I recently did some consulting for a Southern California CrossFit affiliate with some serious financial problems. Among other reasons the problems stemmed from a failure to look at the business’ finances in its entirety. Sales were reasonably healthy…however the operating expenses and labor costs were such that the business could not sustain itself.
As an example:
Let’s say you use MBO and you run your sales by category report and you see the following:
Group classes $9,000
Private training $16,000
T-shirts $450
Total Sales: $25,450
Looks like a reasonably good month. So why isn’t there any money in the bank?
A couple of reason’s in this particular instance:
#1 – MBO is great at tracking revenue in your business. However it does not track expenses. You MUST be tracking your expenses in some way. It doesn’t matter how much money is coming in the front end….if your expenses out strip what you are earning you are in trouble. (No different than living beyond your means with your personal finances.)
#2 – What are you paying out in labor to have those sessions/classes serviced? $16,000 looks like a large sum of money for your business’ bottom line. But if you are paying out 83% to your coaches, that leaves you hardly anything to cover operating expenses. How many classes per month in labor does that $9000 need to cover? What is the margin there? What is the margin on those t-shirts you are selling?
All of the facets of a business can and should be modeled prior to implementation and as a way to track and project growth. Thinking about pricing changes? – model it first. Want to bring in an office manager? – model it first. Want to buy an Eleiko bar? – does it coincide with your equipment budget in your model?
Want to learn how to do this type of modeling in your business? I’m working on a 1-day seminar…stay tuned.
Looking forward to your seminar!!!
I’m looking forward to it as well!
Keep us posted on the seminar! I am super interested!
Very interesting I wish I was goin to be around for the lecture….Im currently deployed loking forward to my venture into starting up a RAT Cellar(Box/Barbell Club) when I come home..
We would be very interested, keep us in mind.
Uhmmm…Yeah! I could use the help FOR SURE!
In regards to #1, what do you use to track your expenses? Quick books? Excel?
Thanks!
Hi Rich!
I used quickbooks for the first 5 years we were in business. For the last two I have been paying a local guy to do our bookkeeping. It’s actually far more affordable than me spending the time doing it myself.
You are magical when it comes to finances and ownign a box. Looking forward to the seminar
Awww shucks, Freddy! Thanks man!
Hi Nicki,
In your opinion, what is a healthy margin between monthly revenue and monthly expenses?
xx
Hey Xi Xia!
A business should always be looking to increase revenue and minimize expenses. Obviously the larger the net margins the better position you are in. The net margin should be after operating expenses and owner salary, manager pay, etc…so it’s essentially reflective of how profitable you are (net margin = profit before tax divided by gross profit which is gross revenue minus labor or cost of goods sold) I don’t think there’s any “magic” number there…first you strive to make that number positive before any owner salary, then you strive to make it large enough to cover owner salary…then you strive to keep that number growing in a positive direction. This is a case of bigger is always better
i live in vancouver canada..per capita one of the most expensive cities in north america. crossfits are littered across the city but there’s is one untapped area and its a very cool and well off area. rent is very expensive though. i have full financial support but I’m looking at 5500 all in if i want any kind of space. a friend of mine a ways out of kitsilano(the area) is paying 5 and is doing well. is that price to dangerous to start with???i mean we have gone over the numbers and it does work but barely..what do you think?