Mastering Financial Planning for Your Gym: The Power of Knowing Your Numbers

Introduction

‍The journey of opening a gym or fitness studio is filled with excitement and fun, especially with designing and building your space. However, the backbone of any successful business venture is its financial health and planning.

For gym owners, this means not only having a passion for fitness but also a keen understanding of the numbers that will drive their business forward. This article explores the essential financial considerations every gym owner should make before opening their doors.

The Importance of Knowing Your Numbers

‍Understanding the financial aspects of running a gym is crucial for several reasons. First, it allows you to set realistic goals and benchmarks for your business. Knowing your numbers helps in identifying what success looks like in tangible terms, be it in memberships, revenue, or profit margins.

It also empowers you to make informed decisions, from pricing strategies to investment in equipment and technology like gym management software and gym access control systems.

Moreover, a solid grasp of your financials is essential for securing funding or investments. Lenders and investors want to see that you have a clear understanding of your business model and its profitability. This includes detailed projections of revenue, expenses, and cash flow.

Be realistic, plan for the worst, and expect the best

‍One of the most critical aspects of your financial plan is setting realistic expectations for membership numbers and class occupancy rates. These projections should be based on thorough market research, including the size of your target market, competition analysis, and understanding of your unique value proposition.

It's essential to balance the desire to maximize memberships and class occupancy with the need to maintain a high-quality, personalized experience for your clients. Overcrowding can lead to dissatisfaction and churn, whereas underutilization of space and resources can erode your profitability.

Predicting Member Numbers

There is a physical maximum member constant on any physical space, you could easily as a rule of thumb work to a maximum of 2 members per square meter of gym space. This formula in my experience gives you the maximum possible number of members you could manage in your gym space.

However, it's important to note that different size spaces attract different volumes, typically due to differences in business models. Smaller spaces tend to be more boutique premium offerings and larger spaces cheaper budget gyms and that can have an impact on this rule of thumb.‍A good guide to maximum (not actual) membership estimation could be:

• Gyms up to 400sqm: 1 member per square metre
• Gyms between 400sqm - 1,000sqm: 2 members per square metre
• Gyms larger than 1,000sqm: 3 members per square metre

Suffice it to say if your Gym is 300 sqm and you're predicting any more than 450 members you will more than likely be sorely disappointed. This is not to scare you off opening a gym, but this serves to better understand the prices you may want to set for your memberships and services you may need to offer to achieve the prices needed to turn a profit.

The Class Occupancy Problem

‍It's a common problem and one that may be near impossible to ever fix, but we must accept that the occupancy rates of classes during nonpeak times will always be relatively low. Whilst you might achieve near 100% occupancy in your peak times (Mon/Tue/Wed after work), your other slots will not be the same. It's important to be realistic with these numbers when forecasting trainer costs and class package revenue.

Creating a simple monthly cash flow forecast

I’ve seen some pretty creative (and crazy) financial models in my time. Inertially the nature of some business owners is to try and control and predict outcomes by building a 5-year or even 10-year forecast for their gyms.

In reality, even the best business operator will not understand completely what will happen until the doors open and things get underway. This is why a simple understanding of cash flow in my opinion is more valuable than any long-term financial plan in the short term.

This will allow you to calculate your cash flow break-even point factoring in all costs, including finance and leasing costs in a simple way, giving you insights into the mix of products and services and volumes you will need to hit each month to cover costs. It allows you to play with various expenses such as marketing costs and understand how much you have (or need to have) to spend to drive growth.

We’ve put together a simple cash flow forecast for you. It will allow you to quickly build a snapshot of what a typical month might look like for your business but inputting some simple estimations. It’s suitable for any currency or country and you can download it free here.

‍Conclusion

‍The success of your gym or fitness studio extends beyond the quality of your equipment or your expertise of yours. It rests on a foundation of solid financial planning and a deep understanding of the numbers that drive your business. By comprehensively understanding your expenses, preparing for unforeseen challenges, and setting realistic projections, you can position your gym for success. Remember, in the fitness industry, your financial health is as important as the physical health of your clients. Stay informed, stay realistic, and plan meticulously to turn your vision of a thriving gym into reality.