Cash flows: a focus on the revenues of fitness centres

The fitness centre is not just about lessons, exercises, personal trainers, music and entertainment.
It is a real enterprise, made up of costs and revenues. For fitness centres to be sustainable, they must at least break even. Otherwise, there will be negative results that will have to be borne in some way by debts for consideration (normally: account overdraft, loan) or own funds (increases in share capital).
This situation, if well planned, can be dealt with in a rational way and without anxiety by the business community. To do this, it is essential to understand the usefulness of developing a business plan that includes not only the economic situation (Economic Account) and balance sheet (Budgetary Balance Sheet) of your wellness centre, but also a picture of the financial trend (Cash Flow Analysis or Financial Statement) over the months and years.
This can be done by taking into account the "gains" from typical management. In the case of fitness centres I refer to season tickets, entrance fees, PT lessons, special courses, advice with specialists, etc. For wellness centres it is all the treatments/packages on the price list. In other words, it refers to all recurring revenues characterised by a continuous repetitiveness over time. From an economic point of view, therefore, in the Income Statement, I estimate all the REVENUES pertaining to the year of my interest, while in financial terms, in the Cash Flow Statement, I will record the inflow at the time when it is realised.

In practice, if on 30 November I acquire a new member with an annual subscription paid in full on the same day, I am going to attribute 1/12 of the income to the current year, while 11/12 will be due to the following year. From a financial point of view, however, collection is at 12/12 on 30 November and I will bring no value the following year. This divergence shows how important it is to know both sides of the coin so as not to fall into trivial errors of estimation, especially in the case of large investments or in times of difficulty, can lead to severe liquidity crises and discontent among employees. In this regard, let's not forget that one of the key factors for the success of a wellness centre is the competence and relational ability of its staff. Consistent resources, constantly trained and motivated, make it easier to implement the business strategy, thus making it possible to achieve growing economic and financial results.

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Another example that underlines the importance of a correct planning and monitoring of revenues is the generation of CREDIT deriving from the sale of recurring services: Using the same example - if on 30 November a company acquires 100 monthly subscriptions of a wellness centre located near its headquarters as a gift to employees for the month of December. This customer, as often happens in B2B, does not pay immediately but at 60 days. There is a clear economic-financial divergence: in the Income Statement I register the full income from 100 subscriptions, while in the Cash Flow Statement I will not have any type of increase. The postponement of payment, therefore the immediate default, has in fact generated me a CREDIT Vs CUSTOMERS (recorded in the Balance Sheet) equivalent to the selling value of these 100 subscriptions.

Many readers may have already understood the role of this value in the three documents. In the Income Statement and Balance Sheet, under the respective headings of REVENUES and CREDITS Vs CLIENTS, I will enter the value with a positive impact on my economic situation (contribution to the increase in profit, or to the decrease in the loss for the year) and balance sheet (contribution to the value of the company's assets). The opposite is true from a financial point of view: the credits correspond to liquidity to which I am entitled but which I cannot use yet because it has not yet been paid by my debtor. The impact on my cash flow will therefore be zero.

This reflection is not intended to condemn claims a priori. We are fully aware that they are part, like debts, of the normal life of a company. As long as they are under control. This translates into:

  • I agree in advance with customers on sustainable payment times
  • I predict possible periods of cash non-performing loans by agreeing with my credit institution reasonable overdraft rates
  • Avoid possible profit distributions, self-financing my centre (own funds)
  • I manage my payment times with suppliers by agreeing appropriate extensions

This latter item, like the previous one, translates into self-financing (Liabilities working - Payables to your Suppliers): just as receivables generate a cash requirement, payables allow the use of money that I would not otherwise have available.

From a financial point of view, it is therefore necessary to distinguish between revenue and income:

  • Revenue: revenue received which has a positive impact on my Cash Flow Statement
  • Credit: the right of the wellness centre, which we define as the "creditor", to obtain payment of a sum of money from another person called the "debtor"

The CREDIT, unlike revenue, has no impact on its cash desk. Therefore, even though a credit gives value to the Balance Sheet, we cannot say the same thing in financial terms.

It should also be understood that these differences are physiological during a company's lifetime. Just as there are revenues (in the Income Statement) that do not generate any monetary movements, there are revenues that do not give rise to revenues. Just think of capital increases or borrowing.

In fact, a sports centre can only continue over time if it is characterised by a balance in terms of assets, income and finance.

For a better analysis of revenues, or rather of financial resources, it is useful to aggregate the individual cash flows according to the management area from which they originated in order to first determine their origin and then their destination. We can detect 4 areas:

  • Current characteristic economic management: this includes operations for the purchase and sale of assets that repeat continuously over time (Eg: subscriptions and admissions)
  • The area of investments and divestments: includes acquisitions and disposals of assets not belonging to operating working capital (Eg: investments in fixed assets)
  • Area of financial remuneration, ancillary and extraordinary operations, includes, for example, the remuneration of debt capital (financial income and charges) and risk capital (dividends distributed or received)
  • Loan/repayment area, capital injections/repayments, includes loans taken out during the reference period
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Finally, the Cash Flow Statement can be defined as the integration of balance sheet and income statement values into a new statement that represents changes in the financial and monetary structure during the year. Unlike the Income Statement, for example, with inventories and provisions for risks, these changes are never generated by estimates: cash flows are objective values.

Thanks to the Financial Report, this allows the owner as part of the daily management to increase efficiency in monitoring:

  • the ability to generate positive future cash flows
  • the economic and financial aspects of investment and financing transactions
  • ability to meet maturing commitments and payment of dividends
  • the causes of the differences between the income for the period and the flow of receipts and payments

Moreover, the development of a multi-year forecast cash flow statement (min. 3 years) allows 2 categories of stakeholders to know in advance the financial potential of a business in the long term:

  • Funders outside the Centre so that they can assess their creditworthiness
  • Internal operators at the centre to ensure precise financial control of the management

The Income Statement and Balance Sheet alone would not be able to highlight such dynamics as the former contains information of a changeable nature, but relative to the income, non-financial, aspect of the management. The latter contains financial information but of a static nature.

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