Guest Post: The Health of Your Gym

Guest Post: The Health of Your Gym

Warning: This is going to be a hard read if you’re eating.

It’s a bit ironic that facilities for our health can pose bacterial harm if not properly cleaned. Although places like gyms are not number one on the list of highly germ populated public locations, they can be one of the most common areas to contract bacteria.

Nobody wants to think about all these microscopic germs and particles that coexist among us, but to have a healthy fitness center inside and out, you must be properly equipped with both the knowledge, products and —oh your facility is well cleaned? Excellent! Now, how much do you spread that information around? It’s very well worth turning a quick spotlight on the cleanliness of your facility. Especially when the USA ranks number 28 out of the 188 healthiest nations despite being one of the most health data indulgent countries in the world.

So it wouldn’t be such a bad idea to remind the public you care about the shape of your gym right? Right! Here’s how to take advantage of a hygienic presence.

Provide Easy Access For Sanitation

You sneeze and there’s no tissue in sight. Here’s a worse situation. You sneeze into a tissue and there’s no trash container nearby! Avoid these minor inconveniences by providing disposable soaps, hand wipes or nonalcoholic hand sanitizers and easily accessible waste bins throughout your facility so your clients don’t have to interrupt their workout for long. They don’t have to be every two feet but a good presence of complementary products will give members a good impression of cleanliness in association with your business identity.

Establish With Your Members That You Have a Cleaning Schedule

Whenever that time for the full scrub overhaul of your facility comes around—that’s the chance to show off your results. Take a picture of your pristine facility and post it online. You could even incorporate fitness into the mix because who say’s scrubbing an entire building isn’t a workout? Or that just the act of cleaning is the only sign of a healthy gym?

Share pictures of upgrades, new installations, or even a photo of yourself arriving early! Fresh products, an active mind, and up to date materials express not just a business but a business owner who knows when to make the right decision.

Signs & Reminders

One of the most common of contagions caught at facilities of mobility is skin infection. (Gross I know, but stay with me.) The reasons for these skin infections are due to the unfortunate contact with deposits of leftover sweat on shared exercise equipment and or materials. (How are you doing? Good! We’re going get through this!) The best way this can be avoided is reminders such as: “Always Wash Hands After A Workout”, “Shower after A Swim Please” and “Remember Scandals On While Showering”.

Have any of these signs in your gym? Personalize them a bit, maybe station yourself in front of it for a quick selfie on social media. The more human involvement the better. Just no sweat!

Show That You’re a Good Example

The image of the business owner and staff is everything. Clean clothes, clean hair, etc. We’re not suggesting to have your staff share their selfies all over your social media but rather to have them included within photos of otherwise stagnant objects. Set up a new flyer? Have one of your staff smiling on the side or even holding the sign. There are numerous ways to apply human engagement and interactions to health and safety measures.

One way to ensure you have someone on the floor making it happen is by setting a reminder in our fitness center software. Set up a task for the staff member of your choice so there’s no confusion on whose job it is to post selfies with the clients!

Author: Claire Scro, Marketing Specialist.

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Guest Post: Improve Your Website Ranking with Video Marketing

Improve Your Website Ranking with Video Marketing - hand scrolling through martial arts website on tablet device

<![CDATA[How to Utilize Videos to Your Advantage on Your Website

Did you know that implementing video marketing on your website will help improve your search rankings?

That’s right! Since Google owns YouTube, all you have to do is have a video hosted on YouTube and embedded on your website. This increases the likelihood of your website ranking higher and improved conversion rates. Here are some tips on how to add high-quality video content to your website to boost your rankings and conversion rates.

Focus on the Details!

Having your video perfectly filmed and edited is awesome, but the best way to get more views and to help your SEO optimization is to focus on those keywords when you upload the clip to YouTube. This means utilizing keywords in your video title and description.

Your video should have a brief title (making it easily searchable), letting your description provide more details (using those keywords to generate relevant searches).

Use Quality Keywords

When adding a title and tags to your video, are you using terms that are clear, defining and searchable?

Be sure to pay attention to the words you use in your titles – with back-linking and embedding, they will boost your website pages by having great titles and tags. You can always try out new keywords and even use https://trends.google.com/trends/ as a tool to help you word things in a better way.

Think About Your Audience

If you’re planning on creating a new video to promote your fitness or martial arts business, try to incorporate something that will both grab the attention of the viewer and encourage them to share it on social media. The more shareable your content, the more views you have and ultimately, you end up with more opportunities to send viewers back to your website/lead box.

For more information or help utilizing videos on your 97Display website, please don’t hesitate to reach out to your incredible support team!

Author: Kelsey Condon. Originally posted on 97display.com.

Bold Vision, Bold Behavior: A Success Formula for Selling Martial Arts Memberships

Words "Think Outside the Box" written on top of box drawn on chalkboard

You offer your students a bold vision of possibilities in both physical empowerment and inner strength. You teach students to boldly try new best practices. On the mat, you subscribe to the formula: bold vision through bold behavior.

Do you bring the same approach to your business development—identifying prospective students and enrolling them in your program? Or do you switch to “social selling,” which means observing social niceties versus building your business?

One way to know: Look at the results. Are you having any of these problems?

a) Not enough leads

b) Not enough leads converting to intros

c) Student attrition

Let’s discuss how you can solve these problems through bold vision and bold behavior.

Consider the student attrition problem. Could students be leaving because parent’s expectations are met or exceeded? For example, let’s discuss a case history in student retention:

The problem: A child is isolated at the bus stop and won’t interact with other kids. Your martial arts school builds confidence. In 3 to 4 months, the parent withdraws the child. Mission accomplished. But is it?

If parents see the mission is accomplished, there is no sense of urgency to continue.

What is urgency? For parents, it’s a compelling reason to act now, to keep the child in your classes. What bold vision do you offer parents?

Do you teach parents there are “levels of martial arts consciousness,” which can include:

a) The Martial Arts Mindset

b) Empowerment

c) Leadership

d) Personal Responsibility

e) Inner Strength

f) Technique vs. Power

Do you tell them (in advance) about the journey? If they leave, whose responsibility is this?

Perhaps this is an approach you can use to increase student retention; you might create a brochure to help parents visualize the journey.

Let’s consider lead generating next. Do you have enough leads? What bold vision are you using to generate leads for your Martial Arts school?

Here’s a thought: You may just use a brochure created for student retention (mentioned above) to generate leads. Mail them out and drop them off at places where parents can take one. More importantly: Your best lead source is happy parents. They are a prime selling asset. Are you maximizing this asset through getting:

1) Testimonial letters from satisfied parents?

2) Having them recommend you through social media, e.g. post a message on Facebook about your martial arts school?

Let’s say you have set an objective of 4 intros per month. It’s the second week of the month and you have one intro. Should you be concerned? After all, there are almost two-and-a-half weeks left to the month.

On a do-or-die basis, you want to stay on target of one intro a week. This calls for bold behavior―enrolling satisfied parents to be our advocates, to extend our good reputation. If the month is over, and we only have one intro, it’s too late to affect the results. We need to act now, on a “do-or-die” basis to hit our results.

Finally, let’s consider the conversion of phone call inquiries to intros.

Let’s spend a moment on examining the incoming phone call:

Social Seller

Customer: Hi, could I get some literature.

Martial Arts School: Sure, why don’t you come down for a demo.

Customer: First, let me see the literature, then maybe I’ll come down.

Martial Arts School: Sure, look forward to hearing from you.

Business Seller

Customer: Hi, could I get some literature?

Martial Arts School: Sure, glad to. Tell me, why are you calling us today?

Customer: I’m thinking of having my child take martial arts lessons.

Martial Arts School: Great! Any particular skill or character quality you want your child to develop?

Customer: He’s kinda shy at the bus stop.

In the second case, we used some boldness to learn the urgent need, and move from social selling to business selling. By focusing on the urgent need, we can increase our conversion to intros. Once they visit, we can give parents the brochure we designed with student retention in mind.

By bringing the bold vision and bold behavior that you employ on the mat to your business development, you can ensure a growing, profitable martial arts business.

About the author: membersolutions has taught selling skills for 17 years. He started three businesses and has made approximately 4,000 sales calls, selling both B2B and B2C. He invented a selling process, Urgency Based Selling®, with which he can typically help companies double their closing or conversion ratio.

4 Ways to Build Solid Customer Relationships in Your Fitness Business

Personal trainer and client smiling while discussing workout scheduling at fitness center

Are you focusing as much energy on your current members as you are with your new ones?

Having engaged, happy customers not only helps make your business more successful, but it also makes your job worth going to every day. When you open your doors on day one, it’s pretty easy to remember the important details of your first clients’ lives; birthdays, family events, career successes. As with any relationship, these are the details that form strong bonds and create customers that will stay with you for a long time.

As your member base grows, it becomes increasingly more difficult to have enough time in the day for those meaningful conversations—it’s not that you don’t want to, but if you spent even just five minutes a day with 200 members, that wouldn’t leave you with time to do much else. It is, of course, still vital to engage your customers. As with so many parts of your business, having systems in place helps to ensure that your customers know how important they are to you should be a key part of your operations.

1) Technology

Most modern technology is geared towards one thing: convenience. In this case, let technology do the work for you. If you have only a few short moments with one of your members, would you rather spend that time collecting an overdue payment or asking them how their weekend was? Assuming you answered the latter, letting your members know that they can make payments online will help you to forego the often times awkward conversation you need to have about their tardy payment.

If you have an event or class that for which they need to register, let them know that they can register from the convenience of their home. Don’t make them stand at your front desk signing forms and writing checks when you could be asking them about their goals or soliciting their feedback.

2) Go Above & Beyond

What may seem like a little thing to you may alter the entire scope of somebody else’s day. You never know how an email to one of your customers may brighten their mood. Because it would be nearly impossible to manually send an email to each and every current and former member you’ve ever known, have a system in place to do it for you.

At a minimum, make sure you’re collecting birthday information and setting an email to be automatically sent on the right day. Remember, every email you send doesn’t necessarily have to contain information about upcoming events or sales. Sometimes a simple “Happy Birthday!” will go a lot further for your business.

3) Connect on the Phone

Of course, not everything can be an email or text message. Speaking to your customers directly, even over the phone, can help cement the relationship you’ve built. If you’re worried you may be missing someone, set yourself a reminder. Assign an ongoing task for someone on your staff to do touch base calls. Most importantly, don’t wait until the member hasn’t been there for a while; engagement is proactive, not reactive.

4) Hold Member Appreciation Events

Everyone wants to grow their member base. Holding “Bring a Friend” events is an effective and often times lucrative way to hit that goal. Remember, though, you can’t grow your member base without doing your best to keep the current roster engaged and happy.

Holding member appreciation events can do just that. Host a free event in which your only expense is your time (a special group class) and only invite your current customers. Some may argue that the value gained from these events can even far exceed the cost of an event you pay for out-of-pocket, such as hiring a special speaker or trainer.

Before and after the event, give them the chance to mingle with each other. Take the opportunity to talk to them on a personal level. Cultivate a community within your business. If you host these events regularly, not only will your relationship with your customers improve but your customers’ relationships with each other will improve, too.

As always, Member Solutions is invested in your success. We offer a variety of tools that can help you systemize important aspects of your business so that you can focus on what you do best. If you’d like to learn more about how you can make the most of these tools, don’t hesitate to contact the Training and Support team at 877.600.3811 or support@membersolutions.com to schedule a training session today.

About the author: Justin Bodamer is the Product Support Manager for Member Solutions. The Training & Support team is dedicated to helping you and your team make the most of your software and services. You can contact him at membersolutions@membersolutions.com.

5 Budget-Friendly Ideas for Your Business’s Grand Opening Event

Client Question: I am opening a new business soon. Can you provide some ideas to drive traffic to my business on our grand opening day?


Chances are good that you have invested a lot of money into starting your new business. Here I’ll provide some low-budget ideas for a grand opening celebration.

1) Rent an inflatable jumpy or bouncy to place in front of your business. If you don’t have a front lawn, rent a sky tube. Add balloons, yard signs, and gigantic banners out front that read, Grand Opening—anything that will make people look at your location. Use your connections, too. Know someone that owns a hot rod, race car, or chopper? See if they’ll let you borrow it. Place it out front to draw attention.

2) Offer free hot dogs and sodas throughout your event. Have visitors go inside your martial srts school or gym to get a coupon for the free food. In order to get the coupon, have them fill out an info card.

3) Create grand opening postcards or flyers. Donate $250 to your local high school football, soccer, baseball, or basketball teams. In return, ask them to put the postcards or flyers out in the neighborhood they live in. This is an easy way to get cards out for little to no money. It’s also a win-win for you and your local schools and sports teams. They need money, too, and will appreciate your donation.

4) Have hourly giveaways for gift cards to local restaurants and movie theaters. Have visitors fill out an info card to enter the drawing for the prizes. Make sure you keep their information and enter it in your member management software so you can follow up with them about joining your martial arts school or gym.

5) Giveaway t-shirts with your business name and logo. Drive around to local businesses, parks, and supermarkets. Invite the people you talk to take a class. Have an appointment book on hand. Make sure they know about the Grand Opening celebration.

Remember that your grand opening doesn’t have to be just a one-day or evening event. Make the most of your new business opening. Consider running a one- or two-week celebration to keep the excitement and the momentum going.

Hope this helps,

Chuck


About the author: Chuck Heacock is the owner of the Fitness Compound, a training facility that provides unparalleled fitness activities including Martial Arts classes, special boot camps, personal training, baseball, basketball, spinning, Zumba, cardio, and more. Chuck is also a sought-after fitness industry consultant.

New Chip Cards, New EMV Rules for Merchants: Are You Ready?

Whether you realize it or not, a major change is happening in wallets throughout the U.S. Perhaps it’s already happened to your wallet. If it hasn’t, it soon will.

The magnetic stripe credit card you’re used to using to make purchases has been – or will soon be – replaced by what is called a chip card.

Actually, there are a bunch of names for it: chip card, smart card, smart chip card, chip and PIN credit card, chip credit card. And you’ll often hear the cards referred to as EMV chip cards, EMV smart cards, EMV cards.

E…M…what?

EMV. It’s an acronym you should know. Named after its original developers — Europay, MasterCard, and VISA — EMVis a global standard for the cards equipped with computer chips and the technology used to authenticate chip card transactions.

You see, not only is a change happening for you as a consumer (where you’ll use a chip card instead of magnetic stripe card to make purchases), there are big changes ahead for you as a merchant too. All U.S. merchants are being urged to use EMV-compatible payment terminals in their business on or before Thursday, October 1, 2015.

Why the migration to EMV technology?

EMV chip technology is proven to significantly reduce card fraud resulting from counterfeit, lost and stolen cards.

Currently, when you use the magnetic stripe card, data is exposed. It’s decrypted and then encrypted several times through the transaction. Also, data from a magnetic stripe card does not change. It’s static.

Because the data from a magnetic stripe card doesn’t change, it can be skimmed easily which leads to fraudulent use and the production of counterfeit cards.

The chip card, on the other hand, is much more secure. Data passes through the same stops as the standard methods, but data is NEVER decrypted and therefore NEVER exposed.

On top of encryption, each EMV chip card transaction is also assigned a unique one-time-use token, which is then destroyed once the transaction is complete.

Change for Consumers, Change for Merchants

Changes to chip cards mean a new shopping experience as a consumer. No longer will you swipe your card. You’ll insert your card into an EMV-compatible terminal. The card must stay inside the terminal while the chip information is accessed and updated.

As a merchant, the switch to EMV means adding new EMV-compatible payment terminals—and—complying with new liability rules.

For everyone, it means greater protection against fraud.

3 Things Membership-Based Businesses Can Do Today to Step Up Cash Flow

Money from membership billing and payment collection

With all the different types of payment processors and ways to accept payments, it’s important to figure out what is right for your business. Here are three things you should know about payment processing to help secure your business and step up cash flow.

1) Set up automatic, recurring payments.

Setting up recurring, automated payments has many benefits for your business and members. First, members don’t have to remember to pay you. Payments deduct automatically from their savings accounts, checking accounts, debit cards, or credit cards of their choice for the amount and frequency you have agreed upon.

You also can provide members with an online payment portal to update profile information, payment information, and make payments on past-due accounts 24/7. You’ll receive real-time alerts of delinquent payments so you know as soon as a payment fails. And best of all, you can harness the power of Member Solutions full-service customer call center to personally follow up with declined and disputed charges on your behalf if you choose.

Capturing recurring payments is crucial to your business. You can be away on vacation or in the middle of a family emergency, and payments will continue to go through without you having to collect or to process them manually.You will have reliable month-to-month cash flow deposited directly in your bank account. Recurring payments also help guarantee future purchasing of your members. If you do not have a way to accept automated, recurring payments, there is no guarantee all of your members will return next week, month, or year, which puts your business at risk.

2) Take credit cards at your business.

If you do not currently accept credit cards at your business, you should start. It is important to give your customers payment choices. If you are only accepting cash or checks at your business, you are missing out on immediate cash flow.

Close to 50 percent of Americans carry $20 or less each day, including nine percent who don’t carry any cash at all. “Consumers prefer to pay with plastic, debit, or credit or some other type of mobile technology,” says Greg McBride, Chief Financial Analyst for Bankrate.com.

Those with credit cards tend to purchase more as well. Setting up a merchant account for your business is easy and less expensive than losing potential clients because you cannot take their money.

3) Take mobile payments.

Whether at the gym, at a park, or anywhere outside of your physical location, you’re in business when you are able to collect and process payments right on your phone. Instead of getting a payment application for your phone that is separate from your day-to-day payment processing business, you can harness the power of a merchant account, along with a mobile application, to accept payments anytime and anywhere.

With a merchant account, you can accept credit, debit, and ACH transactions through your front desk software, through a physical terminal at your location and through an application on your iPhone or Android device. All of the payments are processed through the same account so all of your financial reporting is in one place for all of your one-time payments. Through Constellation Payments, Member Solutions’ sister company, you can set up a merchant account easily to accept secure transactions 24/7 at your location.

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Get Fit Holiday Promotions: How to Calculate Your Cost of Service

I do not know if holiday seasonal stress disorder is an actual condition, but if it doesn’t really exist, it certainly should. Every fitness business out there is being pushed this time of year to offer some sort of special or deal in order to entice people to sign up or make that first leap into health and fitness. Given that our wonderful industry also has some of the tightest profit margins, it can cause a greater amount of stress to try and exceed the expectations of the consumer.

Retail businesses can offer an 80% off discount, or a “buy one, get one free” promotion. They’ll still make a profit. But most of the fitness businesses we work with are service-based. If they offered these outrageous discounts, it would mean they would be paying people to work out. Not a bad promotion if you can swing it; “Come to my personal training studio and I will pay you to get fit!” You may get hundreds of clients, but those doors will be closed before they can even get in.

One of the best things to understand before you offer a special promotion is the cost to deliver your service. Determining your cost of service will assist you when you offer any promotions to existing and new members.

Calculating the Cost of Service for a Fitness Business

  1. Overhead Costs ―These are the indirect costs to your fitness business in providing services to customers. Examples include labor for other people who run the fitness facility or Martial Arts school, whether administrative assistants or a director of a department. Other overhead costs include your monthly rent, taxes, insurance, depreciation, advertising, office supplies, equipment lease, utilities, etc. A portion of all these costs will need to be included as part of your fees.
  2. Material Costs ― Material costs refer to stock or inventory required for the service. These are typically not huge additional costs for the average fitness business. For example, an automotive center would need the cost of brake pads and brake fluid when calculating a brake job. In our training studio, I add in the cost for our towels, laundry detergent, soap, shampoo, and razors. We purchase and supply these to our clients. They could just as easily be considered overhead expenses. In our training studio, I know that these toiletries add up to around $3 per client session, so I will use that number when calculating the cost of service and determining a promotional offer.
  3. Labor Costs ― Calculating labor costs for fitness businesses is usually pretty straightforward. Wages are typically the same per service per staff. That said, it is good to keep the average cost per service on hand and up to date. Also remember that when you give a raise to staff members, be sure to change this number to keep your costs in line.

We use our Member Manager software to calculate most of this for us with just a click of a button. I can see exactly the percentage of revenue per service that is going to labor for all staff or on a per staff person basis. Member Manager also calculates the revenue that I generate per service and pinpoints members that pay below my rack rate so I will know when it is time to raise their rates. All of these costs are important numbers to have handy when determining the discounts you want to offer. I can quickly add my costs together, along with my desired profit, to formulate an accurate price for a special.

Next week I will apply this cost of service calculation to a few fitness business models and show you some cool specials that help increase member attendance and still keep profits high.

Why Credit Card Processing Makes Good Business Sense

Imagine a brand-new member anxiously walks into your facility, eager to buy whatever is in sight. As he stocks up on gear, ready to make his purchase, you have to break the bad news: “Sorry, we only accept cash“. The member races to find some money but only has a few bucks in his pocket. He has a credit card on hand but you don’t take credit cards. Your member leaves disappointed and you lose a sale.

Is this you? Are you missing out on opportunities to grow your business? People rarely carry cash anymore; and when is the last time you saw someone with a checkbook?

To stay competitive in today’s marketplace, you have to provide what customers demand, and that includes the convenience of paying by credit card.

In fact, many people prefer to pay with credit cards to accumulate reward points and miles. Credit cards also help customers organize their transactions and provide buyer protection services, which make them a preferred payment method in many cases.

Accepting credit cards also provides several benefits to businesses:

    • Cash flow typically improves — regardless if there’s an increase in sales
    • Rather than sending an invoice and waiting for that invoice to be paid (or anticipate a check to clear), the money from the sale goes directly to your bank account
    • You decrease the likelihood that you won’t receive payment by capturing the funds as close to the time of sale as possible
    • And last but not least, an increase in sales

Many small businesses shy away from credit card processing because of the fees involved. However, numerous studies have shown that the average size of credit card orders can be as much as three times greater than those paid by cash or check. All said, the increase in sales heavily outweighs any expense incurred — making it a wise investment. Also remember … if you don’t accept credit cards, are your competitors doing the same? Or are they allowing credit cards and providing an advantage that you aren’t providing?

How to Get Started with Credit Card Processing for Your Business

In order to take credit card and debit card payments on-site at your place of business, you will need to do the following:

Step 1: Get a Merchant Account

A merchant account is a special type of bank account that allows your business to accept payments by credit or debit card. Merchant accounts also provide the ability for you to receive monthly statements detailing your business’ processing volume. To learn more about merchant accounts, visit csipay.com/overview.

To obtain a merchant account, you will need to apply under a merchant agreement with a reseller or bank. The application process is fairly simple and requires that you provide some background information about you and your business, along with some supporting documentation.

What you can expect to pay: The processing fees you will incur usually represent a small percentage of the transaction and a set amount. When shopping for a merchant account you will often see rates advertised that try to lure you in with a cheap transaction fee. Make sure you review ALL of the fees that you will pay. Many times, in addition to the low-cost fee, advertised, you can expect to pay different rates depending on whether you swipe or key in the customer’s credit card number. These fees combined together make up what you can expect to pay for credit card processing.

Step 2: Work with a Level One Payment Card Industry (PCI) Compliant provider.

The PCI Compliance standard was created by the credit card industry in 2006 as a way to prevent sensitive credit card information from being compromised to avoid credit card fraud. To comply with the requirements you need to make sure you work with a secure, certified processor to ensure the credit card information is securely stored and that the payment requests are processed in a secure manner. The processor, who provides you with your merchant account, will be able to explain this more fully and educate you on best practices when accepting credit cards at your business.

Step 3: Establish a way to capture transactions.

This is accomplished with a credit card terminal or reader. You are probably already familiar with them when you have shopped in a retail location and used your credit card. The reader can be configured to work with other software solutions, such as a front-desk system to help manage your Fitness facility. Once you start processing credit card transactions, the transaction amount will be sent to your bank account minus the transaction fees that are withheld.

There are numerous readers that exist and you can shop and select the best reader based on your needs. Some are even wireless if you want the flexibility to move around when processing payments.

Remember earlier when I mentioned that you can expect to pay processing fees when accepting credit cards? These fees will actually change depending on the manner in which you capture the credit card transaction. You should try and swipe the actual credit card whenever possible since that will help provide the cheapest processing rates for your transaction.

Getting started with credit card processing may seem a bit daunting. Don’t worry ― it is easier than you think. There are many great resources out there to help you get started. Make sure you pick a reliable, dependable partner; and in no time at all, you’ll realize the many benefits that credit card processing can bring to your business.

About the author: Steve Pinado is the CEO for Member Solutions. Recently, Member Solutions launched a new affiliate business, Constellation Payments, to deliver secure and reliable payment processing for merchants. For more information, call 888.248.7060 or send an email to sales@csipay.com.

Can You Continue to Fund Your Business Growth? A Look at Your Balance Sheet

Can your membership business continue to fund its growth? The balance sheet can answer this for you right away.

By knowing how to read a balance sheet, you’ll also be able to have a relevant discussion about it – or a discussion about the balance sheet of a business you’re interested in acquiring.

In addition, the balance sheet has two other uses: 1) Vendors and lenders can use the balance sheet in considering the creditworthiness of the business. 2) Owners and potential investors can use it to help determine the value of the business.

Let’s look at the balance sheet to get a picture of your financial health.


Getting to Know the Balance Sheet

First off, the balance sheet is a snapshot that helps you identify and analyze trends in the health of your business. The balance sheet reports on the financial condition of a business at a specific point in time.

Balance sheets are often shown with information from two or more dates, such as year-end information for the last two years.

Other key financial statements, such as profit and loss statements and cash flow statements, report financial activity over a given period of time.

Breaking It Down: How to Read a Balance Sheet

The balance sheet is made up of three parts:

  1. Assets — what you own
  2. Liabilities — what you owe
  3. Owner’s equity — the owner’s stake in the company

Take a look at the example balance sheet below. The company and amounts are fictional.

Balance-sheet-example-showing-assets-liabilities

 

All About Assets

Let’s look at the left column first titled Assets.

What are assets? Assets are the things that the business owns that have monetary value, such as equipment. The assets are listed in order of liquidity, which is how quickly the items can be turned into cash.

Here’s an explanation of each line item:

Current Assets — assets that can be turned into cash within one year of the balance sheet date. The most liquid asset of every business is of course cash.

Accounts Receivable — amounts owed to the business by customers who made recent purchases on credit terms.

Inventory — items purchased by the business for resale to customers.

Prepaid Items — items that have been purchased but will be used and expensed on the profit and loss statement in a future period. A good example of a prepaid item is paying an insurance premium six months in advance.

Fixed Assets — sometimes called Property, Plant, and Equipment (PP&E), fixed assets are not considered very liquid and are therefore excluded from the current assets. Except for land, fixed assets depreciate over a period of years. They are listed at their purchased amounts, less accumulated depreciation to arrive at their net amount. Land is thought of as never losing value and is therefore not depreciated over a period of time.

A Look at Liabilities

What are liabilities? Liabilities are what the business owes to the various creditors and vendors. Like assets, liabilities are shown in current and non-current sections.

Again, an explanation of each line item from the top:

Current Liabilities — those amounts that must be paid within one year of the balance sheet date.

Accounts Payable — monies owed to vendors and suppliers for items acquired on credit.

Wages Payable — owed to employees and taxes payable amounts due to governmental taxing authorities.

Unearned Revenue — an item that is often not well understood by non-financial individuals. Unearned revenue is money received by the business for services not yet rendered or product not yet delivered to the customer. A good example in the member-service industry is membership fees paid-in-full by a member for the next year. The money has been received but the service for which the member is paying has not yet been rendered. Examples would be a one-year Martial Arts membership or a six-month Personal Training package. The service is still owed to the customer and therefore the revenue is unearned and reported in the liability section.

What Financial Analysts Look for When Reviewing Your Balance Sheet

One of the most common ratios that analysts use when viewing a balance sheet is called Working Capital, which is defined as current assets less current liabilities. The current ratio tells the reader whether or not the company has the liquid assets required to pay its obligations owed during the next year. If current liabilities exceed current assets, the company has no working capital.

Current Ratio is another common ratio used which is current assets divided by current liabilities. Higher ratios indicate more liquid companies. It is possible to be too liquid as investors would view the company as sitting on idle cash that could be invested elsewhere.

Non-Current Liabilities — amounts owed to creditors beyond one year ahead. Non-current liabilities are also referred to as long-term liabilities. The most common long-term liability is bank loans which are paid over several years.

Owner’s Equity — this equals assets less liabilities. The equity is comprised of the investment made by the owners into the company and the earnings retained by the company (versus distributed to the owners as dividends).

When All Is Said and Done

So now you have a basic understanding of what a balance sheet is and what the terms mean.

Remember that the balance sheet only shows a snapshot of the company at one particular date in time. It’s a useful tool to ensure your business finances are properly managed — and it can help uncover the true worth of your membership business.

To get the complete story on the health of your business, you must review the balance sheet, along with the profit and loss statement and cash flow statement.