|Originally Posted: 06/01/09
All laws of predictability are now suspended in the fitness business world.
The fitness business used to be a business where you could actually project your numbers ahead for six months or a year and then come fairly close to achieving those numbers. Members worked out everyday as usual, the typical number of new sales signed up this year compared to last year, and cash flow stayed about the same with a consistent EFT draft and in-house money.
If there is one effect, however, from the current economy it is this: predictability is gone and managing cash flow on a daily basis is the new ground rule of a successful small business.
I was talking to Robert Creech, who with his brother David own and operate a number of clubs in Mississippi including a 40,000 square foot flagship. They are two of the more talented owners we see through the NFBA and they are also those rare breeds that understand the deep numbers in the fitness business and how to manage their businesses using these numbers each day.
Robert told me that his total club workouts were solid comparable to last year but it was becoming almost impossible to predict revenue over even a short period of time. Keep in mind that these are guys who look at their business a year in advance, as we all should, and make plans accordingly for reinvestment or acquisition of new clubs.
In response to this inability to know how and when the money is going to arrive, he and David are now concentrating through the end of the summer on just generating and managing daily cash flow. This lack of predictability stems from more members paying later than usual, or not at all, and fluctuations in the renewals, which arrive later than expected.
The Creech brothers also had an unusual take on their business. About a year ago, they spent over a million with Rudy Fabiano to redesign their main club. The purpose of the redesign was to create new revenue sources in the business. At the time, the total number and project seemed overwhelming. Now, according to Robert, the remodel is adding over $400,000 a year in revenue because as noted above the members are still working out in large numbers and buying a lot of in-house purchases while there, such as training, sports bar and tanning.
The significant point here is that we actually see this lack of business predictability in our own company.
The NFBA has been located on Cape Cod since January 2004, and it's predecessor, the Thomas Plummer Company, was founded in 1991. During all those years, this is the first year where we have looked at our income stream, which has existed in almost the same form for about 20 years, and not been able to accurately predict monthly income. We too are just managing daily cash flow and working with the people who owe us money to help get them stabilized as a receivable again.
The new reality is that the income is still there but for small businesses the importance of managing cash flow on a daily basis, meaning paying bills almost daily, setting aside money now to cover payroll, and hoarding cash for those big hits such as ordering new high dollar supplies, is now the business skill of the moment.
The lesson to be learned from the good operators, such as the Creech brothers, is that a modern fitness business develops more than one revenue stream. In the old days, meaning about three months ago, most of the industry lived from the proceeds of their EFT draft and new sales money. In an unpredictable economy, we now live have to seek cash flow from at least 4-5 different profit centers in any fitness business to keep the total cash flow sustainable on a daily basis. Bills have to be paid, staff has to eat and the only predictable income you have these days is what you made today.