Written November 13, 2008 - Paul Spadaro President USAIGC
Revised November 12, 2009
Topic: Recession Preperation or What you should be doing as an owner.
I would like to “discuss our economy” and what you as the OWNER should be doing to prepare for an “economic downturn”, also called a vicious cycle. I do not know how the economy is affecting your business but if you are waiting to see how the economy will affect your business it will be to late for you to do anything positive when your realize the down turn. You must be pro-active NOW! My question to you is, what have you done to protect your business for an economic downturn?
If as an owner you spend more time with your Team than your business you are already in trouble. Having an outstanding business manager is not the answer because you have given a person the ability to know more about your business than you do. If you are an “absentee owner coach” you need to fully understand your business and become a professional business owner.
Do you know what a balance sheet is?
Do you know the difference between your balance sheet and your Income Statement, also known as your Profit & Loss Statement. It is your responsibility to fully understand your costs and income.
This financial document is a snapshot of your Sales (income) – Expenses = Profit.
This statement is an owner’s bible. It is your report card on your businesses performance throughout the year. It should be used on a monthly, quarterly, semi-annually and yearly basis. By studying your current Income Statement (P&L) and comparing it to your previous years business statements you will learn what is taking place with your business. You will not be in the dark. You will not have to guess.
You must have an Income Statement / Profit & Loss Statement and you need to use it!
If you use an accountant (and you should), this is something he would create for your business. Money flows through a company, someone must keep track of it. A good accountant is worth their weight in gold but it’s a partnership between the accountant and business owner to make the correct decisions that make money.
Income Statements / P&L Statements tell your business story in dollars and sense over a given period.
From the Income Statement (P&L) some of the things you will see are:
1. How much yearly income your business grossed? Has your gross income gone up or down from the previous year(s)?
2. How much gross income your business brings in each quarter? Is there a change in the gross income per quarter? Why is there an increase or decrease in your quarterly gross income?
3. What are your “strong income grossing” periods (months or quarters)? Why are they strong? Are these large gross income periods consistent each year? What can you do to increase these high-income periods even further?
4. What are your lowest income grossing quarters? Why are they the lowest income grossing quarters? Are these lower grossing period consistent each year? What can you do to increase these lower grossing periods?
5. What trends do you see in your sales? Is there sales growth? Flat? Falling? Why? What can you do as the owner in each of the circumstances?
5. Are costs rising or falling with your income levels?
Income Streams: different revenue producing programs money comes in from.
Examples: Gymnastic Classes, Pre-School Gymnastics, Mom & Me Gymnastics, Pre-Team, Competitive Team, Pro-Shop, Vending Machines, Adult Classes, Birthday Parties, Fitness Classes, Cheerleading, etc.
How much “profit” does each “income stream” bring into the business? If an income stream is a losing proposition why continue unless it has a ripple type of value to your business? Break down income into income streams and track income and expenses.
Business Expenses, simply stated are General and Administrative Costs.
Examples: salaries, marketing, accounting, finance, rent / mortgage, power, light, supplies, equipment, maintenance, etc.. “Other Expenses” – legal defense, extraordinary or non-recurring expenses, interest income, etc..
An owner must understand how money moves in and out of the company. Every transaction your business conducts represents either an inflow or outflow of cash.
Business Costs / Expenses are broken down (normally) into:
Fixed costs: costs that remain the same regardless of what takes place (do they?).
Variable costs: change monthly
From the information you attain from your Income / P&L Statements you should be able to (or with the help of your accountant):
1. Plan for the “slow income grossing” periods.
2. See if your pricing is relevant to expenses.
3. Learn what your Profit margins are from your “income streams”.
4. Learn what your Profit margins are from your educational Programs.
5. What is your Net Profit (what’s left after everything is paid for)?
As a Business Owner you MUST know this basic information, if not, you are doing yourself, and your business, a disservice. This information is vital to your businesses success.
Do you project yearly income and expenses and track your projections regularly and make the necessary changes as needed (plus or minus).
You must keep expenses as low as possible, especially during the low grossing periods. The key here is: where can you cut costs without diminishing the service & value you provide for your clients? This is what successful business owner does constantly?
TO DO
List all of your business expenses and categorize them into fixed & variable expenses.
Do not think fixed costs cannot be reduced because everything is negotiable at certain times.
Let’s do a simple exercise. You are not a business in distress.
Mortgage – in today’s climate, if needed, meet with your mortgage lender and discuss revising your payments in order to help your business through an economic down turn, OR if financially possible become pro-active and make a 13th payment each year. It sounds like a burden but your business will save THOUSANDS of dollars over the life of your mortgage / business. Do the numbers with your accountant or bank manager.
Rent – look at your landlords commercial landscape, if your landlord has lost 15-25% of his commercial clients, or the strip mall you are in has lost a fairly high number of stores reducing foot traffic, or the mall / commercial development you are located in has a higher than usual occupancy rate, call your landlord. Explain your financial situation
OR go pro-active and plan for the future. Maybe for a little more then you are paying now you could expand your facility, you can help your landlord IF he can help you structure a new deal for your business!
Tax – only a good accountant can tell you if you are receiving your full tax benefits
Payroll Taxes / Payroll Company – this service usually is cheaper than having an accountant do it, especially if you have a large staff
Utilities – “green is in” now is the time to use energy saving methods, it may initially cost you some up front money but over the life of your business it saves big bucks. Call your utility company; go on a monthly payment plan if that works for you, ask if they have any special programs you can participate in. Invite them to your place of business and let them check out your energy efficiency (its free). Will fans, blowers, and insulation help?
Communication. Maybe you can switch to an Internet phone OR be pro-active and find out which provider is giving the best deal for their service.
Insurance – First read your insurance policy. Call your insurance agent or company and have them go over your entire insurance / business policies. Do you really understand your insurance policy? What does it cover? More importantly, what doesn’t it cover? Does it pay to increase your deduction? How much would you save? What is the risk? The USAIGC now has our own Insurance Program.
Bank Charges – compare costs and switch banks, if necessary.
Credit Card Charges – shop around, having credit cards gets you your money immediately and do not have to chase anyone but those on-line banking fees can be extremely high. Smart owners have already packaged these costs into their pricing, which brings up another issue that I cannot get into at this time. The USAIGC is speaking to a National Company for our USAIGC Members that guarantees the lowest rates....
Maintenance – if you have a company or individual that does this job, double check rates. This is an important expense. Your facility MUST be clean and visually inviting. It should be well lit. First impressions are extremely important.
Marketing / Advertising – this expense is all about your spending dollars. You want the marketing vehicle that gives you the biggest bang for your buck, the largest exposure for the least amount of money. You MUST track your marketing to see if it works for you. Your Business Web is probably the cheapest form of advertising. Make sure your web site is professional looking, easily manageable and user friendly. Do not forget to brag about yourself on the site (no lies).
Supplies – check what supplies you use and how fast you go through them. Do you buy in bulk? Is there waste? Can you get them for less? The USAIGC Club Owners are part of the Staples Busines Advantage Program saving 10-30% on suplies!
Collections – do your customers sign a contract / payment agreement? If you are giving “deals” for upfront payment the client is responsible to make good on the agreement.
Accounting & Legal – both needed in business, cost vs. service.
Equipment – what do you actually need and you cannot skimp on safety.
Petty Cash – receipts for everything, then track the spending of petty cash (accountant).
Equipment Purchase - do you include this in your expenses? It should be. Money should be set aside each month for equipment purchase.
Rainy Day Fund – needed. Money should be set aside each month for a rainy day!
Payroll – good loyal staff are worth their weight in gold. Everyone must understand the definition of a great staff member: punctuality, loyalty, retention rate, knowledge, accountability, loyalty, etc.
Benefits - vacations, 401’s, health insurance, sick days, uniforms, etc.
Pricing – how do you come to what YOU charge your clients?
1. Try this. Take ALL of your expenses, add them up and divide them but the average number of students you have per year = per student cost
2. Take your expenses and divide it by the number of days you are open per year = This is the minimum you must make to open your doors.
3. Same thing for hours per year = what it cost you to run your gym per hour!
Do you have this information?
This advice is free. Take it for what it is. Free advice. I have learned from experience both good and bad.
BE A PROFESSIONAL BUSINESS OWNER!
Paul
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