Chart of Accounts

Gym Bookkeeping 101: Your Chart of Accounts

Hold on to your socks…today we are going to talk about your chart of accounts & I don’t want to blow  your socks off.  I understand, as a gym owner you don’t get out of bed to learn accounting basics.  But trust me, understanding this stuff will make you a better owner.  Just think about who your best clients are – are they the people that just show up because they know they should and don’t really care about learning anything or are your best clients the ones that are truly interested in learning about how to eat better and move better?  So, be that good client and get your learn on with this Bookkeeping 101 for Gyms and Fitness Professionals series.

First off, what the hell is a chart of accounts?

The chart of accounts is a listing of the accounts available in which you record entries.  The chart of accounts should be tailored specifically for your industry or even more specifically to your operations.

That’s simple enough, but the order in which they are listed deserves a little explanation as well.  The chart of accounts lists all of the Balance Sheet accounts first and then all of the Income Statement accounts.

Balance Sheet Accounts:               – Assets
– Liabilities
– Owner’s Equity

Income Statement Accounts:       – Operating Revenues
– Operating Expenses
– Non-Operating Revenues
– Non-Operating Expenses

(Check out the posts about the Balance Sheet and Income Statement for more info there).

Your chart of accounts should be simple enough that you are able to use them year-to-year yet specific enough to provide useful financial data.

To get you started, here is a sample chart of accounts for a gym:

Asset Accounts – Balance Sheet

1001      Cash (Checking Account)
1010      Savings Account
1200      Accounts Receivable
1400      Merchandise Inventory
1600      Prepaid Insurance
1700      Land (if you own your building)
1750      Buildings (if you own your building)
1760      Accumulated Depreciation – Buildings
1800      Equipment
1810      Accumulated Depreciation – Equipment

Liability Accounts – Balance Sheet

2000      Accounts Payable
2100      Wages Payable
2200      Interest Payable
2300      Unearned Training Revenue
2400      Mortgage Payable (if you own your building)

Owner’s Equity Accounts – Balance Sheet

3000      Capital – Owner X
3005      Draws – Owner X
3200      Retained Earnings

Operating Revenue Accounts – Income Statement

4000      Group Training Sales
4010      Personal Training Sales
4020      Specialty Program Sales
4030      Nutrition Coaching Sales
4040      Pro-Shop Sales

Operating Expense Accounts – Income Statement

5000      Cost of Merchandise Sold
6010      Advertising
6020      Bad Debts
6030      Bank Charges
6040      Charitable Contributions
6050      Dues & Subscriptions
6060      Gym Equipment/Supplies
6070       Insurance
6080      Janitorial & Cleaning
6090      Lease Expense
6100       Legal Expense
6110        Licenses & Permits
6200      Meals & Entertainment – 100% Deductible
6210       Meals & Entertainment – 50% Deductible
6300      Office Expense
6400      Payroll Expense – Group Training
6410       Payroll Expense – Personal Training
6420      Payroll Expense – Specialty Program
6430      Payroll Expense – Admin
6440      Payroll Expense – Owner’s Pay
6500      Payroll Tax Expense
6600      Rent
6610       Repairs & Maintenance
6650      Training & Education
6670      Travel
6700      Utilities (I include gas, water, electricity, phone, internet, cable)
8000      Amortization
8050      Depreciation

Non-Operating Revenues & Expenses – Income Statement

8500      Interest Income
8600      Interest Expense

 

Use this chart to get your bookkeeping started.  Let me know in the comments if you have any questions.

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Gym Bookkeeping 101 – Definitions

In the first of several posts Bookkeeping Basics for Fitness Professionals, I’ll define some basic terms used when managing your finances.  This list is not exhaustive & I’ll continue to add to it over time.  However, my goal is to make it helpful to Fitness Professionals so I’ll only include definitions that apply to most gym businesses & fitness professionals.

Definitions

Asset – resources owned by a company and which have future economic value that can be measured and can be expressed in dollars.   Assets are found on the Balance Sheet.

Common examples in gyms include: cash, accounts receivables, equipment (tvs/computers & exercise equipment), inventory (apparel, supplements, drinks and bars), and buildings.

Accrual Basis Accounting – an accounting method that measures the performance of a company by recognizing economic events regardless of when cash transactions occur.  Revenues are matched to expenses at the time when the transaction occurs rather than when the payment is made or received.

Income example: A client pays $900 for 3 months of training.  Even though you received $900 in month 1, you would recognize $300 in month 1, $300 in month 2 and $300 in month 3.

Expense example: You pay $1000 for 100 t-shirts ($10/each).  In month 1 you sell 40 shirts for $20/each for $800 in revenue.  You would recognize a cost-of-goods sold expense of $400 (40 shirts x $10) in month 1 and you would still have $600 in t-shirts in inventory.

Balance Sheet – one of the main 3 financial statements.  It reports the assets, liabilities and owner’s equity at a specific point in time.   It’s a “snapshot” of what the company OWNS and OWES.

Assets = Liabilities – Owner’s Equity

Cash Basis Accounting – an accounting method in which revenues are recognized when cash is received and expenses are recognized when paid.  This method is typically followed by individuals and small companies.  It is inferior to the accrual basis accounting method.

Cash Flow Statement – one of the main 3 financial statements.  It reports the sources and uses of cash by operating activities, investing activities, and financing activities.

Equity – found on the Balance Sheet, it is the difference between assets and liabilities.  It represents the net amount of funds invested in a business by its owners, plus any retained earnings.

Expense – an expense is the money spent or cost incurred in a company’s effort to generate revenue.  They are the cost of activities directed towards making a profit.  Expenses are found on the Income Statement.

Common Gym Expenses: Rent, Payroll, Utilities, Supplies, Credit Card Processing Fees

Fixed Costs – costs or expenses that do not change in response to changes in sales or other operations.

Example – Rent & Utilities

Income Statement – or Profit & Loss Statement (P & L).  It is one of the main 3 financial statements.  The income statement reports revenues, expenses, and profits or losses for the company over a specified time period.

Revenue – Expenses = Profit/(Loss)

Inventory – a current asset whose balance should report the cost of a company’s products waiting to be sold.

Example – unsold apparel, supplements, bars, drinks, etc. purchased for resale

Liability – An obligation of a company such as an amount owed to lenders or suppliers or advanced payment for a future sale or service to be performed.  Liabilities are found on the Balance Sheet.

Profit – found on the Income Statement, profit equals your sales minus your expenses.

Revenue – the sum of all money taken in.  This is the first item on your Income Statement.

Variable Cost – expenses that vary with some activity.

Example – your payroll expense for coaching will go up as your revenue from coaching increases.

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The Profit And The 3 P’s

One of my favorite shows on TV is “The Profit” w/ Marcus Lemonis. If you haven’t seen it, it’s kind-of like “Shark Tank” but he only deals with one business per episode and it shows the different stages of the transaction (if there is one). Marcus has a simple way to evaluate each business. He uses the 3 P’s: People, Process, and Products.

PROCESS
A process is a systemized way of dealing with all aspects of your business. For gym owners, do you have a system for generating new leads, sales, programming, training, selling products, cleaning, hiring and training staff, processing membership payments, accounting, analyzing your numbers? Processes allow your business to grow and allow you to work on bigger picture tasks (and occasionally take a vacation).

Marcus only buys companies that he can scale up or grow (a lot). If you don’t have systems/processes in place, your business don’t have the ability to grow. Now, if the systems were perfect, then the business might not need Marcus so it’s rare that you see perfect systems on the show. That’s actually where he makes a lot of his money. He comes into a business with good people and a good product but not great systems and he sets up great systems that change the profit of the business.
Your processes should always be evaluated and improved upon so don’t think it has to be perfect from the start – just think, “What would Marcus do?”

PRODUCTS
Products are what businesses sell. For gyms and trainers, this is your training and nutrition services, apparel, equipment, supplements, etc. Ideally you deliver a good, if not great core product. You won’t keep customers very long and Marcus won’t invest in your business if you have a crappy product. Now, that doesn’t mean that there can’t be improvements to your product or to your product line…but it always starts with have a great core product.

PEOPLE
People include the ownership and employees in your company. Everybody is important but the owners are the most important in this context. They started the company – they had the initial vision – they should be the one’s steering the ship forward towards prosperity. And ultimately, they own the company so they call the shots. Employees are very important as well, but it’s easier to get rid of a bad employee than it is to get rid of a bad owner (by the way, being a bad owner doesn’t make them a bad person – they just may not have the right skill set to run a company).

According to Marcus, this is the most important of the 3 P’s. You can’t fix a bad owner that is not willing to change. You – the owner – are the leader of your business. You will either move it forward or be what’s holding it back.

So, analyze your 3 P’s today. Can you improve your 3 P’s?

If you need help improving your 3 P’s, shoot me an email and we can chat.

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Pay Yourself First

Paying yourself first is not a new concept.  Financial gurus have promoted this theory for years, but mostly on a personal finance level.  For instance, you should automatically put 10% of your paycheck into savings or retirement.  This great advice doesn’t apply just to individuals though.  It may be even more important for your business.

As a gym owner, you get paid based on the profit that your gym makes.  Now, you probably take a salary for the day-to-day work you do, but if you ever want to step away and just be an owner, then you need a solid profit.  The problem is that most gym owners look at profit as what’s left over at the end of the month, quarter or year (if there’s anything left).  Well, just like you should do with your personal finances, you should put a set percentage of your revenue in savings each month BEFORE you spend it all.  This guarantees you a profit and forces you to “Budget”.  Doing this will improve the health of your business across the board.  It will give you a cushion (or help you build your war chest) and it will allow you to issue profit distributions every quarter, which will make you happier and encourage you to keep improving.

But as wonderful as it can be for your business, most people will not do it.

Why?

Because it takes work & it takes will-power.  It will make you evaluate all of your expenses – including your salary, your coaches and staff and all of your other “necessities”.

But, if you do it, your business will be stronger.  You will make more money in the long-run, your business will be healthier, and your life will be better.

For more information, check out the book, Profit First by Mike Michalowicz or email me and I can help you get started paying yourself first.