More and more small businesses are finding virtual meetings useful. Virtual meetings have many advantages:
- No travel time is needed for participants, so you’ll save on gas and auto maintenance.
- They create an ability to visually connect with remote employees, customers, vendors, partners, job candidates, and other stakeholders.
- They are better than a phone call because of the visual element.
Before you climb into the car or book a flight, think about whether a virtual meeting could save you time and deliver the same result. It’s a change in habit to get used to, but when you do, you’ll find it saves you time and money.
To hold a virtual meeting, you’ll need a software app that works in your browser. There are many choices available, and our favorite one is called Zoom. You can find them at https://zoom.us/.
It’s easier than you might think to hold a virtual meeting. The learning curve is more psychological than any skill or equipment needed. You’ll need a computer, and you can use your phone or your computer for audio. If you use your computer for audio, you’ll need a microphone and speakers.
For best results, you should also have a webcam built in to your computer, or you can purchase one separately and connect it. Everyone is camera-shy, or webcam-shy, but don’t let that stop you! You can always host a meeting without video.
Zoom has a free account that you can use to try out virtual meetings. Once you’ve set up your account, you can schedule a meeting or host a meeting on the fly. Setup choices include whether you’ll use computer or phone audio, whether you want the video to be on or off, and whether you want to record the session, which can be very handy. You can also mute and unmute participants, so that it can be used for classes as well as meetings.
Here are a few tips to make sure your virtual meetings go off without a hitch:
- Treat a virtual meeting with the same importance as a face-to-face one: be on time, have an agenda, and make sure everyone is heard.
- Audio quality is probably more important than visual quality. If you are new to the software, do a test run before you start inviting clients to meetings so you can get through any learning curve. Consider using a microphone headset for higher quality sound. Apple EarPods work great if you have an iPhone.
- For good video results, face a window or light source so that your face is not in shadow. The brighter the better; everyone looks better with more lighting because the light erases wrinkles! If possible, the webcam lens should be at eye level or above. You can use books under your computer to raise it if you need to.
Try virtual meetings in your business, and invite us to your next meeting.
Each month, your accounting system yields actionable information for you to run your business better. Here are some key reports that all business owners should review every month.
A quick review of the balance sheet can tell you the balances of your current assets and current liabilities. Current assets should always be larger than current liabilities; if it’s not, you may have liquidity issues.
You can also take a look at these accounts: cash, accounts receivable, and accounts payable. They should look reasonable to you based on your business history.
Accounts Payable Aging
Hopefully, this report is clean and you are able to pay all of your bills on time. If you have an unusually large amount in this account, you’ll want to make sure you have the future cash to pay the bills.
The first number most entrepreneurs look at on the income statement is profit. It’s a good idea to review every account balance on this report to see if it is what you expected. Some questions to ask yourself include:
Did I generate the amount of revenue that I expected? If not, should I ramp up marketing for the next few months?
Do all of my expenses look reasonable? Are there any numbers that look too high?
Are my payroll expenses in line with what I was expecting?
Which accounts caused me to generate more or less profit?
What can I do next month to improve performance and increase profit?
These three reports are very basic, but they are also very key to your business. To profit from these reports, it’s up to you to take action in your business to improve your success.
Please let us know if you need further help determining how to handle the finances in your fitness business.
Recently we discussed accounting for Cost of Goods Sold.
As with a lot of topics we discuss, there’s the accounting way transactions need to be done and then there’s the way we want to handle it for cash flow and Profit First.
Cost of Goods Sold is no different.
Cost of Goods Sold – the cost of delivering your products and services to your customers – mostly affects the set up of Profit First and the calculation of allocation percentages in the very beginning of implementation.
Since a large majority of the focus within Profit First is to reduce your expenses rather than increasing your sales and revenue, the first thing we want to know is how much of the revenue you bring into your business is truly yours. If, for example, for every new member that signs up, you owe your sales person a 40% commission, those dollars are never yours to do anything other than pay out the commission.
As we discussed in our prior blog post, the other example is the cost of retail sales.
This is why, even though in Profit First, it’s called Materials and Subcontractors and we’ve modified that even further to be Commissions and Retail. Those are the two largest areas of difference between Total Revenue and Real Revenue in a fitness business.
Now, what do we do with that information. First, we need to determine what percentage of Total Revenue is being paid out in Commissions and Retail. If it’s less than 25% we don’t consider it material and worth separating into a separate Commissions and Retail account. This leaves it is Operating Expenses and forces you, the owner, to consider each of these items when you’re evaluating expenses on a regular basis. This is the best case scenario. It’s always good to be reevaluating vendor relationships and effectiveness of commissions as a motivator for salespeople.
If you find Commissions and Retail are more than 25% of your Total Revenue are you really in the fitness industry or are you a retailer with a side training business? Or maybe, your business is so new you are bringing on a lot more new members and therefore your commission is high, will it continue at that pace long-term? Most likely, no and therefore, we’d still recommend leaving these two categories as an operating expense.
It’s still very helpful to have these costs segregated on your income statement so other calculations and analysis can be done. It doesn’t affect your Profit First system though the same way these two categories would for a construction company or retail business.
Please let us know if you need further help determining how to handle commissions in your fitness business.
The account on your income statement called Cost of Goods Sold can be confusing to non-accountants. In this article, we’ll attempt to de-mystify it and explain how it works.
Cost of Goods Sold is an account in your Chart of Accounts that is a very special type of expense. It is the amount of direct costs of items or services that were sold by the company. It is related to inventory and the services you provide, and it helps to see the flow of inventory transactions to understand the big picture.
The largest component of Cost of Goods Sold for a fitness business relates not to the Items you sell, but to the services you provide and is in the form of payroll. If at all possible, it is helpful to separate your payroll into two categories:
1. Administrative work – tasks performed no matter how many members or classes you have (marketing, front desk, cleaning, etc.)
2. Cost of delivering your service – the hours your coaches are working and directly relating to the members (coaching, creating programs, goal setting or accountability, for example). This should increase and decrease with the number of members and classes.
It is also important to understand how inventory affects your business even though it does not have a large effect on your cash flow. When you purchase an inventory item for sale, it’s considered an asset (not an expense yet) in your company. When you sell an inventory item, the asset is reduced and the Cost of Goods Sold account is increased, moving the item from an asset to an expense. It’s no longer an asset once it’s sold, and the cost of the item sold reduces your profit and is expensed into the Cost of Goods Sold account.
Some accountants will abbreviate the Cost of Goods Sold account to COGS, and you might hear them call it that.
In the case of the retail portion of fitness businesses, the cost of goods sold is the amount that was paid for the inventory items to be sold.
At any point in time, the cost of items you purchase are in two different accounts:
1. The unsold items are reflected in the asset account, Inventory, on your Balance Sheet report.
2. The sold items are reflected in the Cost of Goods Sold account, on your Income Statement report.
It’s important that the Cost of Goods Sold balance is accurate, because there are many good things you can learn from it when you compare it with inventory. You can learn how fast your inventory is selling, and you can determine your gross profit margin.
Since inventory is not a large concern for fitness businesses, we recommend coding all inventory purchases to a Cost of Goods Sold subaccount called Purchases. Then at the end of the year reduce that amount by whatever is left in inventory to arrive at accurate Cost of Goods Sold and Inventory amounts. This does mean if you want to run inventory type reports throughout the year, the amounts in these accounts will need adjusted first.
If you have further questions about the Cost of Goods Sold account, feel free to reach out any time.
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