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Debbie Hancock IGC photo
Debbie Hancock

Debbie Hancock

Owner of Southbourne Accountancy & Business Services

Build Strong Foundations in Your Gym Business to Make More Money

Most gym owners do not get paid what they deserve. You put in the hours and energy and have a passion for fitness but you would realistically earn more if you got a “real job”. It hurts, doesn’t it?  

 

To put your life savings and hundreds of hours into your business, to see no real return. Believe it or not, tax savings alone will not change the situation. As we have seen tax rules can change in a flash, the economy can change in a flash, and you need a stable business to survive these changes.   

 

So, what do you do?  

 

On 1st December 2022, I gave a talk at the Independent Gym conference titled “Build Strong Foundations to Make More Money”. We looked at how you can start to build the foundations and look at your finances.   

 

Without the basics, the foundations, the core, how can you build a strong business that will enable you to take home more money?   

I focussed on bookkeeping, the benefits of good bookkeeping, and some actions to take away.   

 

In this blog, I will outline the basics of what I discussed but also answer some of the questions I was presented with at the end.   

Let me start with a story, in June 2020 during the middle of COVID, a gym owner contacted me. He felt lost, and unsure and did not know how his business was progressing. Everyone at that time was in the same situation they did not know what was happening, when the situation would change, how long it would last, or what to do next. Due to the climate, he felt it was a good time to take action and start to review his finances.  

 

When I reviewed his accounting software and compared these to the submitted accounts, I couldn’t reconcile them (which means I couldn’t get them to match). I looked at the balance sheet because the balance sheet can give us a good understanding health of the business; it tells us how many assets there are in terms of say equipment, bank balances, receivables (income owed to the business), and it can show us the liabilities (costs the business is going to have to incur in the future, so this could be loans from the director loans or external companies, payroll due, VAT due, etc).  

 

There were two large numbers on the balance sheet which didn’t seem right for the type of business (a medium gym). One was a large stock number, and one was unassigned assets.  I asked him what the unassigned assets are, he didn’t know. So, I said “what does the stock balance include” as it stood at £40,000. He didn’t know. Stock could include; protein shakes, protein bars, T-shirts, hats, gloves, and all the products you might sell within the business.   

 

To this, he said, “I don’t know, I don’t really sell anything, I might sell some protein bars at cost” (which is another issue….) “But I don’t have any stock”. When I reviewed the accounts I realised what had happened, the software had suggested a location for the cost and as he didn’t know the answer (which is not his fault), he accepted it and continued to accept it. The issue with this was that these costs should have been on the profit and loss and therefore during his corporation tax bill.   

 

Before me coming on board he had paid HMRC £10,000, but when I completed the adjustments to the accounts, he’d made a loss and therefore no payment to HMRC was required. This money could have been in his pocket that whole time, he might have missed out on business and personal opportunities because he didn’t have that cash available.  

 

Can you imagine handing over £10,000 of your money to HMRC when you didn’t need to? How would that make you feel?   

 

That is why at the conference I wanted to speak about how bookkeeping builds strong foundations in your business.  

You may think that it’s boring but believe me, if you get this part right everything else stems from it, you can then put more time into focusing on what you want to do within the business and your personal life.   

 

Good bookkeeping helps you to understand where you are, where you’re going, and if you have reached your goals. It helps with profit, tax planning, costs reviews, taking home more money, feeling less stressed, sleeping better, and having a good business  

Bookkeeping is taking your records, bank statements, receipts, mileage, stock, etc, and recording them in a proper format to allow the accounts to be prepared.  

 

Without good bookkeeping, this cannot happen  

 

Also, without good bookkeeping you cannot make good business decisions, you cannot rely on the information and most likely you’ll have to pay more tax or end up with fines from HMRC for submitting incorrect information.  

 

Live numbers can open doors to bigger and better things for you in your business  

 

Here are the benefits of good bookkeeping  

1) Decisions  

You will be able to make good decisions because you will have up-to-date information which means that you’re not going to miss out on any opportunities you can decide quickly, and you can decide based on solid information.

 

You can prepare forecasts which will help you to answer questions such as should you buy X, should you invest in Y, and should you take X income out of the business. Without a forecast, it will be difficult to know if these things are viable right now in the business or if you need to be holding onto cash  You can also answer questions such as can you afford to get a new member of staff right now? The member of staff should be bringing in a return on investment greater than the cost of their pay however it might take a few months for that to kick in, so can you afford that member of staff?   

 

You can begin to answer questions such as should you continue to sell products or are they costing you more than they’re bringing in?  

One gym owner I worked with has always been very on board with Xero, submitting receipts and ensuring everything is up to date, so when it came to the end of their financial year (March 2022), I was able to assist.  

 

They approached me and ask how much profit they were making at the time. I was able to tell them how much they were estimated to make by the end of the year and estimate how much tax they would need to pay.  

We were able to discuss the options and as they had the cash in the business, they decided to try and reduce the corporation tax bill by investing in equipment utilising the Super deduction that’s currently available and reducing their tax bill to near on 0.  

If the information was not up to date, I wouldn’t have been able to answer that question, I could have given assumptions, I could have given general advice, but this wouldn’t necessarily have been the right thing for them. 

2) Save Time 

At the click of a button, you’ll be able to answer all your questions. There will be no need to rush around trying to find receipts, trying to understand where you are in your business, or trying to understand the cost profile because you’ll already know it. It will be there in the accounting software; this will reduce your stress and worry especially if the HMRC inspector contacts you.  

 

You can be assured that they won’t come at a time when you have “spare” time, they will come at a time when it’s crazy busy in the gym…maybe you’ll see them in January  

By having your accounts up to date you’ll be able to quickly answer the questions from HMRC and get them off your back.   

3) Money 

It might be that you need finance in your business; having your accounts up to date and showing that you’re in control, might be the difference between the finance company agreeing to lend to you and deciding it is all too risky.   

 

When the finance company can understand your business and the risk, they may decide to offer you a lower rate of interest, as you are deemed to be in control. This will reduce the costs of your business.  

If you cannot show that you can repay the loan, they may decide to decline and that will impact the growth of your business.   

If you want to get a personal mortgage you need to be able to show valid accounts to your mortgage provider, if your accounts are a mess and months and months behind, this will take time to prepare and it might mean that you can’t get the mortgage when you need it. 

4) Budget 

To make your business work for you, you should have a budget/forecast, again these might seem boring to you however these are what will give you control over your business and help you to make decisions.  

 

It means that you won’t visit be missing out on opportunities. If someone comes along and says, do you want to do this, it’s going to cost X, you know if you have the money in the pot to do that.   

 

It will allow you to review your costs and decide if a cost is worth continuing or if it is just taking cash out of your pocket.  

Two further blogs that may help:  

5) Value 

If you can show that you’re in control of your business, that you know how much profit is making, the general growth rate, your customer retention, your lifetime value of members, and exactly what equipment is in the business, you’re likely to attract a higher valuation  

If you were to walk into a gym looking to buy, what would you think if the gym owner wasn’t able to give you any information on the amount of income coming in every month, the total costs, and therefore the total profit in the business? This would cost doubts into your mind and therefore would likely offer a lower price.

 

Now imagine someone coming into your gym and offering you a lower price than you think it’s worth, you wouldn’t be happy, would you? Having this information at hand you should be able to attract a higher price.  

 

6) Tax 

Good old tax is your favourite subject! I know how all the gym owners love to pay taxes (joking).  

 

Many people are looking for loopholes and ways to reduce their tax bill, with complicated tax planning however they’re not taking the low-hanging fruit. Why would you not make sure that you’ve claimed everything possible? Everything that’s gone through your personal account (which you shouldn’t be using anyway) and everything that’s gone through the business account? No receipt equals no claim, this applies to corporation tax and VAT, so you could have a double hit here if you don’t have the receipt.  

 

With the receipt, you’ll be able to make sure you’re claiming all the costs that you have spent and reduce your corporation tax bill. You might think “oh it’s only a tenner here and there”, however for every £10 that’s £1.90 in corporation tax that you could save.  

 

It gets even riskier as we head into 2023, from April 2023 if you earn profits of over £250,000, Corporation Tax will be hitting 25%. So every cost that you can claim will bring down that profit and prevent you from going into the higher tax bracket, so why would you not do it? Why would you not claim every single cost? With software, it is a photograph upload into the software, so make sure you claim every legitimate cost. This is easy stuff and could save you good money. 

Actionable Steps: 

  • Choose an accounting system; there’s a few out there so go research them. I find Xero easy to use and understand. Here is some more information: 
  • Connect your gym management software, if possible to the accounting software. I like to use Xero and I know that ClubRight connects straight into Xero (If you don’t use gym management software then consider it:  
  • Scan receipts/ take photos and upload them into your accounting software 
  • Have a separate bank account (this is a requirement if you’re a limited company). I use Starling which is free, or you can use something like Monzo or the traditional banks 
  • Make time every week to keep on top of your finances. Put 30 minutes to an hour in your calendar every single week to do it, it will be so much easier, it will reduce your stress, save you money and help you to sleep at nigh 
  • Connect your bank into your accounting software 
  • Regularly review costs make sure there’s nothing in there that you’ve forgotten about, a subscription you signed up to that you no longer use or something that’s not giving you a good return on investment (by that I mean it’s earning you more than it’s costing you) 
  • Start talking to your accountant more often. They are full of information and could really help you drive your business forward. So don’t wait until nine months after the year end to speak to them, start speaking to them more often, more regularly, yes it might cost a bit more money but I’m certain it will bring greater rewards than it actually costs you 

Questions from the event 

Can gyms use flat rate vat 

Yes, they can but they do need to be aware of the limited cost business, which means that if they are not paying enough VAT out of the business, they might be put onto a limited cost percentage which is 16.5%, and therefore they might be better off on standard rated VAT. I’ve written a separate blog on this so please click the link to find out more:  https://southbourneaccountancy.co.uk/understanding-the-flat-rate-vat-for-gyms-and-small-business/ 

Should a gym voluntarily register for VAT 

I have written a separate blog on this, it is very much dependent on the business but here is some general things to consider: Should you voluntarily register for VAT for your fitness center/gym? – Southbourne Accountancy & Business Services 

Starling bank how much does it cost 

Starling bank for business is free, this is for receiving funds into the bank electronically and paying suppliers however where you may incur costs is if you need to deposit cash into the bank and this is done by the post office 

Gym valuations 

Gym valuations are generally around 3 times EBITA (earnings before interest, taxes, depreciation, and amortisation). Things to consider, the gym type, location, if the buyer would keep the brand, length of lease etc. Value of gym equipment, fittings etc. Consider if your gym has a good customer lifetime value (so members stay for a long period of time and purchase additional services), great well-known brand etc.  

This is not an area of my expertise, so take a look at someone like Hilton Smythe 

How much does an accountant cost 

As expected this question doesn’t have a direct answer, it depends, that’s why it’s always worth having a conversation with a few accountants. You will want to understand the prices you will incur but also to see which accountant understands your business and that you’ll be able to work well with. An accountant will know the ins and outs of your business and its finances so it’s important that you feel you can ask your accountant questions.    

An example of my pricing, a gym with £500K turnover, standard rate VAT, 10 people on the payroll, bookkeeping, and quarterly management reviews would be around £750 per calendar month.  

A gym with an income of £120k, flat rate VAT, four employees, bookkeeping, accounts, tax, and confirmation statement would be around £350 per calendar month 
 
A bit more information on how I price: How much does accounting cost for gym owners? – Southbourne Accountancy & Business Services 

All the gyms I work with are VAT registered and using Xero, minimum fees start at £300 per month 

If you’d like some more information then please e-mail me (debbie@southbourneaccountancy.co.uk) or book a free discovery call so I can understand your business a bit more understand the goals of your business and see if I can help you. https://calendly.com/southbourneaccountancy/15mindiscoverycall  

 

 

 

 

 

 

 

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