If you have trainers that train at multiple locations (other gyms besides yours) and who come to you as accomplished professionals (you are not providing ANY training nor are you telling them in any way HOW to do their job, and they bring their own equipment/tools to do their job, then maybe you legitimately have independent contractors.  However, this is not the case in most microgyms.

Here’s the deal: the government is on a tear trying to find places to pick up lost revenue.  One of the places they are targeting is the small business that has contractors who in fact should be classified as employees.  If they find your contractors are indeed employees you are liable for back payroll taxes on all the earnings this person has made under your roof.  We’re talking big dollars here.  Big enough dollars that could put you out of business.  It doesn’t matter if they pay “rent” or even if they’ve signed an “independent contractor agreement”.  None of that matters if you are audited and are found to have misclassified your folks as contractors.  Apparently top targets of this type of audit are fitness studios and hair salons.

In the end you really need to make some basic decisions about what you want out of your business.  Do you want a microgym that just makes ends meet (covers all operating expenses) and allows you a place to train? Cool.  Do you have a few friends that are trainers and you all want to run your own independent operations out of the facility, co-op style? Ok, fine.  It’s totally up to you.  In this case I would recommend each person have an equal stake in the overhead and liability (everyone’s name is on the line so that one person is not stuck holding the bag at some point)…although having partners of any kind is usually a horrible idea, so you’d be better off doing the whole operation solo….but that’s the topic of an altogether different post.

If however, you want to build a business that has VALUE and is considered an ASSET (ie not only provides you a place to do what you love, but also generates income, provides a return on your investment (monetary and sweat equity), and is saleable) then you will need to have systems and you will need to have employees to carry out those systems. You will want some uniformity within the client experience.  Obviously all trainers and coaches have different personalities and coaching styles, which is great!  But you will want some integration of basic principles, some continuity in curriculum for the brand new client (prerequisite mobility and movement mastery prior to entering group classes), etc. You will want your folks classified as employees.

Here are some of the most common objections to hiring employees:

I don’t want to bring all my folks on as employees, I don’t trust all of them.

Red flag. Why do you even have them as IC’s if you don’t trust them?  If you don’t trust someone they should not be operating in a professional capacity (representing your business) in the first place. Period.  Bring on the folks that are your top performers and who you view to be valuable to your business.

Hire promising folks on a probationary status and set performance parameters that must be met within a certain time frame.  If they don’t meet them they don’t progress past probationary status. End of line. (Bonus points for you if you know the sci fi reference I just made J)

How much does it cost?

Yes it costs money to have employees.  You must pay payroll taxes and workers compensation.  This is why you must be careful when structuring your pay schedule.  If you have your best paid folks bringing in 70% of their private training you are covering costs (typically around 2.5-3% in workers comp, 17% in payroll taxes) and not really making much money from these sessions.  Especially when you also consider the 2-3% in merchant processing fees if clients are paying via CC. Depending on your group class margins you can afford to have your best folks making top dollar.  Especially if they are pro-active and hustle to bring folks in the door.

How can I pay them such that they make good money and they are employees? I can’t afford to pay benefits.

Most microgyms and small fitness studios do not have the margins to pay employee benefits.  But it also depends on what you are paying your folks. The facility I know of that does offer benefits only pays out 40% of private training earnings (thus there is ample margin to pay benefits)…if you pay your folks a larger % of their training then there may not be any margin for benefits. There are big tradeoffs however as your staff likely gets to create their own schedule and has a relatively fun/relaxed/flexible work environment.

I don’t know how to do all the payroll paperwork!

Outsource it!  It is highly likely you are not an expert at running payroll and calculating and paying all the necessary payroll taxes.  Hire a professional to do this.  You do not need another responsibility or another task on your plate.  There are great payroll companies that make it easy for you to do what you’re best at without the headache.  Your payroll rep will call you every two weeks, you report the gross earnings of each of your staff members and they are paid via direct deposit.  You don’t have to physically be there to sign checks. You can be on vacation and your team will still get paid! Paychex and ADP are two examples of payroll companies that do this.

Something else to consider:

A facility I’ve been working with is currently making the move from contractors to employees.  One of the contracted trainers was a fairly flakey individual who disappeared off the scene amidst this transition. Well, one of this individual’s clients showed up wanting his money back for the $800 training package he purchased.  The client gave the money to the trainer.  The trainer split the scene.  The business is still liable to refund the client’s money.  The clients of a business have no idea how you are structured.  And they will always come to the storefront with any complaints, etc.  If you own the storefront any contractor liabilities are your liabilities. Ultimately you are responsible and it’s your job to make the customer happy (if you care to build a good reputation that is).

As you can see, how you structure your business is vitally important, including who you bring on in a professional capacity and the manner in which you build your team.

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.

So here it is for all of us small business owners:

As of January 2012 we will be required to send a 1099 to ALL vendors who we pay more than $600 in a given year.  Yep, ALL VENDORS.  This includes your landlord, your utility company, any equipment purchases over $600 from the same company, cleaning service you may use, towel service, Costco supplies, etc.  It was estimated that small businesses will be issuing between two to three hundred 1099’s per year.  The exception to this is if you make vendor purchases with credit cards.  Apparently banks will now be reporting all of our cc purchase info to the IRS…

Absolutely crazy!  I suspect that one of the unintended consequences of something like this going into effect include vendors going out of business (small businesses will likely try to consolidate vendors to avoid extra 1099 paperwork and expense) and therefore increased unemployment.  And/or increased revenue for credit card companies as more businesses use credit for these expenses to avoid having to 1099.

Here’s a CNN Money article that explains more on the reform.

Fun stuff!

Here is that question, followed by my thoughts:

I need your help. This is sort of off the topic, however it is regards to business. I am planning on opening up a new affiliate in the next month and have had a number of people who are excited about becoming members of CrossFit Fort Wayne.

One particular gentleman e-mailed me the other day and is very much into power lifting and strongman workouts. He mentioned that he has about 15 other guys who get together every now and then but have no place to workout in the area.

He would like to know if we would allow him to use part of our space with a power rack, platform, and bench. He’s willing to pay a portion of the rent however I’d like your opinion.

I like the idea of getting some extra money and spreading the word, however I do have some reservations. They are as followed:

1. I don’t know anything about subleasing.

2. Insurance. I am sure that our premium would go up.

3. I’m afraid it will change the environment of our box.

4. We are just starting and new to all this!

5. I’m afraid of loosing potential future clients.

6. Contracts. I’m assuming I’d have to write up a new contract.

These are all really spot-on reservations.  First, if I’ve learned anything at all in the last 7 years it is to listen to your gut on all decisions.  Yes, you need to look at numbers, etc. But if there is even the tiniest of red flags waving in the back of your mind you need to bring it forward and take a long hard look at it.  That said, here are my thoughts regarding your situation:

First, I would suspect you would need to thoroughly review your current lease agreement.  Many lease agreements have stipulations regarding whether or not the property can be subleased and you will want to check this first so you don’t jeopardize your relationship with your landlord.

If you decide to bring these guys in you absolutely need a contract or agreement of sorts.  Things like:

• Amount of rent to be paid by what date.
• What hours are they allowed to train (you need to consider that even though you may not have 100 clients out of the gate you may get there sooner than you think and you may have a conflict with these guys be taking up prime space at prime time).
• Conduct and cleaning.  What are their responsibilities regarding equipment maintenance and cleaning up after themselves.  This should be clearly defined (ie. All chalk will be cleaned up, weights returned to proper location, ie.)  Will they have any other responsibilities?  Bathroom maintenance, etc?
• A provision for ending the agreement.  Let’s say at some point, for any reason at all, you decide you don’t want to sublease to them anymore. Or they may decide they don’t want to sublease from you.  There needs to be a provision that either party can terminate the agreement at any time…or with a 30 days written notice (just throwing that out as an example).

Your concern about changing the environment of your box and losing potential new clients is also a valid consideration.  What is the demographic you are going after?  Is it young male power lifters and strong man competitors?  (Not a typically bread and butter client for most affiliates.) Or is your demo primarily 30-55 year old women who want to lose weight and have a nice fanny?  It would be easy to imagine a scenario in which you have a few middle aged women walk in to check out your gym and see a few shirtless guys chalking up in the corner and think that your gym is not for them.  Not that you need to have a flowery, pastel environment…but first impressions really do matter.

One final thing.  I know it is tempting to offset your rent when you first open your doors by subleasing to other folks, but you should be opening your doors based on what YOU can generate and produce out of your box.  And hopefully you have planned adequately and have some capital to get you started and get you through the beginning months when you don’t have a huge client base.

Target demo?

If you pay attention solely to gross sales and the balance in your checking account and spend accordingly you could find yourself in a serious financial pickle. It may seem obvious to keep business expenses separate from personal expenses, but it’s a fairly common thing to let those lines get blurred…especially if you operate as a sole prop.

What have you earned?

It is important to differentiate between revenue that you have “earned” (service provided/sessions serviced/products sold) in a given month versus general sales revenue.  Of course you want to track both.  But for spending and budgeting purposes the amount of money you have already provided services for is what you have actually “earned.”

For example, a new client buys a package of 12 sessions for $600 on the 25^th day of the month and comes in and completes 2 of those sessions before the month’s end.  In your reporting software it looks like you made $600 that month and likewise your business checking account has an additional $600 deposit.  However, you only actually earned $100 of that package value…you only provided service for 2 of those sessions. This is where looking at your checking account balance and spending accordingly can get a small business owner in big trouble.  It may look like you have a hefty balance and can afford to go out and buy a new GHD or other piece of equipment, but you need to account for the future demands on that revenue (paying staff, etc).

In the beginning I recommend paying yourself in the same way you would pay a staff member to do the same work.  Even if your business takes off right from the get go…pay yourself a reasonable but modest wage…and allow your business capital to grow.  It’s better to live a little lean in the beginning and allow the business to get its feet under it and thrive than to withdraw too much capital as owner compensation and leave the business lean.  The more cash assets your business has the more options you will have in the future.

Right about the time of my last post it was brought to my attention that a woman in the “community” was not just using and modifying the On Ramp for use in her gym with her clients.  She started writing and publishing articles and speaking on “community” radio shows about the On Ramp as if it were her original work.  Her website even had the nerve to say: “All content is my original work.” “Content that is borrowed and revised will say so.”  Hmmm….doesn’t appear to be the case.

There are other former members of the “community” who’ve had similar experiences with “community” folks pinching their original content TO THE LETTER.  I guess as they say, “mimicry is the sincerest form of flattery”.  Perhaps that is true…but it’s also really annoying and frustrating. People put hours and hours into the work they create to HELP people…not to have them pinch it as their own work.

My only intention in publishing the On Ramp originally was to help other microgyms succeed faster.  And I guess over the last couple of months I’ve just not been feeling very much like helping.

I’m not sure if all organizations once they reach a certain size also acquire the sort of bravado and arrogance that the one I’m speaking of has acquired…but it seems some of the poison is leaking down the ranks.  Open source in the context of this “community” when it was in it’s nascent phase once meant “Hey, what do you think about this?” Or “let’s try this and see if it works better than that.”  Now that it’s grown to the testosterone injected teenager that it is it appears to mean “I’m a part of this thing you’re a part of so give it up to me.”  Or, “I just joined and I have no f*ing clue what I’m doing, but I’m a badass so I’m going to take your shit cuz you’ve been doing it longer.”

So I’ve just been doing my own thing…and have had a serious disinclination to write and share much the last few months. Instead I’ve been helping and consulting with people I consider friends as well as a local MMA gym…and you can thank both Robb and Megan from Level 10 in Oroville for kicking me in the fanny and bringing me back to the surface.

Fortunately there are always more ideas coming. And in fact I’ve got a few fun projects up my sleeve myself…one of which is re-working this blog.

Have a great Sunday!

You should be working on your best idea right now.

Do something you care about and enjoy.

Profit is feedback that you’re doing something good for the world.

Lead with revenue, not financing.

Revenues don’t mean anything if you don’t have profits/earnings.  If you have a business with lots of revenue but without the profits you’re just a business spinning your wheels.

One major pitfall is the come one, come all approach to having new folks off the street jump in on your group classes.  There are numerous issues with the come one come all approach, including liability, lack of rapport and inability to deliver your best coaching to your existing clients (you will always be catering to that brand new person on their first day to the resulting disservice of your veteran athletes).  And it’s not the best scenario for the newbie either…they are usually intimidated and nervous and are fearful of looking silly or not being able to keep up.

A beginner class removes the intimidation factor that is inherent with most newbies as well as provides a solid foundation that is necessary as your business grows.  It allows for you to build rapport with new clients as well as demonstrate your abilities as a coach thus highlighting the services you offer.  At the end of the On Ramp you should have a fresh batch of excited, well-prepared group clients!

When I wrote the On Ramp I had one question in mind: “What movements do I want new group clients to know and have some baseline exposure to, upon entry into our existing classes?” CrossFit preaches the “mechanics, consistency, intensity” mantra, but too often we see newer coaches and trainers bypass the mechanics and consistency and jump right to intensity with new clients.  Not only does this do a disservice to the new client, it will ultimately be harmful to your bottom line.

The On Ramp was intended as a template that could be modified and adjusted for your particular gyms and particular coaching styles.  Even in our own gym the curriculum has grown and changed since it’s original incarnation.  I’ve received emails from other folks who have made some modifications to the curriculum to reflect particular movement emphasis of their gyms and I think it’s great.

I know Laurie and Kurtis Bowler of Rainier CrossFit have incorporated some strong man elements into their On Ramp curriculum as they do many strong man movements in their classes and want new folks to have that exposure upon completion of the On Ramp.  Makes sense right?

Some folks have shortened the On Ramp to an 8 session program and if these gyms are generally seeing a fairly well conditioned, younger, orthopedically sound demographic I can see the logic in that.  For our demographic 12 sessions seems to be right on the money.  There is beauty in getting folks to commit to something for 1 month.  If they can stick it out for a month they will likely hang with you long term. Not to mention the improvements seen after just 12 sessions!  Clients are so excited about such a significant improvement in their fitness after just one month they are ready to see what they can do in a year! It effectively removes the need to sell your program.  The client’s own success sells it!

I’m done with the preamble. Now for the bastardization…

It’s come to my attention that some affiliates are not just changing and modifying a few things here and there to support their unique situation…they are completely bastardizing it!  Let me explain…and forgive me if you sense my irritation.  Again, what is the purpose of the On Ramp?  To introduce BEGINNERS to the movements they will subsequently see in your program.  So why on God’s green earth would it ever make sense to introduce a MAX EFFORT on DAY 3 of a BEGINNER program?????  On their first exposure to a movement???? Sorry if I’m being a bit harsh here, but when I heard this I wanted scream out loud.  Clearly the point of a beginner program has been lost on this affiliate.

I have also seen some affiliates advertising a “3 day On Ramp”!  In my opinion no one off the street is going to be prepared for group classes after 3 days of exposure to movements including the slow barbell lifts, rope climbs, dumbbell variants of the quick lifts, rowing mechanics and pull up modifications and variants.  Three days does not allow for mechanics, let alone consistency and intensity.  The intensity that is inherent in CrossFit programming is more powerful than new coaches and trainers understand in the beginning.  It needs to be respected.

One last thing…not only is a 3 day program not enough exposure it does not demonstrate the power of the program…there is not going to be a significant improvement in fitness nor the resultant feeling of success on the part of the client.  In my opinion it’s not an “On Ramp”…

Ok.  Forgive my rant.  I just had to get it out.

On a lighter note….check out one of my favorite NorCal leprechauns celebrating his favorite holiday of the year