299. Reducing Expenses since we’ve already pushed up revenue, parking lot problems, studio endurance

What if owning the land beneath your business was the key to its survival? Join us as we unravel the intricacies of strategic financial planning for gym owners facing tough times. With the expertise of a newly appointed CEO known for his accounting prowess, we explore cutting expenses and the emotional weight of breaking tough news to staff. Delving into the gym's storied past, we consider the possibility of corporate intervention and how that might reshape the franchise landscape. As the gym navigates precarious financial waters, we offer insights on prioritizing essential costs and envisioning a future where the gym stands its ground.

Faced with the sudden loss of essential parking due to nearby construction, we're forced to rethink our approach to ownership and control. Drawing inspiration from McDonald's successful real estate model, we consider drastic changes like halting inventory purchases and reimagining our business strategies. Explore with us the potential to transform challenges into opportunities, whether by enhancing the current gym structure, seeking new ventures, or creatively turning expenses into revenue. As we explore these avenues, transparency and leadership take center stage, with an unwavering focus on ensuring the gym's survival and success.

Chapters

• 0:32 Strategic Financial Planning for Gym Survival
• 7:46 Optimizing Business Strategies for Gym Survival

Transcript

Speaker 1: 0:32

All right, all right. Here we go on a Friday. I just recorded a whole episode and my car hijacked it with Bluetooth three seconds in, so I'm going to rerecord this thing. So it's only been five days since the staff found out about the tough news and there haven't been a whole lot of follow-ups since then. My guess is they're communicating amongst themselves the good, the bad, the ugly, and that's fine. I told them this news is probably like shaking up a snow globe. They don't have to have a crystal clear picture of even what they're thinking, feeling, what they need to be, even like thoughts about their thoughts. It's okay if they don't know what they don't know. I'm not going to force them to have a reaction on the spot. And so there haven't been a whole lot of them reaching out to me since then, and that's okay. And so there haven't been a whole lot of them reaching out to me since then, and that's okay.

Speaker 1: 1:18

Right now, in my head, I need to start figuring out what can I reduce so that the gym can have as long runway as possible, whether I'm the owner of it, corporate takes it back or the doors close, I don't know. But my goal is to shrink expenses because right now I've done everything I can to increase revenue and I've seen what that looks like on the peak months and I need to now see the other side of the coin. How can I reduce expenses? So a mentor that I caught up with he said hey, print off three months of expenses or bank transactions, you know, redact or blackout all of the times you get paid or the gym collects money and start highlighting hey, this is something that the gym must have for the doors to stay open. Like the rent bill, like the SBA loan, kind of um, kind of the rent bill, I guess. But like the utility bill, you need the utility bill so that you can do this. Like you have to pay the internet bill, like my other things in between. Like, do you really need chips and protein powder to then resell? Well, no, we don't have to sell that. So maybe we just go without that for a while. Payroll you got to have payroll, but what else can we chop? What can we slash? Let's go to bare bones and see what would that even look like. Could that help? Maybe, maybe not, I'm not sure.

Speaker 1: 2:37

And then, after meeting with my manager today, I'm catching up with corporate and one thing I am grateful for with this whole merger the new, the new ceo, who's now the the ceo of our brand and the ceo of another brand. That's now like part 50 50 with the brand that I bought into. He's very accounting, profit and loss operations tactical in the weeds type. I think the former or the before the merger the founding CEO is very much into fitness, health, nutrition, social networking. But I don't think I could be wrong. I could be totally wrong. I don't think he's as good reading profit and loss statements, assessing payroll costs, figuring out how to run the kind of like the COO of a business. If you gave him an accounting sheet, I'm not sure he can read it very well. Not dissing him, not praising him, but I just don't know that area. But when I talked to the now CEO, who is the new guy of everything, he's very much like hey, this area looks a little bit high, this looks a little bit low, based on the boutique gym fitness space, and so that's really good. I think you need someone who's able to get in the weeds for a franchise that has ballpark 100 units, trying to think of what else.

Speaker 1: 3:51

So this upcoming Saturday we have instructor training. It's kind of weird that I know and my management team knows the state of the business and the instructors don't know. That's a little weird, but we're going to act as if the studio is going to be open for the long term. Next week we have the 10-week party and it's weird because members don't know, but my management team knows where we're at and we're going to act as if the studio is going to stay open for the long run Because we're a top five Out of our 50 studios. We're in the top five for revenue pretty consistently and our rent is not crazy. I mean, it's up there but it's not crazy high.

Speaker 1: 4:29

And so if our studio the story behind my studio, it has been around for maybe 10 years or maybe nine years actually Then got hit by COVID, it slumped down. It was a low performer. Then the people I bought it from they turned it around into this big success story. It was like the 30th performing club and now it's like the top five. So it's like this big recovery, rebound American dream story. And so to see that that top five collapse in less than a year may take a hit to the franchisee morale of hey, was this just smoke and mirrors? This is a false hope. Is this really a bad business model? Was this person that sold the business? Were they just the Midas touch with the golden hands? They left and now, like as a brand, we're struggling because we don't have our beacon of hope.

Speaker 1: 5:17

Owner. Those are, I mean, those are all possibilities. I don't know if any of them are real, but I think there's an incentive for corporate to keep my location alive. Now it might be that Nathan doesn't make it, but corporate takes over the studio. That's possible. I've noticed in other brands ballpark roughly like looking at Anytime and Snap Fitness pretty big brands in the more affordable gym space, ballpark they buy about 10%, roughly 10%, of struggling locations. Corporate ends up buying, neither keeps them or they turn them around and resell them to the open market. Now, there's a lot of risks, as you can tell, but they sometimes will do that.

Speaker 1: 6:02

However, if they were to buy my studio, I bought. I've told you guys I bought mine for about 500,000. There's about 420,000 in debt remaining to buy it for me. They need to pay 420 or they would offer me something less. Then technically it becomes a short sale and then I'm not allowed to sell it unless the bank approves it. So corporate could offer me a hundred thousand dollars, I could say, cool, get me out of here. But if corporate or if the bank doesn't give the thumbs up, it doesn't matter. If I like it and corporate likes it, my lender has to agree to it too. So I don't know We'll see what ends up happening there.

Speaker 1: 6:37

Right now that we're having to squeeze and pinch every expense and go to a zero based as possible, so off the bat, if I drop my owner's salary, that's that's something. Um. If I remove my salesperson, that removes something. Um, if I were to, if I have like a zero ads budget because summer is historically slower anyways, I mean that's something too. Uh. So there's a lot of things that we could end up doing. I really don't know what's gonna end up happening, but we could reduce our losses by about half. However, part of that means I get paid nothing, and so that sucks. Um time energy like you get paid for nothing, and so, like, right now I just drove to the gym, it cost me money in gas and vehicle wear and tear and I get zero, and I would get zero compensation.

Speaker 1: 7:26

Moving forward like that sucks, uh, but right now the goal is to extend the runway. The studio is struggling. Our goal is to extend the runway. The studio is struggling. Our goal is to not maximize profitability, optimize revenue. The objective is to extend the runway and that's a startup term. So that's what we're going to do right now Extend the runway.

Speaker 1: 7:46

I think one actionable thing is we're not buying more inventory no more protein, no more chips, no more clothing. We're not going to be selling it either, but we're going to be having less stuff running through the expenses, less stuff running through revenue. We're going to see what we can get by on as few expenses as possible. So that's the game plan. That's the run we're going to go with for now. We're going to go for it, and it's kind of crazy.

Speaker 1: 8:12

One thing I didn't really expect I just pulled up the studio across the street. We've had like fantastic parking and they just took out like 60 parking spots. They're going to put up a new like Chipotle, so that's kind of rough. Parking is a little chaotic right now. Um, you never have full control over your business unless you control the real estate and the business and the license. Control over your business unless you control the real estate and the business and the license.

Speaker 1: 8:41

So over time, I'm liking the idea of an independent ownership model. Where I own the dirt and I own this, it makes sense why McDonald's wants the owner or a corporate to own the dirt, the parking space and the business, because you can control that Right now. If we were like a McDonald's and they just blocked off our drive-thru, we now lost a lot of revenue and for us, we probably won't lose revenue from it. But what the heck is going on? So I don't know. I'm exploring alternative options. I don't know if improving the gym is the solution. I don't know if improving my job is the solution. I don't know if getting a second job is the solution. I'm trying to be creative along the way. How can I turn expenses into revenue opportunities, and marketing may be one of those things. I'm not sure yet. I don't know. So today's going to be interesting. We're going to rock and roll, we're going to do the best with what we've got, we're going to lead the charge, be open with what we know, open with what we don't know, and we're