About two years ago I hit a personal best on my 1RM back squat. The next day I went hiking with some scouts and was sucking wind within the first 10 minutes of the hike.
Realizing I was strong (relative), but had no cardio to speak of, I stumbled upon CrossFit. I rolled my own at my home gym for a while, and then joined an actual CrossFit gym a little while later. Julie (my wife) joined right along with me.
I’m pleased to report that my 1RM back squat has increased, and my cardio has gone through the (it’s all relative people!) roof. In other words, I’m stronger, faster, more flexible, and more coordinated than I’ve ever been.
Four or five days a week I walk into the gym and let our trainers teach me how to be more fit. You guys can coach someone to an explosive snatch, a lightning-fast Fran time (mine is 3:27, I need to learn that butterfly pull-up), and a perfectly-executed muscle up.
Now, I want to turn the tables a bit, and teach you CrossFit owners how to be financially fit. Let me highlight a few mistakes I see being made regarding your cash flow management. I want to leave you financially stronger, faster, and more flexible.
The overarching principle, is to recognize that your finances are vital to your business! I reached out to Ben Bergeron of CrossFit New England (I’m a big fan), who had the following to say:
“Having your books in order is a top priority for small business owners…[outsourcing allows you] to focus on the true factors that determine our success; customers, employees, and growth opportunities.” – Ben Bergeron, CrossFit New England
Ben is a big advocate of outsourcing those things in your business that keep you from focusing on the business. I couldn’t agree more. However, if you can’t (yet) outsource your bookkeeping, you can certainly make them a top priority, and avoid the following five mistakes while doing so.
Mistake One: You Intermingle Your Business and Personal Finances
Keep separate bank accounts for your personal and business use. Don’t intermingle the two. It makes tax time horribly, horribly inefficient and probably pretty inaccurate. If you mingle business and personal expenses, and end up being audited, you will hate your life.
Another reason to keep your business and personal finances separate is so you can know how the business is even doing! Are you having to heavily subsidize its operation with personal money? Are partners having to toss in a few hundred dollars each month to cover “this or that” on a regular basis? Are you profitable? If you don’t separate your finances, answering those critical questions is next to impossible.
Separate your business and personal finances immediately. Separate bank accounts, and separate tracking.
Mistake Two: You Make Spending Decisions Based on What’s in the Checking Account
I know how this goes because I made the mistake of running my software business the same way. You look at that big checking account and you think, “Yeah…we can buy another rower.” Or maybe it’s, “No way can we buy another rower! Or paper towels for the bathroom!”
Do you need to hire another coach? Can you afford it?
Are you wanting to build out a complex membership management/billing/training system? Can you afford that?
The sound system is broken. Can it be replaced?
Looking at that big (it’s all relative) pile of money in your checking account and asking yourself if you can afford something…you’re asking an impossible question, because you don’t have proper insights into what expenses have already “spoken for” that money.
In other words, you may have $9,800 sitting in your checking account and you think, “Well, yeah, let’s get a new rower.” Before you realize that um, taxes are due. Not only can you not afford that rower, you suddenly can’t afford those paper towels.
We teach our small business clients this simple question: “That money sitting in my account, what does it need to do before more money comes in?” Answer that question every time you’re “doing the books” (see Mistake Three) and you’ll find clarity only found at the end of a 20-rep squatting session.
Mistake Three: You Don’t Track What You Spend
You have no idea if that member management system is actually worth it, because you aren’t tracking what you’ve spent on it, and how that’s translated into more revenue.
You don’t know what you spend on equipment maintenance, because you haven’t bothered to record when you spend money on fixing the old stuff, or buying something new.
Those t-shirts you bought. Were they worth it? That bowling event you planned for your members, how much did it actually cost, all-in?
You write down your workouts, right? And you have your members record their workouts, right? Recording your spending is just as important. Just like a recorded WOD, recorded spending gives you a historical record that provides information for you down the road as you begin to proactively plan what to do with your money.
Track what you spend. But don’t fall prey to Mistake Four in your pursuit.
Mistake Four: You Use Quickbooks to Manage Your Books
The beauty of a CrossFit gym, is that it’s simple. Oh so simple. I love everything about it. You’re a cash-based business, you carry limited (if any) inventory, your monthly revenue is predictable over the short term, and you don’t have to worry about invoices or purchase orders.
In other words, as a CrossFit affiliate, you very likely don’t need Quickbooks. It’s overkill and will only confuse and de-motivate you.
Use YNAB (pronounced why-nab), of course 😉
Mistake Five: You’re Reactive to Cash Crises, Instead of Proactively Deciding What’s Important for You and Your Gym
The rower breaks, so you pay for the repairs on a card (probably your personal card, see Mistake One). You decide you want to throw some kind of “End of the Open” event for your members, so you buy some food, maybe rent some tables and chairs, and have a great time. But you didn’t really have the cash to float that, so you put it on the card.
Your equipment is in such disrepair that prospective members are a bit turned off by the first impression you’re giving them. But you can’t buy new equipment because hey, it’s expensive. You grit your teeth and grab the duct tape (I made up the part about the duct tape).
Instead of waiting for these things to inevitably happen, I want you to look at that big pile of money in your checking account, and answering that question of “What should this money do for me?” I would encourage you to look AHEAD and be proactive about these expenses.
For example, let’s say you want to throw an annual member appreciation barbecue. You’ll need tables, chairs, and food. Maybe the whole thing will cost around $600. You’d like to do the event every April – which means you have a year before the next event. If you set aside $50 per month for the next year, you’ll have the money ready when it’s time to buy the burgers. No crisis, no credit card – no worries!
Look Ahead for those Larger, Less-Frequent (but Significant) Expenses and break them into manageable, smaller monthly amounts to save for. A few examples: taxes, annual membership events, CrossFit Open extras, equipment repairs (just guess on this, and be a pessimist about how long the gear will last), extra holiday spending, and perhaps the summer drought, where people freeze or cancel their memberships.
Small businesses fail because they manage cash poorly. You don’t want a financial DNF for your gym – so take care of your cash!
While I wrote this article specifically for CrossFit gym owners, these principles are universally applicable to any business owner. I’d encourage you to take our free 9-Day Small Business Cash Flow course. You’ll be able to ensure your business finances stay fit for the long haul.