Using your income statement as the driving force to run your business creates a powerful, sensible connection between dollars coming in and going out, and the decisions you make on a daily basis. If you pay attention, 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, 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. Here’s how.
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? Be sure the data in your club management software (CMS) is accurate, easily downloaded or extracted and easy to understand.
Most importantly, are the line items detailed enough to give you a clear picture of where, exactly, your revenue is coming from and going to in expenses? Even more detailed reports should be readily available from your CMS 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 equal 30 percent, regular dues equal 50 percent and pool memberships equal 20 percent. Notice if those ratios change over time.
Manage this line by figuring out “why?” For example, if total dues revenue is down, get to the bottom of it. Are there fewer people for tours? Has your closing rate fallen? Or is retention the problem? Look for potential solutions, try them, estimate how long a potential fix will take to have an effect and 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 to 25 percent over the course of a year. Depending on problem areas you identify, run interim reports from your CMS, 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 or property can be purchased to eliminate leases entirely. CMS 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’re 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 shower heads and LED lighting, could save hundreds later on in utility costs.
Marketing is an excellent example of an expense leading directly to increased revenue. When marketing expenses go up one month, do 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 CMS, 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 or outliers and brainstorm to fix.
The pressure will be tremendous to skip this task — after all, you’re the owner and no one’s making you do it. Also, it’s not fun. But walking around putting out brushfires is not going to bring you the long-term, sustainable results you want. 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.
