Q: The tough economy hasn’t hurt my club’s bottom line yet, but I am definitely starting to feel the pinch-and from what I’ve heard, things don’t seem like they’re going to get better any time in the near future. Is there anything I can do to recession-proof my club? And what are the best places for a health club to save money?
A: You’re already doing the smartest thing a club owner can do to beat out a recession: You’re getting prepared. It’s much tougher to ride out hard economic times when they hit you unprepared. By coming up with contingency plans before you need them, you’re ahead of the game.
Prepare for the worst. Start by working to put together worst-case scenario reports where you plan how you’d cut your expenses by 5%, 10% and 20%. This will help you have a plan in place should things get ugly, but it will also help you to identify the places in your business where you’re most comfortable cutting spending-and the places where you can’t afford to compromise.
Keep your customers first. When times get tight, people think more about where they spend their money, and you want your members to feel that your club is an expense they can’t do without. Now is the time to focus on giving your members the best possible customer service. Attend to every detail, from the cleanliness of the locker rooms to the quality of the equipment to the length of the line for the treadmill. Everything counts.
Don’t bounce a personal check. Small businesses can have a tough time getting loans even when their owners have perfect personal credit (see page 45), but iffy personal credit can make it even easier for a bank to say no to your credit application.
As for the best places to save money, I suspect that the answer varies significantly from club to club. If you can avoid it at all, don’t pinch pennies where it will create an unpleasant contrast for members-you may think they’ll never notice or care that you’ve opted for cheaper towels, but these are exactly the kinds of things that members do notice.
One mistake I see small business owners make is cutting the wrong things. For instance, many stop hiring or giving salary increases when they feel a pinch, but this can be an expensive proposition since it costs staff satisfaction and can leave you with an unhappy, overworked staff who are ready to jump ship. (And that’s not a situation that will help your members feel valued.) Also keep in mind that it’s more expensive to hire new staff than it is to retain your current staff, so don’t be quick to lay off team members you know you’ll need when things pick up. Another place to keep spending is on marketing-you don’t have to blow your entire budget on a major campaign, but don’t stop marketing-you can’t afford not to grow new memberships when times are tight.
Julia Gresham, small business consultant
Q: I’m thinking about starting a 401(k) for my staff. What do I need to know?
A: A 401(k) plan is a great benefit for your team-and it’s easier to create than many small business owners believe. Consult a brokerage firm or financial institution and ask them to prepare some options for you to consider. Be prepared to discuss how much of commitment you’re willing to make to the plan in terms of matching-some companies match dollar-for-dollar, others match a certain percentage and some don’t match at all. You’ll want to look carefully at all the options presented, and you should plan to visit at least three separate providers so that you can see a range of prices and options. (It’s smart to have an accountant or business expert look over the proposals, even if you have to pay to have her do it.) There are a lot of options when it comes to 401(k) plans, and there’s likely to be one that will suit your long-term goals.
Andrew Graham, financial advisor
Q: I have good personal credit, but I’m having a difficult time getting a business loan to add the additional equipment I need to my gym. Because I’ve relied on personal credit to get my club started, I have no business loan history, and the banks keep rejecting me. Is there anything I can do?
A: It seems pretty unfair that banks can ignore an excellent credit history because it’s personal, not professional, but it’s an annoying problem that many small business owners like you run into. One thing to consider is the size of the banks you’ve been approaching: Those big, nationwide banks may have more commercials, but your small, local bank is frequently more willing to take a risk on a small business owner with stellar personal credit than the big guys would, especially if your business is one that benefits the community. (Consider checking with your state or local board of health to get some relevant statistics to back up your business proposal if you want to work the community angle.) Also, have you contacted the local branch of your Small Business Association? They’re there to help you cope with these exact kinds of problems, and many offer loan guarantees that carry weight with banks. Worst case scenario: You can’t get a loan right now, but you can almost certainly get approved for a business credit card. Choose one with a high limit, and use it for the expansion you need-if nothing else, you’ll be building your business credit history, which will make getting your next loan a little easier.
Andrew Graham, financial advisor
Q: Our club’s personal trainers learn a unique system that our members really love-we have had a number of members say that our success with helping people lose weight is the reason they chose our club. I’m worried that our local competition will lure some our trainers away with high salaries so that they can steal our system. Is there anything I can do to protect it? It’s not anything novel in its components, but the whole package really works.
A: You can’t patent your club’s weight loss program, but you can protect it by treating it like a trade secret. The easiest thing to do is to put together a non-disclosure agreement for your trainers to sign, which prevents them from sharing your weight loss method with competitors. (You could also consider a non-compete agreement, but these are harder to enforce and likely to be unpopular with existing employees-they work best with new hires.) Talk to an intellectual property lawyer to find out what your state requires you to do to protect trade secrets.
Jennifer Aaron-Scoot, intellectual property attorney
Q: How do I decide what is a fair bonus to pay my sales team? I want to motivate them to meet their goals.
A: You’re right that a bonus can be good motivation for your sales force to exceed expectations. There’s not really a right way to calculate a bonus. The most common way is probably to pay out a percentage of profits, so you might pay a salesperson 15% of the profits they bring in for your business. If you have a lot of outgoing costs or don’t want to have to calculate profit every time you pay out bonuses, you can also pay a percentage of total revenue-though you’ll want to make the percentage smaller than you would if you were paying a percentage of profits. Finally, you could also set a cap on bonuses by setting up a structured series of flat fees: for instance, you could pay a $3,000 for every 30 memberships your sales person secures.
Julia Gresham, small business consultant
Do you have a question about your club business that you’d like Club Solutions to help you answer? Send your questions to Amy Brayfield at amy@clubsolutions magazine.com, and we may use your question in an upcoming issue of Club Solutions. Please include your name and contact information for clarification purposes only; note that all questions submitted are published anonymously and that Club Solutions will keep your information private.
