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.

Profit & Loss Statements: What Every Business Owner Should Know

As an owner or manager of a business I’m sure you have heard of Profit and Loss (also known as P & L). But do you know what it is and understand its components?

It”s important to understand in order for you to talk knowledgeably with your managers, bankers, tax advisors, and investors. In this article, I”ll show an example of a P & L Statement and explain what the terms mean.

A Profit and Loss Statement or Income Statement is one of the documents that show the financial condition of a company. Other documents include a Balance Sheet, Cash Flow Statement, and the Statement of Retained Earnings.

Here is an example of a P & L and an explanation of each item:

ABC Example Company, Inc.

Profit and Loss Statement
For the Year Ended December 31, 2011

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The first section of the Profit and Loss Statement is the heading which shows the name of the company and the period of time for which the statement relates. Every Profit and Loss Statement is for a specified period of time. It is usually for one year but could be a week, month, quarter, or any other time period.

The first line of the P & L, after the heading, is Sales, or Gross Revenue. This is all the money reported for sales of products and services. The term gross is used in business to mean that the item is shown prior to deducting certain expenses.After expenses are deducted, the term used is Net.

Next are Discounts and Returns which must be subtracted from the sales to arrive at Net Revenue. On occasion, you will see these first three lines shown as one line which would read as Revenue Net of Discounts and Returns.

After that comes the Cost of Sales. These are costs which can be directly traced to the products or services sold. Examples of such costs are the purchase costs of items sold, labor associated with making the products or providing the service, and sales commissions.


Net Revenue Less Cost of Sales arrives at Gross Profit or sometimes called Gross Income.

Again, it is called gross because there are still some expenses that must be deducted to show the net profit or net income. Those expenses are called the Operating Expenses. These are the expenses that cannot be directly traced to the products or services sold. Occasionally you will hear these costs be referred to as Overhead Costs. Examples of operating expenses are owner and management salaries, marketing costs, utilities and the like.

After the operating expenses are deducted, we arrive at *EBITDA. This is an acronym for Earnings before interest, taxes, depreciation and amortization. EBITDA is a key indicator for companies that have a large amount of debt and/or property, plant, and equipment (fixed assets). This line shows the bankers and creditors how much money is available to run the business going forward. EBITDA is sometimes referred to as operational cash flow. This is generally not a line that you would see on the P & L of a small company with little debt or fixed assets.

Interest and taxes are self-explanatory. Depreciation is the term used to spread the cost of fixed assets over a period of several years. For example, a building is purchased for $500,000. Rather than showing this cash outflow as an expense in year one, the building would be placed on the balance sheet as a fixed asset and depreciated over say 30 years. So the depreciation expense that you would see on the Profit and Loss Statement would be 1/30th of $500,000, or $16,667.

Amortization is a similar term used to account for items over a period of time greater than one year. It usually refers to loans.

After interest, taxes, depreciation and amortization are deducted, we arrive at the last line which is called Net Income. This is sometimes called the bottom line. We started with Sales, which is the top rung of the company ladder, and as we deducted certain items, we descended the ladder to arrive at the bottom rung or bottom line.

I hope this brief explanation of a Profit and Loss statement helps you in all your future discussions regarding your business’s profitability.

Of course, should you have any questions, feel free to contact me at mconnor@membersolutions.com.

About the author: Michael Connor is the Director of Finance for Member Solutions. He is responsible for the financial reporting and budgeting process for Member Solutions as well as overseeing all cash flow and managing banking relations.

Opening Another Business Location? Consider This First

Client Question: I’m thinking of opening another location. What are the most important considerations to keep in mind before taking this big step?

Before taking this step, Martial Arts business owners must take a very serious look at their operations. They must ask themselves if the first location is built around them or if it’s built around systems. If the answer is that it is built around them, then I would suggest making some changes before opening another location … otherwise, the level of stress and burden does not simply double, it goes up exponentially. Additionally, if the business is built around “you”, it is kind of difficult to be in two places at once and you will either end up with one location failing or possibly both!

In order for Martial Arts school owners to make the jump from one to multiple locations, everything must function as a business … and a “successful location” does not mean it functions as a “business.” Let’s look at this a bit further …

FIRST THINGS FIRST

Michael Gerber, in his book, E-Myth Revisited, does an excellent job of describing how many people build themselves a job but not a business. I highly recommend this book to everyone considering multiple locations. If you are unsure of the answer to the question about your business being built around you or around systems, then I will simply ask you this … Can you leave your business right now and have everything still operate essentially the same with you not there for a day, a week, a month?The answer to this question (if you are honest with yourself) will tell you where you are.

Some may say, “Well, I would need another instructor or sales person if I wasn’t there” … and that’s fine … so if I put another instructor there, would your operations continue? Or do operations rely on the position being filled by you? If it relies on you, then it’s not a system, it’s your job, but there is hope … you can start today and build systems so you can step away or even promote yourself out of being tied down to the business. This opens up a tremendous opportunity for growth much like franchises do for their franchisees.

I am in a position where I can answer this question with an absolute “YES, I can step away and leave.” In fact, as I update this article, I am sitting under a cabana in Mexico with my wife and friends about 10 ft. from the pool and maybe 50 yards from the ocean. I say this not to brag, but as evidence or proof that it is possible – because, at one time, I was one of the WORST offenders of micromanaging and having the attitude of “I have to do it all because I can do it better”. Back then I was chained to my business and limited myself in many ways. Some may then point out that I”m working in Mexico, but that”s just because I enjoy it, not because I have to … and meanwhile all of my businesses are running, making money and growing.

A common trait among martial arts business owners is that we are passionate and willing to work very hard and long hours. This is both a strength and eventually a weakness. One of the reasons most owners work so many hours is because they know they can do things best (like I mentioned that I used to do). They do not delegate tasks for fear that others will not do it as well as they do, and they have so many things to do that they cannot afford to take the time to effectively train other staff. This is an ongoing problem that leads to burnout and frustration for many. Years ago I realized and accepted the fact that even though someone I train may not be able to accomplish as much as I do, eventually we can accomplish much more as a team.

Think of the math.If you have five staff members each accomplishing 80% of what you could do, that is still 5 X 80% = 400% of what you could do by yourself.

This is the mentality we need to take to move from being “achievers” to “leaders” in our businesses and is a must to move towards the goal of multiple locations.

I mention all of the above first in answering this question because far too many people in every business field (not just martial arts) have taken the step to open a second location and it has turned into stepping on a land mine rather than taking the step towards “doubling their profits,” which is what most people believe will happen.

In the majority of these cases, the likely cause of the problems was the fact that the business was too dependent on the owner or one key person, and systems were not in place to help others be successful in executing the business operations. Essentially it was a personality based business. Though personality is important, if you base your entire business on this, you are not building an asset you can sell. You are also not building a system to duplicate because we allow ourselves to overcome the shortcomings of our business through our own individual skills and relationships.

If as an owner, you can honestly say that your martial arts school is built on systems and that you could walk out on your staff and the school would still operate effectively, then we can move on to the next step in consideration of a second location.

This is not usually the case, especially for those out on their own. More often schools who work with an organization or a franchise have additional support for this, but in every case, an honest assessment here can save a school owner piles of money and grief from making a bad decision before they are ready by letting them know there is more preparation to be done.

In my next post, I’ll cover additional benefits and necessary planning steps to opening a new location. Until then, take a hard look at your business and honestly answer the question:

Is your business built around you or is it built around systems?

About the author: Jeff Dousharm began his martial arts training over 22 years ago with Senior Grand Master Bert Kollars, one of the founders of Tiger Rock Martial Arts International. He’s a 7th Degree Black Belt and a certified instructor in different programs ranging from Taekwondo to CDT. He currently operates seven Tiger Rock Academies in Nebraska and Florida, www.tigerrockmarialarts.com.

Jeff also owns several companies outside of the martial arts field including Tomorrow”s Online Marketing (websites, SEO and online marketing), Paradigm Impact Group (speakers, professional development and business consulting), J. Victorian Development (commercial properties), Point Blank Tactical Safety and Firearms Training, and a few other startup companies being launched in 2012. He can be reached at JDousharm@windstream.net or Jeff@paradigmimpactgroup.com

Planning & Preparation Tips for Opening Another Business Location

Question: I”m thinking of opening another location. What are the most important considerations to keep in mind before taking this big step?

In my previous post, I recommended taking a long hard look at your business ― well before taking the plunge to open a second business location.

After your self-assessment, if you can honestly answer that your business is built on systems ― that your business would function efficiently and effectively without you being there — then, in my opinion, you are ready to seriously consider opening a second business place. In this post, I’ll cover some of themust-have elements to successful expansion and the benefits of running a multi-location business.

Based on historical information, owners opening another business location must lay out a very detailed business plan

I sit on a board of directors for CDR (Community Development Resources) and for the SBA … and I am still shocked at how many small businesses apply for a loan and do NOT have a business plan. The same is true with most martial arts schools and fitness businesses … they have an idea but not a true business plan. Some put together detailed class plans and curriculum, but then leave the business to chance. You can still have a profitable (though not maximized) operation in this way, but it will definitely be built around you, not the system or a plan, and this can be even more dangerous as it leads to false assumptions and beliefs.

As part of the business plan, the owners must carefully consider the actual budget.

A unique benefit to opening multiple locations in a surrounding area is the concept of cost sharing. For example, two locations that are somewhat close to one another can share:

• Advertising expenses
• Operational staff expenses (some duties can be handled by the same staff for both locations)
• Event and seminar expenses
• Insurance expenses
• Inventory expenses
• Legal expenses
• Accounting expenses
• And more

Of course, some of these areas depend on the actual ownership and business structure so be sure to check with your CPA and attorney in planning this process.

If the locations are not in a close proximity to share some of these expenses, the second location can still benefit from the historical data and records of the first in the business plan. Additionally, the first location can serve as a source for more staff, instructors, and support for the second location. Take advantage of what you know from your first location to provide for a very realistic and accurate plan for your new facility and location. The more planning and preparation that goes into the second location, the greater your chances of success will be.

The final area I will mention is the idea of capital. Though there are some cost savings in shared expenses and efficiencies we have developed through experience (also known as making costly mistakes in our past), we all get the idea that we will be able to do our next location “cheaper.” This is good in theory, but it rarely happens.

We need to be sure we have enough capital up front to really make things happen.

Lease space, utilities, build-out, advertising costs and other expenses are always on the rise. These areas offset many of the savings.

I opened my first part-time club in 1994 and my first full-time “school” in 1997. The cost comparison to my more recent openings or moving facilities to new locations is an increase of about 3-5 TIMES the amount it cost before! Then consider the potential cost of employee turnover which generally has a greater risk of occurrence with multiple locations.

Ask yourself what roles must be filled to make that new location fully functional. If you put a key person into a role at the new facility and that person quits, do you have a contingency plan? These can be alarmingly large costs of doing business, so I would generally recommend that once you figure your capital needs to make the second location happen, double it, or at least raise it by 50% because experience in multiple industries shows that this is generally the reality. This is not a negative thing, but rather a positive because when you are fully prepared for a new location and have the capital you need, you can fire off the marketing campaigns you need and do the things necessary to make it successful versus cutting corners and hoping that you somehow make it.

In summary, plan for the worst, budget for the worst, realize you will not likely be doubling your profits, and then get ready for a lot of work to make your next location a real success story.

I say these things not to be “Mr. Doom and Gloom,” but mainly because I know that when you prepare properly, you come out the other end a lot better off and can avoid stepping on the land mines that destroy all the hard work we have put in to get to where we are now.

Some people imagine becoming Black Belts and that when they are Black Belts they will be able to fight off one, and maybe even multiple attackers and never even get hit! Reality says that in a fight you are going to get hit, and it’s those of us who are prepared to deal with the hits and keep fighting who make it through. Business is much the same way. We are all going to take hits, we just need to be prepared and train our people to win whether it’s a fight or a sale or the grand opening of your next location!

One of my favorite quotes I will leave you with is from Rocky:

“The world ain”t all sunshine and rainbows. It is a very mean and nasty place and it will beat you to your knees and keep you there permanently if you let it. You, me, or nobody is gonna hit as hard as life. But it ain”t how hard you hit; it”s about how hard you can get hit, and keep moving forward. How much you can take, and keep moving forward. That”s how winning is done. Now, if you know what you”re worth, then go out and get what you’2013-10-17 18:50:44’re worth. But you gotta be willing to take the hit, and not pointing fingers saying you ain”t where you are because of him, or her, or anybody. Cowards do that and that ain”t you. You”re better than that!”

Rocky Balboa Speaking to his son in Rocky Balboa (2006)


About the author: Jeff Dousharm began his martial arts training over 22 years ago with Senior Grand Master Bert Kollars, one of the founders of Tiger Rock Martial Arts International. He’s a 7th Degree Black Belt and a certified instructor in different programs ranging from Taekwondo to CDT. He currently operates seven Tiger Rock Academies in Nebraska and Florida, www.tigerrockmarialarts.com.

Jeff is also a member of the Member Solutions Business Advisory Team and owns several companies outside of the martial arts field including: Tomorrow”s Online Marketing (websites, SEO and online marketing), Paradigm Impact Group (speakers, professional development and business consulting), J. Victorian Development (commercial properties), Point Blank Tactical Safety and Firearms Training, and a few other startup companies being launched in 2012. He can be reached at JDousharm@windstream.net or Jeff@paradigmimpactgroup.com

10 Ways to Get Involved & Make a Difference During National Bullying Prevention Month

"Stop Bullying" written on chalkboard

One in three students report being bullied each week in schools across America.* And those that are bullied can experience long-lasting, devasting effects including depression, anxiety, loss of interest in activities and other health issues.**

Fortunately, bullying awareness, education, and prevention efforts are increasing. Communities are joining forces to put a stop to bullying.

October is National Bullying Prevention Month

We can all show our support and make a positive impact by participating in National Bullying Prevention Month. Here are 10 ways you and your staff can get involved and play an active part this October.

Read through the list, then let us know how you will support bullying prevention by commenting below.

1. Download the 10 Steps to Stop and Prevent Bullying List

The National Education Association (NEA) provides a 10-step list of how to stop and prevent bullying. Go here to download the list. Make copies. Pass it out to staff members, friends, and family.

2. Take the Pledge: Stand Up for Bullied Students

As part of the NEA’s Bully Free: It Starts with Me campaign, you can take a pledge and receive a poster and pin to display your support. Go here to take the pledge.

3. Go Orange on Unity Day

Go orange on Wednesday, October 22, 2014 to send a message of support. Wear an orange shirt, tie, pants, hat. Create an orange banner to hang up at your facility. Show your support by taking pictures and sharing them on the Unity Day Facebook Event Page. Check out PACER’s Unity Day page for more ways to get involved.

PACER also offers Unity Day posters to display in your facility. One poster is shipped at no charge. A pack of 10 is $10 shipping. Go here to order your posters.

4. Use PACER’s Activities for Youth

PACER has created a list of young student activities and resources designed to start a conversation and build students’ understanding of how to prevent bullying. Activities include a kids coloring book, a create a poster form and stick puppets with play discussions and scripts. Go here for the complete list.

5. Plan a School Event

PACER has put together a 5-step guide on how to hold a bullying prevention event. Hosting a bullying prevention event is a great way to take the lead and band together with your community to educate and build bullying awareness. Download the Unite Against Bullying – School Event Planning Guide here.

6. Host a Run, Walk, Roll Against Bullying Event in Your Community

Use PACER’s event planning toolkit to host a Run, Walk, Roll Against Bullying event in October or another time during the year. The toolkit is filled with timelines and checklists to help plan and promote the event. The toolkit also includes a sample registration form and press release. Get the toolkit here.

7. Utilize the Stopbullying.gov Kids Website

Stopbullying.gov/kids is filled with facts to educate children about bullying and what to do if bullied. The site also includes 12 animated kid videos with quizzes to reinforce learning points.

8. Download PACER’s National Bullying Prevention Center Information Flyer

This flyer can be used as a handout at events and activities you host in October and other times throughout the year. Download the flyer here.

9. Visit the Stopbullying.gov Cyberbullying Website Section

It’s just as important to know what children and teens are doing online. This site defines cyberbullying and provides ways to prevent and report cyberbullying. Visit stopbullying.gov/cyberbullying.

10. Print These Tips to Give to Parents

The health information website, Be Smart. Be Well., posted the article, Bullying: Habits2Have®. This article will help parents talk to kids and teens about bullying and cyberbullying.

Stay tuned for additional bullying prevention posts coming in October.

Kristen Campbell is a Marketing Specialist with Member Solutions.

*National Education Association
**Stopbullying.gov

How Will You Take a Stand Against Bullying? Comment Below.

Developing a Solid Business Plan for Your Membership-Based Business

Brainstorming Solid Business Plan

Developing a business plan is a great tool to help you effectively address any challenges that you’ll face. More importantly, a solid business plan will help you set and reach your business objectives. After all, if you don’t have goals to meet, how do you know what you are aiming to achieve?

Here’s where to start when developing a business plan:

Begin with your business vision.

In your plan, describe the purpose and reason why your martial arts school, fitness club, or gym exists. Talk about what you are delivering to the marketplace and what sets you apart from the competition.

Be specific. Use the vision statement for inspiration and as a reminder of the business that you are trying to build. Share your vision with your employees to keep everyone on the same page and hold staff members—and yourself—accountable.

Perform a market analysis that evaluates your membership base and competition.

Group your members into specific categories based on demographics (e.g. age, gender, proximity to your business location, class participation, training program).

When analyzing your member data, look at what needs your member groups have in common and what needs are being met at your school or gym. Are your competitors doing a better job at meeting any of those needs? Where do your members reside? How can you expand your reach to other communities? Are there new market trends that can affect your business?

Next, take a hard look at your competition. Factor in their business locations, costs for training, facility environments, class and training schedules, and membership counts. You must stay ahead of your competitors in meeting the needs of your customers if you plan to be profitable this time next year.

Member Solutions Member Manager -Tracking Financial Results

Develop a financial budget for the fiscal year that ties into your market analysis.

A financial budget is a plan for future income, expense, and cash flow. Tie your financial budget to your goals that you want to meet for the year. It’s important to make sure that each goal within your financial budget and business plan is specific, measurable, achievable, realistic and time-targeted (SMART)*.

Your goals need to be specific so that you can hold yourself, and your staff, responsible and measure progress within a designated period. For example, a business goal might look like:

<John’s Martial Arts Academy> will sign X new members during the month of March or <John’s Martial Arts Academy> will retain __% of existing member base all of 2012.

Keep your goals attainable and realistic, too. Finding a happy medium between stretch goals and erring on the side of conservatism is your best bet. You want to set goals that you and your staff can meet.

Lastly, when devising a financial budget, ask yourself best and worst-case questions such as:

  • What will revenues look like if a competitor opens up down the street?
  • What if you buy out a competitor and consolidate locations?
  • What expenses can you sustain if your promotion plan flops?

A final word: Keep in mind that a business plan is just that—a plan. It’s okay to miss your targets. If you find yourself coming up short, re-evaluate your plan, and adjust as necessary. Don’t become discouraged and abandon the business planning process entirely. It’s important to keep at it and consistently monitor your progress against your goals. What gets measured gets done.

*Doran, G. T. (1981). There’s a S.M.A.R.T. way to write management’s goals and objectives. Management Review, Volume 70, Issue 11(AMA FORUM), pp. 35–36.


Author: Michael Connor

Doing the Math to Calculate Martial Arts Business Success

Why do some martial arts studios have 50 students while others have 500?

Before delving into the multitude of factors contributing to business success or failure, understand first that it all comes down to two very simple metrics: Number of monthly enrollments and drop-out rate. As long as your number of enrollments is greater than the number of drop-outs, your school population will continue to climb.

Let’s take it a step further.

You enroll a certain number of students every month. Let’s say 10, for example. You also lose a certain percentage of your current student population each month, perhaps 10 percent.

When you first start a school, you gain students but lose very few. If you have 10 students and you lose 10 percent, you lose only one student. Your net gain is nine students. However, if you have 100 students, you will lose 10 each month. At this point, your enrollments equal your drop-outs, and you will stay at about 100 students.

When your school is growing, eventually the number of students you gain will equal the number of students you lose, and you reach a point of equilibrium where your student population will remain steady.

A Formula to Calculate Martial Arts Business Success

There is a very simple formula to calculate exactly how many students you can have based on your key business factors:

n = e / d

What are they and how do you determine these values?

1. “n” = how many students you have right now, hopefully, you already know this number.

2. “e” = the number of new students you gained over the past 12 months divided by 12 or simply your average number of monthly enrollments.

3. “d” = your drop-out rate which is calculated by taking “e” and dividing by “n” (e/n).

An Example to Illustrate

Imagine you are a studio that enrolls 15 students each month, and your drop-out rate is 8 percent. Let’s do the math:

n = 15 / 0.08

n = 187.5

This means that if nothing changes, your school will build to around 188 students and then will cease growing beyond that point.

Using the Numbers to Grow Your Business

What is more important is how you can use this to grow your school further. For example, what if you improved your enrollments to 18 students each month?

n = 18 / 0.08

n = 225

Simply by increasing your monthly enrollments by three, you have set yourself up to become a 225-student school. Now what if you took steps to keep your students happier and in your school longer to decrease your drop-out rate to 7 percent?

n = 18 / 0.07

n = 257

Now you will have become a 257-student school through a few very small tweaks to your business metrics.

The point is that by making little improvements, you can propel growth tremendously. Try applying this formula to your studio. See what sort of effect improving either of the variables will have. You will be surprised at what a big difference they make.

Take steps specifically to improve those variables in your school. Everything that you do should be focused on either increasing the number of monthly enrollments or preventing current students from dropping out.

There are many fantastic ideas in the Member Solutions article library that you should consult. If you have any questions, feel free to send me an email at sifu@wushucentral.com.


About the author: Sifu David Chang and his wife Elizabeth Chang are the owners of Wushu Central Martial Arts Academy with two locations in California. Sifu Chang is a former Wushu style forms national champion and Elizabeth is the brains behind the business. Each location enrolls an average of 25 students each month with a drop-out rate of 5 percent.

Success in Your Business: Creating a Sense of Belonging & Purpose

I am a big advocate of encouraging others to get creative with their ideas. In fact, about a year ago, I opened Fitness Compound, which offers a variety of fitness classes, programs, and training options including Zumba, cardio, Pilates, spinning, baseball, climbing, and basketball. Since then, I’ve added Mixed Martial Arts for kids, Zumba Tone, and Krav Maga to the mix.

Even though I’m offering services beyond traditional martial arts, I’m still creating the very same sense of community, purpose, and goal-driven environment as all other fitness-related businesses.

It’s critically important for your members (and prospective members) to get a sense of belonging and have a purpose when being a part of your gym or school. People want to be a part of something and feel good about themselves. Therefore, all your enrollment and retention efforts should include ways to fulfill those primary needs.

For instance, don’t shy away from holding free events. Many think that when they hold an event, they should charge a fee. They think their objective should be to make a certain amount of money on ticket sales. This shouldn’t be your main objective at all.

Your main objective when holding most events should be to create a sense of community and commonality to build rapport with your prospects. Hold a fundraiser for a worthy cause or a special springtime or summertime event to fuel business activity and to bring families and friends together. You will, in turn, build a business that people will want to be a part of and a contact list of prospects.

To strengthen retention, keep your members focused on achieving a goal. For instance, we hold a special internal campaign during the summer called 12 weeks of Summer, 36 Workouts. Anyone can sign up for the campaign. If they reach the goal of checking in at the gym for 36 workouts during the summer (three workouts a week), they get a T-shirt that says “I stayed in shape all summer at <Place of Business>.” You wouldn’t believe how this motivates members to stick to their fitness goals and get to the gym.

Remember the integral wishes of each and every human being: the need to belong and the need to feel good. When you keep these two intrinsic human needs in mind, and better yet, fulfill them through your business services, you’re well on your way to optimal success.

How have you created a sense of belonging and member community within your business? Share below.


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.

5 Errors to Avoid: Employee Discipline

Two boys practicing karate in front of a children's martial arts class

Greater focus, improved self-control, and increased self-discipline are only a few of the lasting benefits that a practitioner or trainee realizes from their study of any martial art.

As a business owner, your challenge is to translate the discipline you impart in your teaching to your employees to ensure the smooth operation of your business. How you impart these lessons to your employees may go far in determining the success of your business.

This article identifies some common communication errors and also provides suggestions on how to improve communications with your employees and impart the same lessons that you are providing to your students.


Error #1: Discipline as Punishment

Discipline pertains to improving employee performance by assisting the employee (at least at first) to learn so they can perform more effectively. One prevalent error is treating discipline as punishment. The threat of additional sanctions will not correct or eliminate unwanted behavior. Instead, it usually has the opposite effect.

Negative sanctions generally succeed only in limited instances where certain factors are present. Thus, just as your students learn discipline, so too should employee discipline be viewed as an opportunity for the employee to learn what needs to be done to bring their behavior up to the standards you demand. Discipline must have teeth, even in a learning sense. But it can’t only be teeth.

Error #2: Discipline as An I vs. You Confrontation

While martial arts may, in some circumstances, involve confrontation, employee discipline should not. Discipline should not be viewed as something done to an employee, but rather as something done with an employee. Effective discipline requires you and your employee work together to solve a problem. The result of this combined effort is an employee who feels respected, who is involved in the process, and who feels more a part of the team. Remember, discipline needs to be a team process.

Error #3: Too Late

While you are certainly not seeking out employee problems, there is a fine line between looking for trouble and being too slow to recognize or to respond to an emerging issue. Delay dealing with a problem and the unwanted behavior will continue or escalate, making it that much harder for you to deal with it in the future. It is critical that you promptly note inappropriate behavior and communicate that fact with the employee as soon as possible. This communication does not have to be lengthy, particularly if the event is minor, but putting it off until tomorrow never resolves the problem.

Error #4: A Non-Progressive Approach

Progressive discipline starts with the least possible use of power and disciplinary action. Over time, it involves stronger actions if the situation continues. Delay disciplinary action, as related in #3 above, and the situation may become so severe that only the harshest sanctions are available. Applying harsh initial discipline will usually not resolve the problem with the employee and may result in a backlash by other employees. Start with the least forceful action as early as possible, unless the offense warrants the severe action.

Error #5: Missing Root Causes

It is your business, and it is understandable that you may want to lay down the law to a problem employee. In some cases, a problem employee may require this kind of approach. However, in many situations, negative or even positive discipline may have little effect on behavior simply because it does not address the root causes of the problem. It leaves the employee on their own to figure out a solution.

There are many reasons that an employee’s behavior may be problematic (some of which may actually be due to the fact that the employee is a problem). Without knowing the root causes underlying a performance problem, it will be difficult to work with an employee to improve their behavior and performance.

I am not advocating one approach over another, nor am I advocating in favor of any particular approach. However, from both a legal and a practical standpoint, it makes no sense to take actions that are doomed to fail. Therefore, when you meet with your employees to discuss or correct behavior issues, remember that in a successful meeting you should:

1) Listen and have empathy with the employee’s situation.
2) Refocus the employee to the original problem, and ask them to come up with a solution.
3) Offer assistance, including setting up another meeting to discuss the employee’s progress.


About the author: Andrew S. Kasmen, Esq. is General Counsel and HR Director for Member Solutions.

Disclaimer: Member Solutions is not an attorney and does not provide legal advice. Further, the information provided in this article is not, nor is it intended to be legal advice. It is being offered as a general information service to Member Solutions’ clients. The laws of your jurisdiction may differ. You should consult an attorney for specific advice regarding your particular situation.

8 Keys to Effective Business Partnerships

Partnering is a critical element of nearly all businesses. We partner with employees and investors, in addition to actual business partners or co-owners. Effective partnering is evident in any successful organization that requires multiple human beings to achieve its objectives.

Teams of all types require a few elements of effective partnering to be successful. Marriage and personal relationships require a focus on partnering and attention to these same elements.

The topic has been researched and published extensively in both the academic and popular press. Two titles that I really enjoy and lean on are Lencioni’s “Five Dysfunctions of Team” and Wagner/Muller’s “The Power of 2.” These and other writings focus on several critical elements of successful partnerships.

As you review the following list, reflect on your current business partnerships and employee relationships.


1) Commitment to a Common Mission – Successful organizations rally around a common, clearly articulated goal and vision. Team members must understand, believe and live it. This must be more than just lip service. When people say they are committed, but then take actions or make comments privately that conflict or undermine the mission, it is incredibly damaging.

2) Unselfishness – The power of cooperation is well known to all of us. Two plus two can certainly equal well more than four when true cooperation exists. Of course, the opposite is even more truthful. One self-interested member of a partnership or team will poison the group and generate lingering animosity that will pervade the team and limit success, at best.

3) Complimentary Capabilities – A football team’s offense could not function with two centers trying to hike the ball and also would not work without blocking, running, receiving and quarterback play. A partnership is no different. Do not go into business with someone that has your same capabilities and weaknesses. Partners must seriously consider the individual skills, talents, and limitations of each and then deploy each partner in a disciplined way that ensures all contribute their capabilities to the team. Trying to create a role or accept sub par performance from a partner because you want them as a partner will lead to failure.

4) Ongoing Communication – Open, honest and frequent communication is an absolute requirement for success. Without it, team members can end up in silos, mired in the details of their function, rather than staying focused on contributing to the broader objectives.

5) Acceptance of Differences – Put a few humans together, and you will likely find something in each of them that can annoy another on some level. People have different quirks and habits that need to be accepted and forgiven as long as they do not deter the team from its mission. Effective partners accept human quirks and differences for the better of the organization.

6) Forgiveness – We all make mistakes. If we don’t we are not trying hard enough. We enjoy skiing in my family, and I often say to my kids: “If you are not falling, you are not trying hard enough.” We must forgive our partners and ourselves and create an organizational culture that encourages risk-taking and new ideas by openly forgiving when they don’t work out.

7) Fairness – When people are treated fairly, they remain motivated and will often achieve beyond expectations. The opposite will result in demotivation, animosity, and lack of commitment. The compelling need to ensure that one’s own personal situation is fair will be present in discussions, decisions, and serve a significant distraction to the individual, thereby severely limiting the potential of the partnership.

8) Trust – Business partnerships require trust that is built upon mutual respect, honesty, and demonstrated integrity. Without this, all is lost.

I have been very fortunate and am incredibly thankful to have great partners at Member Solutions. Together, we have enjoyed strong business growth and been fortunate to also develop deep family friendships. We have grown professionally, personally, and financially by working hard to remain focused on these critical partnership success drivers. It is not always easy, and we often have to remind ourselves to be disciplined and work hard on these core principles and the values that are behind them.

All the work and time is well worth it and offers rewards beyond business success.


About the author: Steve Pinado is CEO of Member Solutions, a leading provider of solutions to martial arts businesses. Before finding a home at Member Solutions, Steve held executive roles at several Fortune 500 companies after earning his MBA at Dartmouth. He can be reached at spinado@membersolutions.com or by phone at 888.277.4409.