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Key Financial Considerations You Should Act on Today

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While we don’t know how long the industry will be impacted by the COVID-19 pandemic, as club operators, there are actions you can take now to better prepare for the future of your businesses. The most effective first step is understanding your current financial position and related options. It’s unrealistic to expect that your past financial state will fit or even survive the evolving situation.

Bill Davis.

As CEO of ABC Financial and serving as a chief financial officer in several different industries in the past, financial planning considerations are always top of mind for me. But beyond my personal experience, there’s a broader perspective we’ve developed from our many, many conversations with ABC clients and other clubs, both pre and post the onset of COVID-19. Our hope is that by sharing the immediate actions and strategies we’ve heard and co-developed with clubs of all sizes, we can help you answer three basic questions: Where should I start? Who should I talk with now? What actions can I take to better prepare for any future state?

Question 1: Where should I start?

First and foremost, you should be engaging with your employees and members on a frequent basis. I encourage you to embrace the simple, but effective, approach of communicating what you know, what you don’t know and when you will be back to them with more information.

While your immediate questions may have been focused on your membership base and impacts to your team, you need to heavily scrutinize and appropriately understand your cash flow requirements for the next several months. Your overarching aim is to minimize your daily or weekly cash burn down so that you maximize your ability to work through these uncertain times for as long as possible.  

One measurement to consider is the number of days or weeks of cash outflows your business can afford if its cash inflows were to stop or be materially reduced. To measure this, you will need to outline your existing cash balances plus any anticipated inflows, such as any ongoing membership dues or anticipated coronavirus-specific government incentives. You then need to determine your daily or weekly outflows which include rent, supplies purchased, payroll and loan repayments.

Ultimately, you are determining the number of weeks or days your cash and related inflows will support your cash outflows. For example, if you have $20,000 cash reserve and you anticipate reduced cash inflows of $0 per month while your club remains closed and you are able to reduce your average weekly cash outflows to $2,500 per week, your “cash buffer” is eight weeks.

Having this information for your business right away can help you guide your immediate actions. Cash is king: look now for opportunities to manage overall liquidity and optimize your cash flow.  

Question 2: Who should I speak with now?

Having a proactive conversation with your suppliers, partners, vendors, landlords and anyone else who is part of your ongoing cost structure is important now; in fact, it’s the most immediate and effective method of relief employed by the clubs we’ve spoken with.

What you ask for and how you ask for it matters — it’s important to line this up with the financial outlook discussed above. This gives you confidence you’re making a meaningful impact to your cash flow, and to present a clear and compelling case to the other party.

We’ve seen that clubs who approach their landlords and vendors have been nearly universally successful in negotiating leniency or deferrals to their rent payments and debts. It is very important you approach such conversations with a specific ask, such as “I need you to defer my rent payments for the next three months, and you can add those three months to the end of my existing lease.” Open-ended requests like “what can you do to help me?” tend to be less effective.

As it’s unclear how long this sentiment will continue, if you haven’t already, it’s in your best financial interest to initiate these conversations and start the process today.

Question 3: How can I better prepare for the future?

We see the best-prepared clubs are creating several cash flow scenarios with different ranges of outcomes, rooted in your financial analysis. With full command of your anticipated cash inflows (which may be as little as $0 for a period of time) and cash outflows, your ability to react to new realities over the coming weeks and months becomes more tangible.

To help meet shortfalls, you should examine your short-term financing options, including small business loans and other forms of government relief programs. You may not need cash relief today, but you should consider taking advantage of current lending leniency and starting conversations and processes with lenders now. The SBA has published helpful resources online to help guide you through the options, and we also recommend contacting your local SBA office to establish communication early. 

Additional Recommendations

View every decision you make through the lens of your unique club, membership base, ownership model and your financial attributes. These factors, specific to your business, help establish a firm foundation for your plan.

Your local rules and regulations may influence your approach, so stay in close contact with your finance and accounting advisors.

Again, give deep consideration to what you might be able to do today to hedge against the future. You want to create as much flexibility as possible to preserve optionality in the future.

If you have questions or would like to connect with our team to discuss strategies, we’re here to help the fitness community be stronger, together. Reach us at abcfinancial.com/contact.

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Bill Davis

Bill Davis is the CEO of ABC Financial Services.

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