Overhead Costs Are More Than Just Rent & Utilities
As a boutique fitness business owner, the many facets of cash flow were always mysterious. I had underestimated the plethora of overhead costs. The overhead of a boutique fitness studio is so much more than just rent and utilities. I hadn’t taken into account:
It wasn’t until I struggled with my own cash flow that I realized how little I understood about this fundamental aspect of running a business. And while this didn’t take down my business, it was quite a disadvantage in my personal bank account.
When You Underestimate The Cost It Takes To Run A Business
When I first started my business, I was focused on two things:
But...I didn’t pay enough attention to the financial side of things.
I didn’t understand how much my overhead costs were, but I wanted to show how much I value my employees. I set teacher pay WAY too high which resulted in me not making any money.
Too often I was skipping my own paycheck. For years, I just thought that this was the price I paid for the freedom of owning my own business. I’ve come to realize - this is NOT ok!!
It wasn’t until I realized I was paying my teachers more than I could afford that I knew I had to make a change. But that change was terrifying! I was scared of losing some of my best teachers and risking the future of my business.
Putting The Right Plan In Action
Fortunately, I asked for help and was exposed to the 30-30-30-10 formula. This formula breaks down cash flow into four main categories:
When I compared my profit and loss reports to this formula, it became clear that I was paying my teachers more than I could afford, which was the root of my cash flow problems.
Making the necessary changes was scary, but it was also liberating. Yes, I lost some of my teachers, but the new formula allowed me room in my budget to shoot for this balance:
Management became easier, and I could once again focus on my true expertise and doing what I loved. When everyone was incentivized to be a part of the solution, the community created by my teachers modeled the community I had dreamed about when first thinking about my business.
It was a valuable lesson to learn that understanding overhead costs and the 30-30-30-10 formula is critical to running a successful business.
Since then, this formula has helped me understand my business in other ways. When the business's profit rose beyond 10%, I knew that I could afford to give my teachers a raise and that the business would be safe. And I got a raise too!
There was one quarter when my operating costs rose more than 30%. This was the catalyst for me to dig deep into an analysis of studio capacity. I was able to ask the question, how can I maximize the use of my brick-and-mortar space? I was paying for it after all. This led to an analysis of marketing tactics and beyond. And yes, this led to a revenue increase and then more profit and then another raise. YIPPEE!
The 30-30-30-10 formula was a lifesaver! It continues to provide guidance in all of my business decisions.
If you’re a business owner struggling with cash flow, I encourage you to closely examine your overhead costs and compare them to the 30-30-30-10 formula. It may be scary to make changes, but it’s worth it in the end when you’re able to create a profitable and sustainable business that allows you to do what you love.