My Thoughts on Surviving 5 Years in Business

Well, I made it.  I have officially survived 5 years of being in business.  I guess technically we didn’t open the studio doors until September, but someone had to find the location, build it out, and train everyone—and that process started months prior to our first day of operations.  Wait, the studio didn’t just build itself and everyone didn’t just learn how to teach class the night before?  Nope, sorry!  There was a lot that went into opening, including writing some very large checks.

Last week, I renewed my franchise agreement with Pure Barre for my second 5-year term.  I also renewed my lease.  And neither of these things seemed like great accomplishments, despite the fact that according to the U.S. Small Business Administration and The Bureau of Labor Statistics, only half of all the small businesses that stated in May 2012 are still open today.  So, how did I beat the odds?  I could go on and on about how business success is all about great client services and offering an amazing client experience, and yes, those things are important.  But fundamentally, there are 3 things that are required to make it to the 5-year mark in boutique fitness:  you want to have reasonable rent, you have to properly manage inventory, and most important, you can’t do it alone.

Your Rent Must Be Reasonable

This one is tricky because when you are trying to find your location, you don’t really have control over how much the rent is.  Or do you?  It’s important to remember that everything is negotiable, including who pays for your buildout.  As a new business owner, you’d like to keep as much cash as possible in your own pocket before you open and one way to do this is to have your landlord pay for all or part of your buildout.  Not the best negotiator?  Get yourself a great realtor and she’ll negotiate for you.  You’ll have the most leverage to negotiate if you’re looking to sign a long-term lease of 5 years or more.  My landlords have paid for all or a portion of the buildout for each of my studios and that allowed me to have more cash on hand before each business opened, which is always a good thing.

But how much should your rent be?  If your rent is lower than 14% of your monthly budget, then you have a reasonable rent expense.  Another way to look at it is how many days sales does it take for you to pay your rent?  If it takes you longer than the first week of every month to meet your rent obligations, your rent is either too high or you need to increase sales, which leads us to the importance of properly managing inventory or more broadly properly managing cash flow.

You Must Properly Manage Inventory

According to the U.S. Small Business Administration, the number one reason small businesses fail is because they don’t properly manage cash flow.  In my experience over these last 5 years, the only reason I’ve had cash flow issues (meaning, more cash is going out than coming in) is due to mismanagement of inventory, or buying too much retail merchandise.  Often, it’s the timing of cash coming in vs. cash going out that puts me in a bind.  That’s right!  Even I have problems!

How does a cash crunch occur?  First I have to pay for the retail merchandise (cost of goods sold).  The clothing or accessories ship (usually from California, which is about 1 week via ground shipping).  Then we have to enter everything into inventory (maybe an hour, maybe an afternoon).  Then the merchandise gets sold which sometimes happens right away if the clothing is really cute or there is anticipation built up to purchase.  But sometimes it could take as long as several weeks or a month.  Do you see the issue here?  I’ve already paid for the merchandise and by the time I sell it at a minimum I’m out that cash a week at the maximum over a month.

This is where cash management really plays a role in the financial success of my business.  If I have to pay my bills with the revenues from clothing sales, I have to make sure it’s hitting my account in time.  Also, my vendors are trying to manage their cash flow as well so they usually send me my orders at the end of the month ensuring that they get to book their revenue when they need it.  This means I usually book the expense of buying the clothing in the month before I actually sell it.  Tricky.

How do I make sure that I have enough cash to pay my obligations?  I work to keep my reoccurring membership payments for classes equal to the amount of my payroll expense and my fixed expenses, which are the expenses I have all the time and won’t typically change, like rent, utilities, insurance or carpet cleaning.  If I keep all monthly reoccurring payments equal to my most critical expenses, then I won’t run into a cash crunch when I’m purchasing clothing.

When I evaluate the financial performance of my business, I’m looking at how many clients I have on reoccurring memberships.  I’m also looking at how fast we can turn our inventory.  And I’m keeping a close eye on any expenses that are larger than usual or not typical each month.  Evaluating each of these things ensures I am managing my cash flow and it stays positive.  Because after all, cash is king.  And I’m sure my employees wouldn’t be too keen on not getting paid or my landlords for that matter.  Let’s delve into the final consideration, hiring a team to help you run your fitness studio.

   You Can’t Do It Alone     

You probably know a lot of people who mistakenly believe they are running businesses, but in fact, just own jobs.  The simple fact is: if you are doing everything and nothing happens without your direct input, then you’ve not yet built a business.

It’s important to remember that most businesses all start in a very similar fashion.  At the beginning of your business inception, all you have is an idea, a product or service, and you to sell it.  In the beginning, it’s just you.  Eventually, you’ll have to grow a team to replace yourself otherwise, you’ll risk hitting the maximum threshold of work that only one person can perform and probably physically exhaust yourself in the process.

In business school, hiring more employees to grow your business is called “scaling your company.”  And don’t let anyone fool you.  Scaling is just as risky as going into business in the first place.  So why risk hiring employees?  In the business of fitness, you don’t have a choice—you have to scale in order to survive.  Let’s review the definition of a fitness business:

Definition of a Fitness Business

A fitness business is a commercial, profitable enterprise that can be run without you so you can be a role model in the health and fitness community you are creating.   

There is absolutely no way that you can operate a fitness business, teach all the classes yourself, keep up with your clients, manage all of your finances, marketing and all the other daily activities required to keep your studio open without hiring employees.

There are no guarantees in small business ownership, but it seems your odds greatly improve getting to that 5-year mark by making sure you have a reasonable rent expense that doesn’t exceed 14% of your monthly sales, properly managing your inventory and cash flow and then finally, hiring a team of employees so you can be the leader of your fitness community and have time to think up the “big” ideas.

Did the last section just blow your mind with awesomeness?  It’s an excerpt from my book!  That’s right, I wrote a book.  And it’s being published for release by the end of August, which is probably why I didn’t pop the cork on getting to 5 years in business.  I’m just so jazzed about what lies ahead.

I’ll share the cover design with you as well as my thoughts on publishing in my next post on Thursday.  Click on the right column to join my email list to get notified when the book is for sale (I hate spam, so no need to worry about your email being used for anything beyond great She’s On Her Toes information).  On Friday, I’ll share with you a new tool I’ve been using to think up big ideas.  Because, what’s the point of thinking small?!

Until then, stay on your toes!

Why Having Multiple Revenue Streams Will Take Your Business from Good to Great

You know that you should diversify your investments.  You wouldn’t want to invest 100% of your money in one stock.  You’d want to diversify to an index or simply across multiple stocks in several industry sectors to protect your money and minimize the inevitable ups and downs of the stock market.  But what about diversifying your business revenue?  Have you thought about safeguarding your business by adding multiple revenue streams?

No.  That’s ok.  I didn’t consciously think about it until about eight months ago.  But in order to run a successful fitness studio (or business), you need to have multiple revenue streams.  Here’s why…

You will protect your biggest asset

My business is my biggest asset.  I’m guessing your business is your biggest asset as well.  And while I don’t sit around constantly contemplating the sale of my studios, it’s important to remember that they are an asset of value and a great deal of that value comes from the predictable revenues or memberships that have been sold.  I am always working to make sure that our reoccurring memberships which we call Pure Barre Platinum (12-month contract) and Open Barre (month-to-month no contract) equal my fixed costs and salaries.  The more reoccurring revenue or membership revenue that your business can count on, the more stable the business is—the more valuable it becomes.  Working to grow reoccurring revenue also has the added benefit of reducing your stress because you’ll know how much money your business is expected to earn each month and there won’t be any worries about how you’ll pay your rent or your employees.

 You can increase wallet share

I discussed this in last week’s post about the value of your distribution channel, but if you can find a product or service to sell one client, you can probably find something else to sell to them in the future—you can increase wallet share for your business.  What else could you sell to your existing client base?  For my business, it’s workout apparel and accessories.  If a client has a membership, selling them workout clothing is a great second revenue stream.  It makes sense—clients would need workout clothes to take class.  What else could you sell your clients to gain wallet share?

 A cash infusion can fuel growth

Developing an additional revenue stream could mean a cash infusion for your business that can fuel growth or allow you to reinvest in the business.  What does this mean?  For my studios, we sell student semester packages three times a year.  Since the students pay for several months in advance, that’s three times a year we receive a significant cash infusion to save for tax payments, purchase additional equipment, make studio improvements or simply add to the studio savings account.

Diversifying your business revenue will take your business from good to great and ensure your biggest asset remains your biggest asset.  But how do you develop multiple revenue streams and increase leads?  That’s what I’ll delve into in my next post—how to increase leads and ensure you have a steady stream of leads to grow your business.

Until then, stay on your toes!

Set Some Goals for 2017

There seems to be many schools of thought on the concept of goal-setting.  In The Compound Effect, we’re taught to focus on making small changes for a big impact.  I’ve also read a few articles suggesting setting goals beyond your reach is the way to go, because you’ll always be working towards something.

This post is not about the right or wrong way to set goals.  It’s simply advocating sitting down, deciding on some goals and putting a plan in place to achieve them.  I know that setting small, achievable goals works for me because now it’s propelled me to make some larger more complex goals, however, you need to evaluate what works best for you.  Remember, hope is not a plan.  You have to plan to get results and effect change in your business.

In my last post, I discussed how I set quarterly goals—three to be precise—and also establish a reward for myself if I complete all three.  So here are my goals for the first quarter of 2017:

Improve my retail marketing and develop an inventory strategy

In addition to having Pure Barre classes at my studios we also sell workout clothing and accessories.  I’ve always focused my marketing efforts on attracting clients to the studio for the sole purpose of taking class.  Well, not anymore.  I’m going to start marketing Pure Barre Winston-Salem and Pure Barre Clemmons as retail clothing stores.  So even if you don’t take class, you’ll want to come shop and check out our amazing apparel.

It’s imperative to test and measure to make sure your plans are effective.  I’m going to track my inventory turns and margins more thoroughly.  At this time, I don’t keep any core items (like that one amazing pair of black leggings) in stock.  I’ve always focused on having new things arriving all the time.  I’ll have to evaluate if it makes sense to have core items or if my existing buying strategy is working.

 Grow shesonhertoes.com

I started this blog because I’m really passionate about my businesses.  But I also want to write a book.  Blog – > book.  This one will probably take me more than 90 days, but I’m sure I can figure out how to get some more followers at the very minimum.  Wanna share this post with all your friends and help me get started?!  #shamelessplug

 Create a passive income strategy

A passive what?!  Passive income—you know, income that just shows up at your door repeatedly with little effort on your part to keep it going.  Is that even possible?  It sure is.  And if you haven’t looked into it, maybe that should be one of your goals too.

As of right now, all of my income comes from Pure Barre.  It’s important to diversify by adding additional income streams, like real estate (rent), investing in high dividend stocks or direct marketing.

Ok, so I’ve got my goals.  Time to just get crazy and get them all done!  Not so fast…I’m not going to start working on these goals until January and it will take me the full 3 months to get them accomplished.  In order to set myself up for success, I’ll have to sit down (this weekend) and come up with 5-10 strategies to get each goal complete as well as how I’m going to test and measure my progress and success.  That’s right, I’ll want to quantify each goal.  With like numbers.  Yep, actual numbers.

And now for the best part.  After I complete all of these goals, I’ll give myself a reward for the achievement.  It’s important to make the goal something that will motivate you and also make it specific—so you might want to think bigger than just going out to dinner.  By March, I’ll have accumulated a whole bunch of American Express points and I’m going to use them to purchase a bracelet.

Have you set your goals for 2017 yet?  Start small and focus on 1-3 things that you can get done in the first 90 days of the year.  Write your goals down along with your 5-10 strategies for completing them and then test and measure to see how you’re doing.  If you make goal-setting a habit, where do you think you’ll end up by this time next year?!  Something tells me you better crank up the ‘ole laptop or grab a pen and paper and get started.

In my posts next week, I want to discuss the important topics of taking risks as well as giving back and letting others benefit from your success—tis the season of giving after all!

I also want to tell you about how I stay organized with my planner, the Day Designer, as well as an update on milk frothing (seems that y’all were very interested in learning how to make great coffee at home).  My team gave me a fabulous present—a fancy milk frother—and I’ve been perfecting my use of it for the past few weeks, so I’ll share the wealth on that one.  You’re welcome!

Until then, stay on your toes!

 

No MBA, No Problem: How to Measure Your Business Financial Performance

But what is financial performance anyway?  Every industry has its own benchmarks, metrics and ratios which can tell you about how a business is performing.  For small businesses, financial performance indicates how well you are investing your capital (or cash) and generating revenues.  In addition, you’ll want to keep track of your bottom line to ensure you are generating profit, which is simply what is left after your expenses.  So, you’ve got two areas of focus, top line (revenue) and bottom line (profit).

But…really you want to be laser-focused on the bottom line because you’d always want to increase your profit and would do so even without increasing your revenue.  These are pretty basic concepts.  Every small business owner knows that you want to keep your expenses minimized to maximize profits.  No MBA required.

What gets a little tricky is the concept of cash flow.  Cash flow is the net amount of cash coming into an out of a business.  You make money, you spend it.  No problem.  Well, not exactly.

My credit card processing company has a two-day settlement period, which means I have to wait two days to get my money from credit card sales deposited into my account.  And if there is a bank holiday on Friday or Monday, then I have to wait that extra day as well.  Pretty much all of my sales are from credit cards.  Does anyone carry cash anymore?

So…what if I need to process payroll, but I’m still waiting for money?!  That’s where you have to be smart and MANAGE your cash flow.  It’s critical to understand your expenses, when they occur as well as when cash comes into your account—hopefully they match up.  If not, then you need to make sure you have a cash cushion.  How big should your cash cushion be?  It depends on how large the gap is between when you have to pay cash out and when the cash comes in.  But for me, I like to keep at LEAST enough cash around to make one payroll and both of my rent payments—just in case.

I often think that I own and operate two separate businesses.  I do own two Pure Barre studios, but what I mean, is that selling our Pure Barre classes requires a totally different business strategy than selling workout clothing and apparel.  It’s like I have two separate businesses under one umbrella.

I bring this up because when measuring the financial performance of your business, it’s important to look beyond the grand totals and actually break down each separate area of your business.  You might find one business area is incredibly profitable, but another actually sucks profit away from the first if managed improperly.  If you simply looked at the total, however, you might not realize the need to make changes to improve.

You might be wondering what makes selling Pure Barre classes so much different from selling clothing?  Cost of the sale in relation to the revenue—or margin.

For example, the cost of having a class really is just what I’m paying my teacher to teach the class.  Super high margin.  And as an added bonus, all of the clients taking the class have paid in advance of experiencing the service provided.  Love it!

However, the cost of selling clothing is a little more involved.  First I have to pay for the clothes (cost of goods sold).  Then they ship (usually from California, which is about 1 week via ground shipping).  Then we have to enter them into inventory (maybe an hour, maybe an afternoon).  Then they get sold which sometimes happens right away if the clothing is really cute or there is anticipation built up to purchase.  But sometimes it could take as long as several weeks or a month.  Do you see the issue here?  I’ve already paid for the merchandise and by the time I sell it at a minimum I’m out that cash a week at the maximum over a month.  And even after I sell, I still have to wait an additional two days to get the money into my bank account.

This is where cash management really plays a role in the financial success of my business.  If I have to pay my bills with the revenues from clothing sales, I have to make sure it’s hitting my account in time.  Also, my vendors are trying to manage their cash flow as well so they usually send me my orders at the end of the month ensuring that they get to book their revenue when they need it.  This means I usually book the expense of buying the clothing in the month before I actually sell it.  Tricky.

How do I make sure that I have enough cash to pay my obligations?  I work to keep my reoccurring membership payments for classes equal to the amount of my payroll expense and my fixed expenses, which are the expenses I have all the time and won’t typically change, like rent, utilities, insurance or carpet cleaning.  If I keep all monthly reoccurring payments equal to my most critical expenses, then I won’t run into a cash crunch when I’m purchasing clothing.

When I evaluate the financial performance of my business, I’m looking at how many clients I have on reoccurring memberships.  I’m also looking at how fast we can turn our inventory.  And I’m keeping a close eye on any expenses that are larger than usual or not typical each month.  Evaluating each of these things ensures I am managing my cash flow and it stays positive.  Because after all, cash is king.  And I’m sure my employees wouldn’t be too keen on not getting paid or my landlords for that matter.

I’m heading to one of my most favorite days of the quarter, Growth Club, on Friday.  I’ll get to spend the whole day focusing on my business and setting my goals for Q1 2017.  Next week I’ll write about the importance of goal-setting AND rewarding yourself for meeting your goals.  I’ll also discuss my goals for 2017—if I write them down, I’ll be more likely to meet them!

Until then, stay on your toes!