Archive
Monthly Archives: August 2020

You’ve Got Profit All Wrong

Do you have a visceral negative reaction to the word "Profit"? Do all the stories of companies who maximize profit at the expense of quality, or people or the environment give you an icky feeling when you think about making profit in your own company?

Let's get real. You have to get over it. Don't let the negative stories about what other companies do block your pursuit of owning and running a profitable business. It's your choice how you are going to run your company. The vast majority of companies are run ethically and responsibly. Be one of them, and feel good about it.

fit for profit - you've got profit all wrong

As we move from the Sales level to the Profit level on the Business Hierarchy of Needs (BHN), it's important to have a clear understanding of what Profit is, and what it isn't.

Here's how Profit First and Fix This Next author Mike Michalowicz defines Profit: 

"Cold hard cash that the shareholder(s) (the owner or owners of the business) can use for themselves in any way they want, such that using it will not negatively impact the continued healthy operations of the business."

My definition of Profit is: "Your reward for a business well run."

As the owner of your business, you are the primary investor and shareholder. You have taken the risk to own and operate a business. The risk is failure, and a lot (most) small businesses do. The reward for your investment into your company is your company giving back to you in the form of Profit. This is not greedy, it is fair. 100%.

Notice I wrote giving back to you. As in you the business owner(s). To do what you want with it, outside the business. Save it, spend it, bury it. Your choice. It's your money. There is an important distinction to be made here; you cannot "reinvest profit back into the business". It's either profit or it's an expense. Once you spend cash the business has earned for business purposes it is an expense. There is absolutely nothing wrong with doing that if you choose to do so. But it's not profit. Faking your margins to feel good is not cool. 

"Ok, Ok" you say, "what's the big deal? Who cares if I call it profit, expense, or blue cheese? It's my money after all".

It makes a difference in a couple ways. 

First, profit is a habit. When you get used to taking and distributing profits it is an amazing way to operate your business. On the other hand, if you keep trying to "create" profit with more and more sales, it almost never happens. Why? Because spending is also a habit. And if you can't curb the (over)spending habit, you can never be permanently profitable. 

The second reason taking profit regularly is so important has everything to do with the value of the company you are building. The reality is your company is probably not going to be acquired at an outrageous price by some tech or dot com investor. If you want to build a company that endures and has value to someone else, you have to demonstrate, on your P&L's and Balance Sheet, that you have a history of being profitable. This is what my business broker called "Benefit To Owner". In other words, when someone buys your business, they want to know what their immediate potential earnings will be. When we sold one of our gyms for top dollar, it was because we had demonstrated over a number of years a high benefit to the owner. We ran a profitable business, and when we were ready to sell, it netted us more money.

Even if you have no plans to sell anytime soon, you need to have this on your radar now. Some of the best advice I ever got was from Nick Berry of Fitness Revolution who told me; "You need to be ready to sell your business way before you want out." Exactly right. 

Work on building a "Profit Mindset". Get rid of the trash in your head that says profit = greed. If you want a business that you truly enjoy and make the impact on the world you want it to, you have to be profitable. 

Next time we will dig into Need #1 on the Profit level of the BHN, and discover what you need to do next to build your own profitable company. 

fit for profit - you've got profit all wrong

A Profit First Case Study: How Profit First Has Changed this Norfolk Fitness Business for the Better

Case Study for Austin Mitchell

This week, I wanted to share another profit first case study with you. I am so happy that I was able to connect with Austin Mitchell in recent weeks and listen to his success story. Before I share his successes though, let’s learn a little more about Austin. 

Austin is the owner of Somnium Fitness in Norfolk, Virginia, right outside Virginia Beach. He fills the role of CEO at the gym. He looks at the bigger picture every day and how he can increase profitability and growth. His team handles many of the day to day tasks of Somnium. While his core fitness focus is CrossFit, he switched the name of the gym to Somnium Fitness to target a different clientele than regular CrossFit. His gym currently has 250 members and he thinks everything’s going great!

Somnium Fitness opened back in May of 2015, so they have been open for five years now. 

Austin has four full-time team members, as well as one part-time social media manager. His social media manager creates the one voice of their brand for consistency. The acquisitions manager does all of the sales and memberships, as well as assessments. The manager also makes sure that everything is being tracked in house. 

profit first norfolk fitness

The three coaches on the team do so much more than coaching. They all maintain a high retention rate by making sure they check in with members weekly. Austin realizes he has a small team, but they all work together to check off all of the day to day stuff. 

Now that you have the background on Austin’s fitness business, it is time to check out his numbers. This past July, I happened to notice that Austin’s business had a $10,000 increase in revenue. I thought this was slightly strange with how this year has been going. So, I decided I had to talk to Austin about what happened a few months earlier to hit this revenue increase. 

The increased revenue started with steady growth Somnium Fitness saw back in February. The team had set goals during their weekly meetings. They had projections of the goals they wanted to hit during the first quarter of 2020. Everything had been on track, and their momentum was amazing, until everything happened in March. 

They didn’t let the shutdown affect them though. Instead, they managed to get everyone online in a week. Somnium Fitness didn’t lose any members and their business stayed steady. 

It was easy for Austin and his team to create the online platform, because they had that type of structure in place beforehand. They had always checked in with each and every member every single week. They began the shutdown with Zoom workouts, but after a few weeks, they began to send out personalized workouts as well. They knew that those personalized workouts were what their members needed to stay engaged. 

Somnium Fitness was able to reopen their doors towards the end of April. Between that time and the beginning of June, they had 125 new members sign up. Every one of their new members are what Austin considers annual members, so they will be around for a while. 

Austin attributes those new members to their marketing and the systems they have always had in place. Austin was in the marketing game for five or six years before he opened the gym, so he knew that he had to match the marketing with what the gym provided in house. One specific marketing model will never work for everyone, because not every gym offers the same things in their gym. Austin is very aware of that and he focused Somnium Fitness’s marketing model on what they are offering and staying consistent. 

It is important to note that Austin is not focusing on one specific person for his marketing. While he does know that demographics are important for marketing, he understands that everyone at his gym is different. So, he focuses on people who want to live their best life by working out and adjusts his verbiage accordingly. Past that, he doesn’t like the micromanaging that would be needed to cater to all the different people who walk through his doors. 

Austin implemented Profit First into his business back in February of 2019, because his business was basically bankrupt in that month. It was at that time he started to take financials very seriously. Once he discovered Profit First, it’s been like night and day. 

I would like to point out that Austin didn’t have a background in fitness when he started Somnium Fitness, nor did he have any finance training. He actually went to Old Dominion University to study engineering. He lasted for two years before realizing that he didn’t want to do that job long term. He switched to exercise science and knew that he could spend the rest of his life being the best trainer he could be. He got all of the degrees, all of the certificates, and everything else he could think of at the time. Austin even did one semester of grad school before he realized he didn’t want to continue with that. Instead, he decided to open the gym and dropped out of school. 

Most fitness businesses open in the same way Austin’s did. The owners simply like to train and they love helping others on their fitness journey. However, not all businesses make it past the five year mark. This is where Austin has marked a major milestone and that milestone was only possible because of Profit First. 

Austin remembers implementing Profit First into his business. While he says it wasn’t that hard, he does say that it wasn’t as easy as he remembers. He had to make some difficult decisions like raising his rates and letting go of some staff members. Austin also had to cut a lot of expenses. Those three things were not easy, but he knew if he didn’t do it, the gym wouldn’t survive. While Austin did collect a paycheck before implementing Profit First, it was not the paycheck he would have liked to be getting.

Prior to implementing Profit First, Austin was getting between $1,700 and $1,800 bi-monthly. Now, he is taking home around $2,800 bi-weekly plus his profit distributions. The first quarter provided about $4,000, while the second quarter was around $7,000 in profit distributions. The third quarter looks like between $7,000 and $8,000. According to Austin, his $42,000 from last year will increase to $85,000 this year and that doesn’t include any fourth quarter distributions. He is predicting a $130,000 quarter with a 13% net profit, so he will get another $8,000 there if everything goes as planned. 

Austin knows that Profit First has changed his business for the better. He can easily share his quarterly projections with certainty, instead of not knowing how much money he has available. He meets with his team every week to go over the financial statements and continue to look for things they can improve on. At the same time, these meetings allow them to always know their profit margin, gross margin, revenue, and even expenses. 

Austin just took everything out of his profit account at the end of June and distributed it between all of the team members and himself. He knows how hard his team members work to keep the gym successful and he wants to reward them accordingly. 

So, now that you know all about Austin’s success, I would love to hear your thoughts! Share what you love about Austin’s journey and what you might have done differently for your business. Let’s learn from each other and celebrate everyone’s ideas! 

profit first norfolk fitness

You’re Not A Charity (even if you are)

It’s pretty safe to say you didn’t get into business to be a bill collector (unless you actually are a bill collector of course).

One of the most frustrating aspects of running a business is chasing people down for money, if you let it be. 

Need #5 on the Sales Level of the BHN is “Collecting on Commitments”, and the question we ask is;

“Do your clients fully deliver on their commitments to you?”

If you recall from past articles, the service provider/client relationship is a two-way street, and both parties need to be happy with the exchange. It’s hard to be happy when people owe you money, it just is. 

You are a nice person, I get it. You want to offer a little leeway when someone is behind on their payments to you. Stuff happens. 

And you aren’t wrong, stuff does happen. But at what point and to what level of frustration does their problem become your problem? if this is happening more than just occasionally, it’s time to get serious about fixing it. You don’t need the added stress. 

The fact is, if we have done the work up to this point, and are attracting the “right” clients that fit into your sweet spot, collections is usually a non-issue. Sure, once in awhile someone will have a credit card problem, have an account hacked, that kind of thing, but it won’t be over and over and over. Yes, I have had a client (or two or three) like that too. 

Not only are you not a bill collector, you aren’t a banker either. If someone owes you money for a service rendered, you have now become a lender to your client. A double whammy you don’t need. 

So what to do about it?

  • First and foremost, get every client on EFT, or automated payments. In the fitness business it is now industry standard, most people expect it, so just do it already.
  • Have clear terms of payment in your contracts, as well as terms for non-payment. In your terms their should be a “cut-off point”, or an upper limit to how much a customer owes you at which point you will no longer service them.
  • Track your receivables every month and make sure every client is current. It’s really uncomfortable to go back to a client and say; “Ummm, sorry Cathy, but I just noticed your card hasn’t gone through for the last 6 months”. Oops.
  • Enforce your terms. Every time. 

Contrary to popular opinion, I am not cold and heartless. I care about my clients very much, but I am not a charity. And even if you operate as a not-for-profit, you still have bills to pay.

Remember, fulfillment of the terms of the agreement by both parties is included in and an integral part of the sales process. Selling to the right people matters. 

Here’s a review of the Sales Level of the BHN.

  1. Know what your sales level target is in order to support your personal needs as the owner.
  2. Attract enough quality prospects to support the needed sales.
  3. Convert enough prospects to clients to support needed sales.
  4. Deliver on your commitment to clients on time, every time.
  5. Every client pays on time and in full. 

Is your company fulfilling every component of the Sales Level of the BHN? If not, it’s time to Fix This Next.

Let’s Make It Happen.

Steps to Take When Something Doesn’t Go as Planned in Your Business

I will be the first to tell you that things don’t always go as planned. During one of my recent live videos, I was supposed to be sitting all cozy in a coworking space. However, the coworking space was closed and I had to figure out a way to go LIVE using the tools I had available. If you didn’t see the live video, let’s just say I made it work with my cell phone and one of the seats in my car. 

steps to take when something doesn't go as planned in your business

Now, I am hoping that when things don’t go as planned in your business, you can find unique ways to figure it out and keep moving forward. But I also know that there may be a time when you decide to permanently close your doors. We have had a couple of clients come to us recently with that decision. And let me tell you, it didn’t mean that they didn’t have amazing plans and even better backup plans. 

They had everything they needed for a successful business model, so closing was definitely not anywhere on their radar. But I can definitely say they have valid reasons. 

One of our clients that is closing has managed to work her way out of debt, a lot of debt, and she decided she wasn’t willing to go back into more debt for her business. She hasn’t closed yet, but she is going to be closing. 

Another client had planned to sell her business back in January. When the government shut down businesses like hers, that sale fell through. She managed to find a new buyer recently, but the price she is getting for her business is now a lot less than she had hoped she would be getting. Yet, she’s still seeing profits and she has decided that this is the right time for her to get out. 

There are so many different scenarios out there, but I know there are a lot of people in the fitness industry who are considering this. There are also a lot of questions around what you need to do when you close a business. 

I have managed to come up with 10 things today that you need to think about when you are closing a business. A few of them are practical and need to be taken care of in order, while others cover the emotional aspects to close your business. 

10 Things You Must Think About When You are Closing Your Business

  1. Contact an Attorney and Your Accountant

You will need an attorney throughout this process, because you could face some legal ramifications when you close. Hopefully, you have a relationship with an attorney, so you can go to them and ask questions. This will especially be helpful if you need to cancel a lease. 

The good thing about doing this with an attorney is they will keep all of this information confidential. They won’t be spreading rumors that your business is closing. 

  1. Tell Your Clients You are Closing

Once you have begun the process of closing your business, you need to speak with your clients. You must tell them directly, because they have been your biggest supporter over the years. 

  1. Take Care of Your Clients

Since your clients depend on you, I recommend planning on taking care of them after you make the decision to close your doors. As a fitness business owner, you want to make sure that your clients’ health is a top priority. You may find that you can refer them to a competitor or even sell your client list to a competitor for a small fee. This will allow you to make a little bit of money, while taking care of your clients at the same time. 

  1. Sell Your Assets

Any equipment you own can be sold to get some of your cash back. This will keep you from paying to store it all and losing out on even more money in the future. 

  1. Cancel Your Contracts with Vendors

Before you can close your business, you must cancel your contracts with vendors. I recommend doing this sooner than later, so you can have those final payments clearing your bank accounts. This is also the time to thank your vendors for their time and even give them a testimonial if possible. 

  1. Start to Close Your Bank Accounts

If you implemented Profit First into your business, this is when you can transfer all of your money into your operating expenses account. You can then close all of the other bank accounts you have open for your business. I would make sure all payments that were coming out of those accounts have cleared first. 

  1. Close Your Last Bank Account

Once all of your automatic debts have cleared your operating expenses bank account, as well as payroll checks and other charges, you can close that account. You can transfer any money that is left in there into your personal account first. 

  1. Contact Your Secretary of State to Begin the Dissolution Process

The dissolution process is different for each state, so I can’t speak to all 50 states. But you will be able to find the process on the Secretary of State website for your state. You must go through this process, because not every state is as good about automatically closing your business after a couple of years. Some states, like California, will continue to charge you every single year if they do not have your dissolution paperwork. This is also the time to cancel your business license if you have one. 

  1. File Your Final Tax Return

Your final tax return won’t be until the following spring, so you may have a little time to complete this step. Simply take the same documents that you always take to your tax preparer and make sure they mark the box that states “final tax return” on it. You definitely want to make sure they check this box, so you don’t get penalties for not filing tax returns in the future when you don’t have to file tax returns. 

  1. Grieve Accordingly

You are going to go through many emotional stages when you close your business. You are going to feel grief from closing your business. While I am not an expert on grief, I can tell you that grief comes in stages. There are five stages of grief in all. The first stage is denial and that is followed by anger, bargaining, depression, and finally acceptance. There is no rule that states how long each stage will last or the right way to grieve. 

We just need to be aware of the stages and practice self care, while continuing to take care of yourself and your body. Also, let the people around you, who are supporting you, take care of you. 

I know I just covered a lot of information there, but I would love to know how you are feeling about what I just talked about. I feel it is important to process everything, so you make sure you get all of the things right. 

Of course, you may not be considering closing your business right now, but you might know someone who is. Feel free to invite them into this group, so you can tag them and let them see this important information. 

Let’s keep these conversations going, so we can all learn from one another. Feel free to send me a message if you are struggling and need to set up a time to talk or if you have a topic that you need me to share my thoughts about in a future post.

steps to take when something doesn't go as planned in your business
>