In the first of a three part series with Tom Gannon of Fitpro Business Solutions, we’re talking about getting your business financially ready for 2018!
We know accounting can be daunting, but it can’t be avoided. Where should you start? Follow these four steps to get on track for success.
Step 1: Understand Where You Are Now
The best way to understand where your business is right now is to start preparing management accounts monthly. What is a monthly management account?
Monthly Management Accounts
A monthly management account includes a report of your income and expenses for the month, so that you can easily determine your profit, or loss. Monthly management accounts help you to stay honest with your performance and understand exactly where you are financially each month.
The account factors in sales and every single expense you incur, from salaries and taxes right up to rent payments and loans. Tom put together a Google Doc for you all that lists some of the costs encountered based on his experience. Using this document, you can learn how to:
- Give a rough estimation of profit monthly
- Calculate VAT plus a margin for returned/bounced payments
- Calculate Employer’s Tax contributions
From here, you can reverse engineer where you need to be. If your accounts show that you’re spending more money than is coming in each month, you need to make some financial changes. Remember, a business without projected profit is just a very expensive hobby.
Step 2: Understand Where You Need to Be
Once you understand where you are now, you must figure out where you need to be financially in order to meet your projected sales goals. If you are yet to set financial goals for your business, now is as good a time as ever. Be sure to factor in your break even point (BEP) in these goals.
What is the Break Even Point?
The Customer Engagement Playbook for Your Fitness Business
Your break even point will be the total sales required to cover all expenses. At the break even point, profit is €0, however you’re not incurring any loss. If you’re currently making a loss, you should aim to reach your break even point and work onward and upwards from here.
For example, if you have capacity for 200 clients and in month one, you’re on 40 clients. Month 2, you have 60 clients and in month 3, you have 80 clients. You’re running at a loss but you know you’ll start turning a profit in month 10 based on these figures and projections.
Step 3: Know How You’re Going to Get There
Often, knowing where you are now and understanding where you need to go from there is half the battle. Understanding your BEP helps simplify this process. Once you know these points off the tip of your tongue, you can get advice on how to get there and create a time line on this plan.
For example, if you need to reach €10,000 in sales each month to achieve your goals:
- How many classes do I need to have available to reach this goal?
- What do I need to charge per class to reach this goal?
WARNING: Be sure to create a realistic, sustainable plan of action. We could all do 60-70 hour weeks and hang on by the skin of our teeth. However, you will not be able to do this for 3 or 4 years in a row. There must always be a light at the end of the tunnel.
Step 4 (optional): Ask For help
Not sure you can do it by yourself? Financials not your thing? Ask for help! If you’ve no interest in accounting, taxes or bookkeeping, the most harmful thing you could do to your business is take this on board yourself.
Find a reputable accountant and tell them what you need:
- End of year accounts
- PAYE and PRSI for you and your team
- Monthly management accounts
- VAT returns
Simply give your accountant the numbers and they’ll take care of the rest. An accountant will cost you anywhere between €300-500 a month, depending on the number of staff members you have. However, it could be the best money you’ve ever spent. If you find an accountant who understands the fitness business sphere, you’ll have somebody to question your margins each month and keep you on track for your long term projections – just like a coach!