Why You Need to Reverse Engineer Your Cash Flow Goals
As a gym owner or someone working in the health and wellness industry, you know that revenue fluctuates throughout the year.
During the fall and the holidays, clients aren’t as responsive or working out as much–either because they’re busy with work and family or because they don’t want to feel bad about not following their health plan. At the beginning of the year, things pick up as people set resolutions and goals…but then taper off after a few weeks or months. Then, of course, there’s beach season where clients are ready to dive back in. And around and around it goes.
All this fluctuation in client commitment results in a fluctuation in revenue. And it’s enough to give you a headache.
After all, your operating expenses don’t fluctuate that much, and you’d like to collect a regular paycheck that you can count on.
That’s why reverse engineering your cash flow goals can help you stay on budget month to month and ensure you’re spending (and saving) the right amount to meet your operating expense needs.
This is why it’s so incredibly important to have a bookkeeper on your team to help explain your financial data to you and what your financial reports mean. A bookkeeper can also ensure that you’re staying within your budget each month, even on those slow months.
Here’s how reverse engineering works:
First, you’ll need a profit assessment to determine exactly what you’re making in your business right now.
You also need to take a good look at your P&L statements–over the course of a year. Determine what your average operating expenses are each month (total OPEX for the year ÷ 12 = average OPEX each month).
Are you making your average OPEX each month?
Typically, the answer is no. But the idea is to allow your busier months to make up for your slower months.
And if you’re spending more than 45% of your revenue on OPEX, chances are you’re not paying yourself enough. It’s time to find ways to lower your operating expenses.
But I can’t lower my expenses any more than I already have.
That’s what you’re thinking, right? I get it. Ask yourself this: Are you legitimately getting 100% value out of everything you’re spending on right now?
Do you need two team members covering the front desk when the gym is slower?
Is it necessary to buy that equipment this month?
Can you negotiate a better rate on your insurance?
Is it possible to let go of some of your equipment leases?
Can you reduce the frequency of equipment maintenance because usage is lower?
With your Profit First advisor, go through your expenses line by line and look at ways to reduce spending so you can get your OPEX more in line with where it should be. You’ll be surprised at where you can find money!
We’re happy to help you with this process. Schedule a call with us today and let’s reverse engineer your cash flow so you can start hitting your goals.