Top 10 Mistakes Gym Owners Make

It’s that time of year again!  Time to look back on 2016, find opportunities for improvement and plan for a bigger, better 2017!   We work with many operators who are doing some really exciting things.  Some have gotten it nearly right from the get- go and others have learned from a few bumps along the way.  Getting to be at the helm of the behind the scenes team here at Gym HQ as these businesses grow and prosper is a fun, fulfilling, and exciting experience.  I’d like to pass along some of the big no-nos we’ve seen and areas we’ve noted many owners have questions.  I’ve included notes on what we’ve uncovered in businesses throughout the years as examples or steps to take on each item.  While space won’t allow for a full workup of each topic, hopefully these will give you a few items on which to focus in the coming year.  You work hard to drive revenues at for business; we want to make sure you hang on to them!  Here are our Top 10 Mistakes Gym Owners Make.

#1:  LACK OF CONSISTENT AND ACCURATE FINANCIALS

Timely P&Ls ensure that you’re keeping an eye on your margins each month so that adjustments can be made accordingly. 

What we’ve seen:

With no clear understanding of the business’s performance, it’s fairly common for an owner to overestimate performance (revenue) and underestimate liabilities (expenses).

 #2:  NO BUSINESS REPORT ANALYSIS(MISSING KPI REPORTS)

Without knowing your numbers, business analysis and action planning is impossible.

In one instance, after a single month of analysis for one business, we found:

  • High instance of client “no-shows”.  Cost to business $2100/month.
  • Average price per session was too low.  $5 below targeted margin. $28,000/month. 
  • Average trainer rate was too high.  $1 above target margin.  $3,000/month.

#3:  PAYING STAFF AS 1099 INDEPENDENT CONTRACTORS

There is no such thing as a “1099 employee”.

What we’ve seen:

Multiple employees being paid as 1099 Independent Contractors.

It’s important to do an analysis of each position from a behavioral, financial and relationship stand point.

#4:  EMPLOYEE MISCLASSIFICATION

Exempt vs. Non-Exempt Status

What we’ve seen:

Multiple employees misclassified and exempt staff being underpaid.

All job descriptions and pay should be reviewed regularly for compliance.

#5:  LACK OF HOURS TRACKING AND OVERTIME PAY

Coaches, trainers and fitness instructors are an especially touchy area.

What we’ve seen:

Trainers being paid by the session and not utilizing a time clock.

What you should know:

We’ve been very attentive to the recent case law in our industry.  There have been multiple class action law suits concerning trainer pay in the last several months:

In March, a class of more than 80 personal trainers seeking a jury trial in federal court against a Gold's Gym franchisee group over alleged unpaid overtime wages scored a legal victory in the case. The judge ruled that the defendant, Gold's Texas Holdings Group Inc., cannot use an exemption in the Fair Labor Standards Act (FLSA) to defend itself against allegations of employee misclassification should the case go to trial.

In February, Equinox Holdings Inc. settled a class action lawsuit for a maximum of $4 million brought by former employees who alleged the company failed to pay them fully or provide breaks.

In January, a federal judge in Illinois denied a group of four former Life Time Fitness personal trainers' motion for conditional class certification in a lawsuit alleging unpaid minimum wages. That case is currently stayed pending the outcome of private mediation, according to court records.

SUGGESTED METHOD: 

  • Pay hourly and required clock in/out.
  • Provisional bonus pay is okay.

#6:  LACK OF WRITTEN POLICIES AND PROCEDURES

Does your staff have a playbook?

What we’ve seen:

No existing Employee Handbook and incomplete New Hire Packet materials.

Steps to take:

Think of your Policy and Procedures Manual and/or your Employee Handbook like the playbook for your business.  They lay out expectations for team members, explain the business objectives behind those expectations, and provide the framework for how to carry them out.   Sitting down and committing your business essentials to writing is important for several reasons:

  • It causes you to really “think through” how you’re carrying out the   day-to-day. 
  • It memorializes when a policy was put in place.
  • It gets everyone on the same page, literally.

#7:  IMPROPER OR MISSING STATE REGISTRATIONS AND BONDING

Do you know the rules of engagement for your state?

What you should know:

  • Each state has different requirements for business                           registration.
  • Some states hold fitness businesses to special requirements underHealth Spa Statutes.  These states require specific language for membership and service agreements and sometimes require businesses to hold a bond (especially for presale).
  • The application of sales tax to products, memberships, and services varies by state. 

#8:  MISSING PROCEDURES FOR CUSTOMER SERVICE

Issues are inevitable.

What we’ve seen:

  • Open permissions allowing staff members to cancel agreements and invoices.  In one example we found an auto-renewal percentage s at 6% vs targeted 20% for the sales model due to sales people cancelling draft and creating new agreements.  $13,000 in draft impact + overpayment of commissions
  • Not adhering to cancellation procedures outlined in member agreement.

#9:  FAILURE TO TRACK, ANALYZE, AND ACT UPON CUSTOMER ISSUES

Where? When? Why? What’s the fix?

Steps to take:

  •  CS volume through all channels should be measured and root causes for complaints tracked:
  • Reason for complaint (staff, facility, contract)
  • Staff involved
  • ClubReady notated
  • Cancellations are categorized by type.
  •  Data is analyzed on a regular basis (calibration calls) and action plans deployed.

 

#10:  FORGETTING ABOUT PAST DUE MEMBERS

Getting members up-to-date is vital for a healthy draft. 

What we’ve seen: 

  •  Lack of system or schedule for follow-up.
  • No process for mandating contact information capture at POS

While this list may seem a bit daunting at first, you'd be surprised how much traction you can gain but simply starting with one area. Happy 2017--may your business thrive this year!