5 Sneaky Ways You May Be Overspending

Netflix, Hulu, Blue Apron, Spotify, Joe’s Gym, Geico… it’s easy to lose sight of where you’re spending your money even in your personal finances.  So many of the services and products on which we spend come with convenient monthly billing these days.  When price tags are low for individual services, it’s easy to allow months to go by where you don’t realize you’re being billed for something you don’t want, need, and for which you are no longer contractually obligated.  In fact, multiple brands in our industry have constructed their business models around this assumption!   It’s one thing to miss a few months of your $10 music membership, but when we’re talking business expenses, the stakes are much higher.  If you’re not reviewing expenses monthly (and preparing a comprehensive financial statement), you are undoubtedly overpaying!

Here are a few real-life, new GYM HQ client examples uncovered in the last several months:

Managing Active vs. Inactive Employees on Your Payroll Platform

GHQ utilizes Paychex for its payroll clients, and the cost is factored into our payroll pricing.  However, prior to onboarding with us, many of our clients used very different platforms.  Some of these bill by the active employee.  So, if a business hasn’t been diligent in terminating staff as they leave, overpaying is easy.  Our industry poses a unique challenge as many trainers and coaches work on a very part-time basis.  It may not be noticed when they cease any scheduling, and multiple pay periods can go by with them incorrectly listed as active.  In a recent instance, the client had a very large employee base.  So missed terminations came with a hefty price tag ($1000s wasted monthly). 

Action: Research how you’re being billed and then conduct an audit to ensure your roster is accurate and up-to-date.  The importance of this spans beyond cost savings.

Insurance

Did you review your policy renewal data for accuracy?  When changes have been made in your business (e.g., employee count, number of locations, property requiring coverage, policy limit adjustments, types of coverage needed), it’s vital your insurance agent be made aware.  It’s easy to set coverage to autopilot and end up overpaying.  Also, you’ll want to make sure you get a few competing quotes during each renewal period to ensure you’re getting the best rates.

Action: Request a copy of your policies and review them against your current business needs.  If anything significant has changed, request an adjustment.  These can be made mid-policy year.  As renewal nears, reach out to additional brokers to request competing quotes.

Subscription-Based Services

When the latest and greatest in software, wearable displays, music streaming,  group X programming, or marketing comes around, your excitement can lead you to leap in hopes of a big payoff.  Once the initial enthusiasm dissipates, that new addition to your business may find itself unused and collecting dust. 

Action: Review your current subscriptions.  Are you using them?  Are you still under an obligation to pay?  If you’re under contract, make a concerted effort to relaunch the initiative or service, so you’re getting some ROI or, request the fees for early termination. Sometimes it’s better financially to pay for an early cancellation if you’re getting nothing from the subscription.

Late Fees & Penalties

If your AP process is a mess, you may find yourself scrambling to pay bills at the last minute, or worse, after the due date.  This causes you to incur unnecessary fees.  Do this enough, and they really add up.  Credit cards fees alone can lead to wasting a substantial amount monthly.

Action: Ensure you have a list of all monthly and annual liabilities along with due dates.  Review your AP process to schedule payments in advance of deadlines.  Don’t forget yearly business registrations, reports, and licensure renewals.  These generally come with a stiff fine for filing late.

Pay Plans

Is that commission structure you put in place yielding the sales you need?  Is your monthly bonus in line with how much you should be averaging for new member spend?  Are your PT packages priced appropriately to account for the session rates you’re paying trainers?  What about your salaries?  Are you top-heavy? Payroll is by far the most common area for overspending, and it can cripple a business.

Action: Review all pay plans currently in place for your business.  Compare the spends in each category (sales, PT, management) to industry or brand standards.  Analysis should be done as a percentage of revenue and in the area of sales, the cost of acquisition per new member.  These stats should be reviewed monthly.  Carefully think through any adjustments prior to deploying new pay plans.  You don’t want to roll out new structures frequently as this creates employee confusion and dissonance.

The main take away here is to keep your eye on the ball, your monthly financials.  If you don’t have a clean set of books or a clear process for review, it’s very likely you’re wasting money.  Take the extra time to ensure the money you work so hard to bring in the front door isn’t sneaking out the back.

Need help with accounting, reporting, and monthly P&L? We can help.  Email info@gymhq.club to learn more.

wastedmoney.png

Santa's Naughty List, Fitness Business Edition

Twas the night before Christmas, and all through the gym,

Memberships weren’t selling, and margins were thin.

Year-end deadlines were looming in the cold winter air,

In hopes that miracle revenue soon would appear.

You know the old poem.  And hopefully, the above scenario doesn’t apply to you.  Perhaps you are swimming in the black and 2017 has been a banner year.  Or maybe you’re hoping 2018 will be your year.  Whatever your scenario, we’d be remiss if we didn’t provide you with an annual list for contemplation.  After all, we’re fast approaching the month of months for lists, goals, and positive change.  While we can still hear sleigh bells, let’s close out 2017 with one final, holiday-themed, post.  Here are is our list of five things that will land you on Santa’s naughty list.

Not Paying Your Taxes or Paying Them Late

This one seems like a no-brainer, but you’d be surprised how often we’ve had to intervene to assist an owner in resolving taxes that haven’t been filed or paid.  Most of the time the misstep isn’t willful, but the state and federal governments aren’t very forgiving of even the most innocent of mistakes.  Late payment penalties and interest really rack up!  For example, say you file your federal business taxes three months after the April 15th deadline.  Your penalty would be five percent of the unpaid taxes for each month or part of a month your tax return is late.  If your gym owed taxes of $30,000, your fine would be $4,500!  Remember, each state also has their naughty list fines.

The worst idea for solving for a cash shortage is to delay paying the IRS the employees’ withholding amounts from payroll.  Unfortunately, we’ve seen this before after taking over the back-office for a business.  They were never able to get ahead of the sins of their past and ended up closing their business.  What’s worse than shutting your doors?  Dealing with the IRS for the foreseeable future.  This is a big no-no that can cost an owner their personal assets and often carries criminal sanctions. 

Employee Misclassification, Independent Contractors

We get it; the urge to pay out wages via the much loved and regularly abused 1099 is real.  After all, you save on employer taxes, and there are no pesky state and federal quarterly reports to file.  Heck, you don’t even need to use payroll software!  But 99% of the time this is a great way to find yourself on the wrong side of the IRS and state.  Very, very rarely are you ever legally justified in paying your team anything other than W2 wages.  See our previous article on this.  The fines are stiff and criminal charges can apply.

Employee Misclassification, Exempt vs. Non-Exempt

The guidelines on who may be compensated via salary and not track time are fairly ironclad.  Be careful here, or you’ll find yourself faced with the gift of a wage claim lawsuit.  It’s the gift that keeps on giving (hire a lawyer) and giving (rack up a healthy legal bill) and giving (pay out a huge settlement or judgment).  Read more on employee classification here.

Incurring a Ton of Debt with the Hope of Future Revenue

The tried and true advice to never to count your eggs before they hatch is timeless financial wisdom.

So is the exercise of prudence when it comes to credit cards and lines of credit. While using credit cards responsibly is a normal business practice, it also exposes you to the risk of deep debt if mismanaged.

Because credit cards are so convenient to use, many new business owners fail to see that they're compounding their expenses and incurring interest charges every time they leverage their credit line and don't pay off the full balance each month.  See more big money mistakes like this here.

Trying to Do It All

The greatest mistake business owners make is believing they can do it all by themselves. While you can do almost everything, you end up doing almost everything poorly. Just like any other person, you likely have one or two natural talents. As an entrepreneur, it is your job to identify those talents and focus on them to your fullest. Surround yourself with people who are strong where your talents are weakest. Great companies are built on the foundation of exploiting a few strengths, not on trying to be masters of everything. 

 

Need some help?  What’s on your help wish list this holiday season? Now is the time to make a change for 2018.  GYM HQ can take many necessary, but very time-consuming tasks off your hands next year.  Imagine having payroll, accounting (from all your financial reports to payables), business registrations, HR documentation and compliance, member issue resolution and late membership dues management all taken care of by your new back-office, GYM HQ!  We can be here for all of that and much more—like making sure you don’t make any of the mistakes on this list!  Visit our site today to learn more!

Naughty-Santa.jpg

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!

 

 

 

10 Tax Time Tips for Your Fitness Business

With April 15th fast approaching, now is a great time to start the prep work for filing your business taxes…for 2016.  If you’ve waited until now to start preparing for your 2015 filing, you’ve already missed the proverbial buck.  As with all other aspects of your business, organization, proper planning, and consistency are hugely important in making tax season as painless as possible.  Follow the tips below to ensure that next year’s filing is smooth sailing.

1.       Prepare early.  Not surprisingly, this ranks top on our list.  Procrastination will not serve you well when it comes to ensuring the documentation needed for your taxes are in order.  Late filings and amendments can cost time and money.  When you fail to file a Form 1120 (due March 15th for corporations and April 15th for LLCs), the corporation is charged a monthly penalty that's equal to 5 percent of any income tax that remains unpaid.  In addition to the penalties for failing to file, the IRS can charge the corporation a separate penalty for paying taxes after the filing deadline. This penalty will increase the amount of tax that the corporation owes by one-half of a percent for each month it remains unpaid.   

2.       Be consistent.  Ensure that your accounting and bookkeeping practices are accurate and occurring on a schedule.  Make sure your expenses are reconciled, tracked and supported with receipts.  At a minimum, spend time at least monthly to review your accounts—receivable, payable, credit card transactions, cash flow, etc.  You also want to ensure that all expenses and revenues are booked according to the same system each month.  Keep a depreciation schedule for all major asset purchases.  Make sure the schedule includes:  date put into service, original cost, accumulated depreciation up to this tax year, business use percentage (if applicable), recovery period of the asset.  You’ll also need any Section 170 Expense taken in the first year of service.

3.       Make sure you have W9s on file.  If you’re paying anyone as an independent contractor and their total payment exceeds $600 (or the payment is for legal services),  you’ll need to provide them with form 1099-MISC by January 31st.

4.       Take advantage of your liabilities.  If you’re on an accrual basis, make sure you accrue liabilities that occurred within the fiscal year to the take advantage of the tax deduction.  If you’re on a cash basis, make sure you stroke a check for any outstanding liabilities prior to year-end to reduce your profit.

5.       Be mindful of state apportionment.  Have locations in multiple states?  Then you need to prepare for state apportionment.  Make sure you’re dividing your revenue, expenses, and payroll appropriately throughout the year.  

6.       Don’t forget about the ACA reporting requirements.  Do you understand what your business’ requirements are under the Affordable Care Act (ACA)?  Reporting was due to employees in January.  The filing due to the IRS has been extended from March 31st to June 30th (if filing electronically) and from February 29th to May 31st (if not filing electronically).  Penalties are in place this year for failure to report or provide adequate coverage.  Make sure you look into the Small Business Health Care Tax Credit which is in place to help small businesses with low-  and moderate-income workers afford the cost of coverage.

7.       Avoid payroll mistakes.  Payroll tax compliance is something that many small business owners struggle with. The financial consequences of getting it wrong aren’t pleasant either. Statistics show that approximately 40 percent of small businesses incur an average of $845 per year in IRS penalties (not to mention issues with the states in which they operate). To make sure that your payroll taxes are deposited correctly, consider outsourcing your payroll function. The benefits often far outweigh the fees.

8.       Ensure your SUI rates are accurate.  Each year, the state(s) mail out a new unemployment experience rating for the coming year.  Make sure you update yours with your payroll team.  Failure to do so can result in under paying and receiving a nice bill, with interest, or overpaying and jumping through the hoops required to get a refund back from the state.

9.       It isn’t only the IRS.  The IRS is only a piece of the tax puzzle.  You’ll want to be mindful of other tax obligations like property, payroll, local taxes, excise tax, self-employment taxes, etc.  Failure to meet deadlines can result in some serious fees. 

10.   If you’re not prepared, file an extension.  If you haven’t heeded our advice and find yourself staring down a rapidly approaching deadline, probably the easiest way to avoid late-filing penalties is to file Form 7004 to obtain an extension of time to file. If the 7004 is filed by the original tax return filing deadline, you'll have an additional six months to file the Form 1120. However, the extension doesn't give you more time to pay the tax you owe, so it's best to estimate how much tax is owed and pay as much of it as possible by the original filing deadline to minimize late-payment penalties.

 

The beginning of the year is a great time to do a vital statistics check on your business.  Many of the practices required to satisfy Uncle Sam will benefit the overall health of your business.  So consider each of these pointers as time well spent.  Happy tax planning!