carried out at the club, estimate profits and forecast future financial results.

Summary

A well-planned budget is key to the success of your fitness club. It is based on real data on the basis of which it was developed. Smart goals, i.e. specific, measurable, achievable, relevant and time-bound, as well as a motivated and committed team, are worth their weight in gold. Thanks to this solution, you also know how to measure the effects of implementing the budget and the work of the entire team. The budget planned and implemented in this way will also help you plan expenses, estimate profits, maintain constant cash flow and respond to crises in the short and long term.