If you look at your income statement casually each month, hone in on the bottom line to make sure it’s positive and then move on to other more pressing matters, you’re not alone. But, if you aren’t disciplined about managing your business by its income statement, your bottom line might not be as positive as it could be. Using the income statement as the driving force to run your business creates a powerful, sensible connection between dollars coming in/going out and the decisions you make on a daily basis. If you listen, the income statement will tell you how and where to spend your money, and what needs to be improved or fixed.
“I have been doing this for 18 years, and I know what’s important,” you might say. True, to a degree. But who is really setting your priorities? Often, without a conscious plan driven by the income statement, you can find yourself buffeted along, reacting to customers’ requests, allowing your employees to create action items or just going with the flow, doing what you are comfortable with. If any of this rings true, you may be leaving a substantial amount of money on the table every month. Be proactive with your income statement and change that.
Getting Started
Your club’s income statement — from your accountant or spreadsheet software — should never be more than a month old. Does it have built-in columns for monthly comparisons and a yearly forecast to show at a glance how you’re measuring up so far?
Most importantly, are the line items detailed enough to give you a clear picture of exactly where your revenue is coming from and going to in terms of expenses? Even more-detailed reports should be readily available from your club management software to turn to when questions arise.
What to Look For
Start with revenue. Show individual revenue sources as a percentage of the total. For example: Premium dues 30 percent; Regular dues 50 percent; Pool memberships 20 percent. Take note if those ratios change over time. If total dues revenues are down, why? Are there fewer people for tours, has your closing rate fallen or is retention the problem? Look for potential solutions. Try them out and estimate how long a potential fix will take to have an effect. Use subsequent income statements to help determine if your fixes are working. Remember, this is not a one-time project. It is a circular process of observing data changes, analyzing them and brainstorming ideas with your management team or maybe even a member focus group. Aim to improve each line by 10-25 percent over the course of a year. Depending on problem areas you identify, run interim reports from your software, such as point of sale analyses, membership profiles or inventory breakdowns to provide more visibility towards a solution.
The Expense Side
Resist the urge to look at expenses as fixed costs you can do nothing about. Leases can be renegotiated; property can be purchased to eliminate leases entirely. Management software costs and merchant fees can be reduced dramatically. In fact, if you are not renegotiating all purchased expenses on a yearly basis, you are paying too much. It may be counter-intuitive, but see if you might be paying too little in one line item, causing you to pay disproportionately far too much in another. Sometimes you must spend to save. Maintenance expenses are one example — don’t skimp unnecessarily. The higher cost of eco-friendly devices, such as low-flow showerheads and LED lighting, could save hundreds later on utilities.
Marketing is an excellent example of an expense leading directly to increased revenue. When marketing expenses go up one month — did revenues increase in subsequent months for the item you promoted? Have you spent sufficient money to make your website phenomenal? Do you have revenue generators on your website and in your club management software, such as online joining, personal training sign-ups, online payments and e-mail blasts?
You know your business and can come up with your own revenue enhancers and smart cost savings. The key is to make it a systematic exercise: look at the numbers, calculate ratios, look for changes/outliers, and brainstorm to fix.
The pressure will be tremendous to skip this task — after all, you’re the owner and no one is making you. Also, it’s not fun. But walking around putting out brushfires is not going to bring you the long-term, sustainable results you desire. Get disciplined and you’ll start to see results.
David Porter has been a sales consultant at Twin Oaks Software Development for many years. Previously he ran several businesses, including Suburban Athletic Club outside of Boston, which he co-owned and operated for 10 years. He can be reached at 860.829.6000 or dporter@tosd.com.
