A Better Way To Look At Your Expenses

Our focus in Hub this month is on Finances and Insurance. Two big topics for gym owners.

This means our GamePlan and goal with all of our Hubsters this month is to help them gain a better understanding of both their numbers and their safety net should they need to be covered.

To this end, this month we’re leaning into a few people we trust for their expertise and advice. This week’s (and last week’s) blog post is written by John Briggs, founder of Incite Tax. (The next 2 weeks we’ll hear from Vaughn Vernon, founder of Affiliate Guard).

We like John because he thinks differently. He thinks for and in favor of the gym owner helping them retain as much of their hard-earned money as possible. And, after working with thousands of small business owners – and hundreds of them being gym owners – John’s got some experience in this that we would be well-served to learn from.

So without delay, let’s dive into John’s blog post on the best way to look at your expenses…

It is not surprising to me when I mention to gym/box owners that I am an accountant and a CPA, their eyes gloss over and their facial expression communicates, “say whatever you want because I am no longer paying attention to you.”

I get it. I often wonder why a bunch of boring geeky guys (accountants from the days of Adam and Eve) got together and started making up their own language that is used to talk about money. Depreciation, hypothecation, reconciliation, general ledgers, debits and credits, undeposited funds, etc.

(I will refrain from doing a comparison of the accounting language with Crossfit language.  But you probably know what I’m talking about.)

I accept accounting is boring to most.

But I also know that we can all support the idea of talking about our cash flow.

We all get that. Cash comes in your business and cash leaves your business.

Cashflow is the life blood of your business and the most successful gyms pay attention to it.

The one element of cash flow I want you to think about today is your “expenses”.

There are only 2 types of expenses. What are they? An accountant would say, “That’s easy. There are either fixed expenses or variable expenses.”

And I would say, “Wrong!”

The accounting definitions say a fixed expense is an expense that is the same amount every month regardless of income or production.  A variable expense is an expense that changes in amount based on income or production.

Ok, well… my utility bill changes in amounts every month based on how much is used. Does this mean it’s a variable expense?  Mmm, it can’t be because the amount isn’t changing based on my business revenue or how many members I have. But… it could change whether a coach flips on a light early or late though. So it’s a fixed expense then?  No because the amount doesn’t stay the same every month.

My coaches expense is variable because the more classes I have the more I pay to coaches. Or is it?  Maybe coaches expense is a fixed cost because I pay $30 per class taught or $15 per athlete in the class. And that number doesn’t change.

Hopefully you can see how we can talk ourselves in circles trying to decide if an expense is fixed or variable. And the worst part is, assuming you decide on a definition of either fixed or variable, what does that info do for you as the owner?  Can you make a better decision now because you know the expense is either variable or fixed?

Based on my experience of meeting with thousands of business owners, and the countless hours in accounting classes and continuing education classes, I can definitely say that you can NOT make better decisions just by knowing if the expense is fixed or variable.

So let’s stop worrying about it. 

The correct two types of expenses are: 1) productive expenses and 2) not productive expenses.

Now this is worth figuring out. You have cash leaving your business. Is that cash leaving for a productive reason or for a not productive reason?

A productive expense is one that allows you to produce value.

A not productive expense is one that doesn’t add to your ability to produce value.

Here are five questions you can ask about each cash outflow to see if it is productive or not:

  1. Does this cash outflow generate immediate income to my business?
  2. Does this cash outflow serve my clients?
  3. Does this cash outflow support systems that serve my clients?
  4. Does this cash outflow save me time?  (And this is assuming your business can afford to leverage money for time.)
  5. Is this cash outflow absolutely necessary to keep the business open?

If you take the time to ask these 5 questions about every single cash outflow you have, you may find that you have some not productive expenses. And if they are not productive, you don’t want them in your business.

Getting rid of not productive expenses makes doing the financial burpees so much easier!  So make the time to do this.

 

Want to take the guesswork out of your finances?  Check out Hub for only $69. No commitments, no contracts. 




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