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.
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.