Why Your Gym Must Pay You First (and How to Make It Happen)

John Briggs and title text

Mike (00:01):

The profit first concept is simple: Your business pays you first. But it’s not always easy to see a way to do that. I’ve called in John Briggs to explain. He’s the author of Profit First for Microgyms, and he’ll tell you why this powerful concept can change your fitness business and your life

Chris (00:18):

More on that in just a minute. This business management platform is designed to take you from a fitness expert to a successful gym owner. Arbox offers a full suite of tools, including a dashboard and report with the top metrics that we prioritize at Two-Brain Business. With a glance, you can see length of engagement, average monthly revenue, new versus lost members and more. Arbox will also help you drive engagement with a members app that allows clients to interact with their friends. So here’s the special deal for Two-Brain Radio listeners. Save up to 50% for the first year using Arbox. Visit arboxapp.com/tbb to register to a free 10 day trial and schedule a demo with one of Arbox’s experts.

Mike (01:03):

John Briggs is an accountant, gym owner and author. He’s the perfect person to help you understand how the profit first concept applies to a fitness business. John runs Incite Tax and Accounting in Utah, as well as GSL Fitness. In January, 2020, he published Profit First for Microgym, which explained exactly how Mike Michalowicz’s concept applies to a fitness business. The link to purchase John’s book is in the show notes and the man from Incite is here to give us some insight. All right, John, welcome to the show. Are you ready for a short story that might hit a little too close to home for me?

John (01:34):

Yeah, I’m ready.

Mike (01:36):

  1. So here’s the thing. I started a business and my approach to getting profitable as fast as possible was by absorbing all the labor costs myself. So guess what happened when I tried to hire people to replace me, I bet you know, I was not profitable, so I didn’t actually have a business.

Mike (01:55):

What I had was a job and it wasn’t a very good job because I was working huge hours for no money. So we met in person, I think for the first time in Chicago, in 2019 at the Two-Brain Summit. But I wished that meeting had happened far earlier because I think you could have prevented a lot of problems for me. So I’m glad you’re on the show today to help some gym owners with some all too common problems. Ready to go?

John (02:15):

Let’s do this. You got it.

Mike (02:16):

  1. So right off the bat, what’s the shortest most direct explanation of the profit first concept, break this down for me. So people understand.

John (02:25):

Yeah. So I’ll start with the most basic explanation of the concept. When money comes into our businesses, that money has already been committed to other things. And so with profit first, all we’re doing is allocating some of those commitments ahead of time before we give ourselves a chance to spend that money. So that’s the shortest explanation, but I have to go into a little bit more of a moderate explanation. What we’re really protecting against that gets us in trouble is Parkinson’s law.

Mike (03:02):

And you wrote about this in your book, right?

John (03:04):

Exactly. So Parkinson’s law is as the demand for something expands, it will match the supply. The demand for something expands to match the supply. So what I’m talking about in this case is our money. If I have one bank account and I got a bunch of cash in it, think of that as a pile of supply, which means the demand to spend that money in the form of expenses is always going to increase until I have no more money left to spend. So what we want to do is create a false reality that we actually have less money to spend than we really do. And so with profit first, we recommend setting up, we call them the essential seven, seven separate bank accounts, and I can go over what each of those are, but each account is going to have a specific purpose. So when money comes into the business, I am able to then transfer some of this money to these other buckets. These other accounts. Now, the money that I have left in the account that’s for operating expenses, I can go ahead and let Parkinson’s law happen because that’s the purpose of the money in my operating expense account, is to spend it to run the business. But now I have other things which we’ll go over with the essential seven that are really important in the longevity of a business that we often overlook if we just have one bank account.

Mike (04:32):

Yeah. And that Parkinson’s law, it’s a thing, you know, I’ll give you one physical example, at one of my university jobs, I had to clean out a giant storage room in the basement of the university and we organized the whole thing, made all this space. And I was so proud of myself. I came in the next morning and all the space had been taken up by new stuff that had been moved in overnight. Right. And it was just like, someone’s like, Hey, we got space. Let’s fill it. You know, and it’s exactly—and then the principle can be found in like loot coins in video games or money or whatever it is. It’s like when we have a surplus, and I think you used a toothpaste analogy, when you’ve got a lot of toothpaste in the tube, you wrote in your book and said, yeah, spread it out, use as much as you want. But then at the end, you’re squeezing every drop out. And I thought that was such a great analogy because Parkinson’s law. If you start looking for it, you see it everywhere.

John (05:17):

Exactly. And the thing is if we use that toothpaste analogy, compare it to business. So if at the end I’m a lot more efficient with the toothpaste, still getting the great same clean. I’m just not being excessive. The same will happen to us when we use this method in our business, we are going to find the ways to continue to provide the great service that we’re already providing. Our members are going to still love us, but we’re going to do it in a more efficient way and we’re not going to let our business get financially fat.

Mike (05:50):

So before I ask you about the seven accounts, I want to ask you this other question, because I’m curious about this because you specifically know profit first for gym owners, and it’s a concept that applies to all business, but you’ve written the book specifically for gym owners. So I, as a gym owner was so guilty of paying myself last many gym owners have made the exact same mistakes. So why is it that so many gym owners fall into this trap? Is it because like, we’re trying to, you know, we want to put our staff first, our clients first, we’re guilty about making money or what is it that affects a gym owner specifically?

John (06:18):

Yeah. That, I mean, I think there’s a few things that at least we’ve seen and there could be other issues. So please don’t take this as an all-inclusive list. But I think the first main challenge the gym owners have is that we love to serve our members. The reason we’re in business is because we want the world to be healthier. Specifically, we know that we can have an imprint on our local community and the people who come through our doors, or if you’re virtual only now the people who come on and experience that, you are making their life better. Now because there’s a component, a strong component of service that comes with that, we just innately know, cause it’s an eternal truth, that when you help people, you’re doing the right thing. And so we just sometimes take that a little too far and say, well, if I’m doing the right thing, then naturally the income should follow and I should have profit.

John (07:15):

I should have money left over just because I’m doing the right thing and helping the world be healthier. Unfortunately, doing the right thing, yes, serving others will build your character and make you a great person. But it does not always translate into having money left over so that you can stay in business. I think that’s one of the first main reasons, but you said it too, and I’m just going to put a little bit of a different spin on it. We do want to take care of our staff. It’s a lot easier to hire someone in my opinion than it is to fire that person, especially knowing all the gym owners that we’ve associated with. I mean, almost everyone is just very likable and you want to be friends with them, just like you want to be friends with your coaches. And unfortunately, sometimes we have to make a business decision that affects someone’s lifestyle or their, you know, like, Hey, the business decision is I can’t afford to keep you. And I know that’s going to affect you negatively. And I’m really sorry about it. We basically want to avoid those things. And so we go longer than we should trying to support our staff. And unfortunately all we’re doing is putting the legacy that we can leave and the viability of the business in jeopardy, because we’re the ones now falling on the sword. So it’s a lot easier for us to sacrifice that instead of having to deal with that tough conversation with our coaches who usually are our friends as well.

Mike (08:42):

You see this debate pop up sometimes in CrossFit affiliate owners groups, or even times in the public where people will say, you know, how dare you charge $225 a month, that selects out a large number of people. If your service is so essential to so many people, you should be giving it away for free, or you should charge to make it more accessible to people. And like, there is a reality and there is a place for nonprofits and all that kind of stuff. But the other reality is that, and you and I know this from digging into the numbers with Chris Cooper, of course, you can’t run a business in that way. You can’t offer like $28 all you can CrossFit memberships and still turn a profit. Like it just, the numbers don’t add up. And yet parts of the community still will criticize gym owners for turning a profit. Like, have you seen that?

John (09:24):

Yeah, I’ve actually seen that. It’s crazy. It’s weird. I’ve also seen that. Yeah. Look, we have to understand 99% of the world doesn’t understand business. That’s why they’re not business owners and yeah, we would love to make it accessible. But in order to give back, you have to have something to be able to give. And it’s like, so those who have a big heart and want to be very charitable, the reality is that means you’re gonna have to be very profitable on something. The cash to be charitable has to come from somewhere. And you can’t, you just can’t do that by opening it up to the masses and making it quote unquote affordable for the entire world, you have to make it valuable, yes, but we have to focus on value and not affordability because guess what, there are demographics of people who will be able to find the value you offer and they’re going to be willing to pay for it. That leads to profitability. That then allows you to take that profitability and go do charitable things with it. But you have to start with the foundation of profitability as the foundation to the success that then gives me the ability to be charitable. You can’t be charitable and hope that somehow your business becomes profitable because of it.

Mike (10:42):

And I’ve seen, I’m sure you’ve seen this even more than I have with your work as an accountant. I’ve seen some businesses run by wonderful, you know, great hearted people who did some amazing things in the community, but ultimately couldn’t make it work because it wasn’t a business. And that was sad to see them go. And ultimately, because they weren’t profitable, the community lost their contributions because they weren’t able to keep giving them, they had to do something else to provide for their families. So that tragedy aside, I won’t go down that rabbit hole, but it is out there. So now why don’t you lay out for me the seven bank accounts that you mentioned? What are they?

John (11:14):

  1. Number one is the income account. The purpose of this account as stated is to literally receive all your customer deposits. That’s its only purpose. If you’re not familiar with the progression of profit first, it was initially created by the author, Mike Michalowicz, and in his first book, he actually says having an income account was an optional account. He then did a revised version based on the feedback from professionals like myself, who said, dude, it doesn’t work without the income account. I don’t understand it, but I ran profit first for myself without an income account for an entire year. And I always felt like the system wasn’t working, I couldn’t find the cash to do the things that I needed to do. And by adding the income account and it just—I don’t get the science behind it. All I can tell you from personal experience of my own and the hundreds of gyms we work with, you got to have it. OK. Income account number one. OK. Then we have a team member bucket, the team member account is for the purpose of paying your entire team. That’s your office, your joy girls.

Mike (12:30):

And we call them joy guys now, too.

John (12:33):

Joy guys, joy humans.

Mike (12:37):

Right? Exactly. Cover it all.

John (12:40):

Of course your coaches, because paying your team is either your number one or number two expense as a gym. It’s important to set aside the money as you incur it because that’s the last person you don’t want to be able to pay. I go into more detail in the book, but we recommend if you’re the owner and you’re coaching classes that the income you would have paid a coach to coach the class that you took over needs to be allocated to this team member expense and bucket, and you need to pay it to yourself.

Mike (13:21):

John, if you had said that to me in 2010, I would probably have a hundred thousand dollars more in my bank account right now. Where were you?

John (13:33):

Sorry. You said it earlier. When we started people fall on the sword, they keep their profitability up by doing all the work, but not paying themselves. And then when they get to paying the coach, they’re like, I can’t afford this.

Mike (13:44):

I couldn’t do it. I couldn’t replace myself.

John (13:46):

By setting aside the money into this account, you now know when you can afford to replace yourself and you know you have the cashflow to do it because you’ve already been doing it.

Mike (13:56):

It’s such a simple thing that makes such a huge difference. And it would have saved me, not just money, but stress and frustration and time and everything else that if people get nothing else from this show and take that, that’s still a win, but keep going and we’ll win some more.

John (14:13):

  1. So income, team member, then owners pay. Now, this is definitely pay for you as the owner, working in the business. And it basically all your pay minus what you would have paid yourself with the coaching work, because that’s in the other bucket, both of those go to your personal account, but this is a separate account. And this is for all the other stuff that you’re doing, but this is to make sure that you’re paying yourself first, because what we do not talk enough about in the gym space is the reality and danger of burnout.

Mike (14:49):

It’s real.

John (14:49):

And look, I work with a lot of entrepreneurs in a lot of industries, and I can tell you, the gym owners have the highest level of fortitude that I’ve seen in any other demographic of entrepreneurs. What that means is that you guys are willing to fall on the sword.

John (15:10):

You’re like those heroes in action movies. You’re like the Avengers, oh, I have a sword through the side of my face and I can’t walk, but I’m going to keep going. You guys fight through things and you can go years and years and years not paying yourself. But then reality will sink in. At some point, it always does. If you’re not earning a livable wage off of your efforts as a gym owner, there will come a time. And it is almost like a switch that gets flipped. It’s pretty quick. It’s like, wow, I can’t continue to sustain this level of effort, especially without anything to show for it because I have a life that I need to support. I have probably a family that needs to be supported. And guess what, when that happens, you will go out of business. So all that passion that you have in the world of helping each individual become healthier, it’s gone. You’re not there now. And all of that can be solved by being profitable. And that’s why we have this specific account of owners pay so that you will pay yourself first. And I’m listing them kind of in the order that I rank them. Like you have your income account, team members, owners pay. So there’s that. So those are the three—

Mike (16:30):

John and just to interrupt, like, you’re preaching to the choir in the sense, like, if anyone’s looking for confirmation, that literally happened to me, right. Where everything was fine until it wasn’t. And when it wasn’t, I wanted out really bad. And it was all because I wasn’t seeing the reward because I sat down one day and I did the calculation and said if I had paid myself even McDonald’s wages, how much money I would have. And I was angry and I had only myself to blame. Luckily at that point I had a buddy named Chris Cooper. We had known each other from our work at the CrossFit Journal over the previous decade. And I connected with him and he allowed me to offload a lot of tasks, responsibilities to my wife, where she’s now in charge of the business. And I focused on other stuff and things changed dramatically. And we do the profit first system with her. And all of a sudden the business isn’t a burden that I hated. It became something that, you know, supports our family. So everything you just described literally happened to me. And so if you’re listening out there and it’s happening to you, there is a solution. Keep going, John.

John (17:29):

OK, the next one is profit. So we separate these two because owner’s pay is the amount of money that we want you to effectively base your lifestyle off of. It should be an amount that you’re able to pay yourself at least monthly. The other aspect of being the owner though, is that you’re taking a risk that no one else is. Guess what? Risk deserves to be rewarded. The financial world calls it return on investment. When you buy stock and hope it increases, you’re looking for a return on your investment. This is the same deal, you actually have stock. It’s just not traded like whatever the S and P 500 is, but you own this equity in your business. You deserve to receive a return on that investment. That’s what the profit account is for. We use the profit account to give ourselves quarterly profit distributions. And what we do is we only take half of the balance in this profit account, because then the other half sits there as a rainy day fund and can be used in a time of crisis.

Mike (18:35):

A COVID fund. So to speak.

John (18:38):

I’m happy to say that of what I have seen from our specific clients that we are working with, every single gym owner who was running the profit first system prior to the COVID situation, they are still in business. And a lot of it has to do with the fact that they were using this profit account and it came time that they needed to use that other half that was left in the bank account, but it got them through it. And that I can’t tell you what type of psychological benefit that gives you as an owner, just to have that cash sitting there, knowing that you have a runway in case a crisis happens and you make better business decisions based on it.

Mike (19:20):

Well, think about like, they always say, Oh, you should have three months expenses or whatever it is. Like, whatever the number is in the industry, how many businesses actually do that? It doesn’t seem like very many. And when the crisis comes as it inevitably does, bad things happen, like, have you seen other businesses, not your clients or whatever, but just other businesses get decimated by not having that buffer?

John (19:40):

Totally. I mean, I actually have clients who got decimated by not having that buffer and they were in hyper-growth mode. It’s really important, guys. So just a little Ninja trick for you as well, which I’ve used, I use the profit distribution also as a way to eradicate my debt. So I might celebrate, and, you know, go and buy a gigantic tub of ice cream and eat it. I love ice cream. But the rest of that profit distribution, I’m going to put towards principal debt because guys, there’s a cost to having debt. And I get it. I’m not anti debt, but there is a cost to it and we have to be smart about it. If you don’t owe money, those payments you were making to the debt, like those can accrue in places, your savings increase.

John (20:31):

So there’s a lot of benefit for it. And I know a lot of people just don’t have a good strategy of how they’re going to pay down their debt other than making their minimum payments. So with the profit for system, you make your minimum payments. And then because you’re living off of the owner’s pay amount in that bucket, you can afford to use all this other money that’s for you in the profit distributions to help yourself grow wealth and improve the financial health of your life.

Mike (20:56):

So you’re talking about like Visa bills and like even mortgages to some degree, any like, you know, anything that’s charging that you owe interest on, that’s eating into you. You’re going to get rid of that with that profit account, or you can.

John (21:09):

You can. And I definitely recommend it. I love the Dave Ramsey snowball method, which doesn’t take into consideration the interest rate. It takes into consideration the lowest balance owed first. And so you pay off that debt first, and then you keep kind of going down that rabbit hole.

Mike (21:31):

I love it.

John (21:31):

We talk about this in the book and we have some online courses as well that go over that, but I don’t want to get too nitty gritty, but I love the system because it does help us get out of debt faster. And man, when that happens, you can see your financial freedom just grow so quickly once that debt is behind you.

Mike (21:50):

And it’s Lamborghini time.

John (21:52):

Sure, if you want.

Chris (21:55):

Back to Two-Brain Radio in just a minute. Chalk It Pro is a fitness app designed and built by gym owners for gym owners to solve annoying problems that make running a gym hard. It’s an all-in-one app that manages your members, including remote members. It also takes care of programming and it will help you keep clients engaged for longer. Use Chalk It Pro to increase value and build your bottom line. Add more personal training and remote coaching clients. Build a thriving community through social engagement and save loads of time on the backend. Do all this with one app, not three or four. Get your free trial at Chalkitpro.co

John (22:31):

OK, so to summarize. So far we’ve talked about income, team member, owners pay, profit, then tax.

Mike (22:38):

Ugh. All right, I’ll let you go on this one.

John (22:41):

I’m not aware of a government that doesn’t charge you tax. So, we got to save for it, guys. The last thing you want to do is get to a scenario where you’re already feeling strapped. Like you can’t put food on the table and then you owe a tax bill. We see it all the time. Like, wait, how much do I owe in taxes? How’s that possible? Where’s that money? We have to show them, because again, Parkinson’s law, you’re going to spend that cash, even though that cash was committed to cover your income tax burden. So tax, that’s the fifth account.

Mike (23:10):

By setting it aside, that’s brilliant. Because I’ve dealt with this. I’ve seen people deal with this. Especially the one that I saw most commonly was when I ran publications and we’d pay a freelance writer on a contract and they would get their check and they’d spend it. And at the end of the year, they’d come back and say, where’s my T4. And I can’t remember what it’s called in the U.S., the income statement. And it’s like, you don’t get one because you’re a contractor. And they’re like, how do I do my taxes? You’re like, well, you gotta file that stuff. And they get a return from their accountant who says you owe X, and they’re like, I spent it. Same principle with gyms, right. You’ve seen it.

John (23:40):

It’s not a nationality thing. It’s a worldwide human pandemic. And yeah, we will spend that money if we don’t set it aside. And here’s a great thing, too. If you use the right percentage, instead of being happy about getting a refund from the government, now you can be happy that you have the money to pay the tax.

John (24:04):

And if there’s money left over, you can use that for whatever the crap you want. It’s your money. It’s like Christmas in April. It’s great. OK. The last two, the obvious one which you already have is your operating expense account. This is where you pay all your bills out of, this is where you run the business. And then we believe in an equipment account. Wear and tear happens on our stuff, and we are going to need to replace that. So instead of putting ourselves in the situation where we’re hoping and praying our rowers don’t break down, because there’s no way in hell we’re going to be able to replace it, we’re setting aside a little bit of money every month into this account. We recommend each gym owner kind of figuring out what’s the dollar amount that they’re comfortable with. And once that dollar amount is in the equipment account, you can refrain from putting money into that account until you actually need to spend money out of it and you replace it. So this is another version of a rainy day fund, just specifically allocated to replace the equipment eventually will need to be replaced.

Mike (25:12):

If you’re a new gym owner and you just bought that gigantic Rogue order, and you’re having a great time, I will tell you, it is a consumable and you are going to start seeing equipment bills. If maybe not in the first six months, you will see them. And John has seen them in his gym. I’ve seen them at mine, put that money away. It is going to be needed.

John (25:30):

Yeah. And look, we tell our clients, please don’t drop that 50 pound dumbbell from over your head and throw it down on the ground, please. But they’re going to keep doing it and you’re going to have to replace that damn rubber sleeve thing. So those are the seven accounts.

Mike (25:48):

  1. So that is huge. So even just going through that, I see exactly what you’re doing there, where you’re taking the money and you’re putting it in its places. So that you’re basically, you’re drawing like gigantic walls between things so that, you know, you can’t creep from one to the other, like you can’t start taking, Oh, I’m just going to not pay myself this month because I’ve got operating expenses. Right. Cause that’s such a temptation. I talked to a gym owner yesterday who was dealing with the COVID situation. She does the profit first system. And I asked her, I said like, were you tempted at all to start paying yourself less to cover your expenses? She’s like, Oh my God, I sure was. But she didn’t. So it’s a win for John and profit first.

John (26:26):

Yeah. Dude, the temptation is real, even when things are good and you see that opportunity and the shiny object to want to pull from other places, like it’s there, but that’s why these boundaries work so well because it gives you just a barometer or a metric, a visual for you to realize, OK. Yeah. That’s a nice thing that I want to do, I see that opportunity, but I’m going to save up for it within this profit first methodology so that I can actually afford to pay for it because right now I can see I don’t have the cashflow for it.

Mike (27:01):

  1. So here’s the big one. And I found an answer with a gentleman named Ashley Coffey, who runs the profit first system. I found this on a podcast, previous podcast, but I want to ask you the answer. So gym owners often don’t pay themselves first because they, you know, quote unquote can’t afford to. So where does the money come from? Like, let’s say you’re in a situation right now and there’s a gym owner out here listening, who is in this situation where you’re not paying yourself enough. There’s no money. How do you make this shift? Where does the money come from?

John (27:29):

Yeah. And I’m really glad you asked this question because I think this might be one of the number one reasons why people don’t take courage and implement the system. Cause I get it. You hear what I’m saying and you’re like, I don’t have any money left over right now. And now you want me to allocate to all these different buckets. So let’s see. If I start with a negative number and I subtract more money out of that, does that make me positive now?

Mike (27:53):

I’m dying faster.

John (27:53):

Yeah. All right. Here’s the big answer. The money comes from your income account and really what’s going to happen is by doing the methodology, you will see the areas of your business that need fixed. And in this case, one of the obvious areas is it’s gonna highlight the expenses that you can’t afford to pay.

John (28:22):

And when you can’t afford to pay an expense, what you do is you allow that natural ability within you, which I have seen every gym owner have this. So that’s why I say it’s within all of us. You’re going to find the expenses that you realize you know, that actually isn’t adding anything to my business. It’s not improving my members’ experience, it doesn’t improve retention. It’s a nice thing to have, but it’s not a critical thing to have. Because ultimately if you’re running your gym and you don’t have any money leftover, you very likely, not always, but very likely have more expenses than your gym can afford. And you just need to get rid of those expenses. But the only way to figure, start figuring that out is to do the steps and to allow these roadblocks to come up and say, well, OK, I’ve allocated the money. I have all these expenses, but I only have half that cash available to pay for them. Now you force yourself to actually prioritize the bills. OK. Which are the ones that I actually need to pay, the most critical. Obviously I’m going to pay those first. Cause I only have X amount of dollars to pay for all these. You’re going to find certain expenses that you continue to push off and guess what? Those expenses you push off, they’re not critical. So you don’t need them right now.

Mike (29:38):

  1. So this is very interesting. I’m going to throw this at you and you tell me what you think of this answer. Cause this is what the gym owner told me. So I asked her the same question, where does the money come from? And she said for her, the money came from, she needed goalposts. And like gym owners by and large are driven people, right? Most of them do competitive workouts and they want to win. And the whole leaderboard thing. So she said for her, when she started paying herself and did this whole analysis that you’re talking about, she obviously cut expenses and changed some things up. But then she looked at the numbers and said, OK, for me to, you know, achieve this standard of living or to do whatever she wants to do, she needed this much revenue. So then she looked at just like you said, the areas of the business that needed improvement. And in some cases it’s going to be revenue. It’s not just cutting expenses. Right. She found that. And she said that goalpost and that accountability and that number drove her to accomplish what she needed to, to hit the numbers. What do you think of that?

John (30:35):

Yep. It’s basically just an advanced way to say what we’re saying here, because it’s both ends, right? You can’t cut your way to profitability, but you can acknowledge and identify the unnecessary expenses. So in the book I have an entire chapter on how to analyze expenses and I talk about what’s productive. What’s a productive expense and what’s a not productive expense. Crazy terminology there, but it’s simple, right? You can really determine if this thing is worthwhile or not. And then the other angle, which obviously Two-Brain is phenomenal at doing is helping gym owners reverse engineer. OK. If I need to make X amount, what does that revenue look like? And Two-Brain then gives the resources to help people figure out how can I bring in that additional revenue? You have to look at both. Even though I wrote the book and you know, profit first is the name of it.

John (31:29):

The reality is it’s not an end all be all solution. You have to have a healthy business. You have to have good standard operating procedures. You have to have a great culture and good coaches. There are so many components. Profit first is just one of those things that if you run it while you do all the other things, you’re able to do those things in a way that allows you to increase your profitability, because without these goalposts and boundaries, as your income increases, your expenses will always increase at the same pace, if not faster. And so profit first kind of gives you the ability to control the increase in expenses as your income continues to increase, which will happen if you follow what Two-Brain teaches.

Mike (32:12):

Yeah. And so I had started with Two-Brain I want to say in 2017, something like that. It’s been several years anyways. So we had gone through a lot of this stuff, but when I read your book just before it came out last year in January 2020, I went back and I looked at my expenses and I did a hard look based on what I read in your book and said like, is everything here legit? And luckily, because I had done a bit of work for this, I found that everything was legit. Like there was not a thing I could cut. You know, I couldn’t cut my phone bill at the gym. Like there was things that just needed to happen. But when we’d done this first expense audit, exactly what you said, we found that, OK, we’ve cut everything now.

Mike (32:48):

Now we need to generate some more revenue. And that’s what we did. Right? Because we had the numbers in mind. I knew what I wanted to pay my wife. And that’s what Chris is now developing. Right? He’s got this whole system where he wants to get gym owners, first to $100,000 a year salary. And exactly like you said, we can reverse engineer all the parts that need to go on the place. And that profit first system is the number one step that Chris is recommending is pay yourself first concept is now a huge part of our roadmap to help clients. So I want to ask you this, what generally happens to a business when someone implements the profit first strategy and you know, I’ll preface this by saying, can someone like stick a toe in and start by with a hundred dollars a month or something like just to, just to pay themselves something like, how does it work and what happens?

John (33:27):

Yeah. I mean, profit first is a set of guidelines. It’s a framework. It’s never been designed to be, like black and white, do this exactly like this because we are all different. And especially when we’re in different countries and even different locales, like we were just talking before we started recording. My gym is located in Utah and Utah has done a pretty good job. So we weren’t shut down for too long, but you’re where you’re at. It’s a stay at home order. So obviously there’s a lot of different factors that go into these aspects. But when you implement profit first, if the whole thing seems daunting, start small somewhere, paying yourself first is probably the best place you can start because you’ll start, you feel the benefit from running it. And then, as Chris taught me, success precedes motivation. By paying yourself a little bit first, you’re going to get that success. And you’re going to be like, maybe there’s other components of the system that I should start implementing. So if you’re not paying yourself anything right now, absolutely. What does Chris recommend? Like write out four weeks in advance of checks that you’re going to give yourself starting with like a hundred bucks or something and just like start it. That is basically the same. That’s the profit first system. Start by paying yourself something and commit to it and let yourself figure out the other things.

Mike (34:52):

So you can start small and you can make adjustments for, you know, unprecedented pandemics and so forth. So you can do that and get the profit first system rolling. When you get a gym business that puts the whole thing in place, and let’s say they’ve gone a little bit further and they’ve got these seven bank accounts. They’ve got everything in place and they’re following it. What generally happens to that business and to the owner’s life?

John (35:14):

Yeah. Take-home pay increases, their stress level decreases because they’re able to—they’re now comfortable that they can pay themselves. The stress decreases also, because now they’re not going to be worrying about how am I going to pay my tax bill. They have clarity on when they can and can’t afford to bring on a new coach. So all of those things lead to the ability to make better business decisions, the freedom to not feel desperate when having to make business decisions. And so they make the right ones, not just the ones out of desperation and in general, their gym also starts to increase in revenue as well.

Mike (35:57):

Just the stress level alone reduction is a big win, but you know, having some extra money helps too. And we all know, you know, or at least many of us know from getting through some stuff, as your stress level goes down, your income goes up, as a gym owner, you become a better person, right? You’re just not as crabby. You can give more to your members. You can go back to what we talked about earlier. Do some charity work. You’ve got some spare time. You’ve got some money to donate to charity. Like everything kind of gets better in that entire orbit. And it’s such a cool thing. I just love the way you put it together specifically, like Michalowicz’s system for gym owners works so well. So guys, please click the show notes and get Profit First for Microgyms. It will help you a ton. So John, step one is ordering that book. That’s what I’m getting gym owners to take action on today. Order that book. Step two, you might’ve said it, but we’ll just confirm is to just start pay yourself something. Or if we were going to tell gym owners to take action today, what would you recommend they do right after this show? They’ve ordered your book. Now what?

John (36:53):

I think, I mean, absolutely pay themselves, but I really want them to really make an assessment of where they’re at. Be honest with yourself, because depending on what stage you are in the business, that will probably indicate what your next step should be. But absolutely, if you’re not paying yourself, that is the most critical step. Because once you give yourself that success, a lot of other stuff will start falling into place. If you are paying yourself, setting up bank accounts would be the next obvious step.

Mike (37:23):

  1. So you’re just going to take, and you said you ordered the seven that we talked about in order of how you would set them up. Is that correct?

John (37:30):

Well, owner’s pay. I would probably do owners pay before I do team member expense.

Mike (37:35):

Read me out if you don’t mind your recommended order. So if someone’s going to go to the bank today, what would be the order of accounts? Let’s say they only get three done or something like that. What are the most important?

John (37:44):

Owners pay, tax, and I mean, honestly the income account, because what we didn’t get into, which I do in the book, it’s the system of how to manage your cash. And we recommend you sit down, at least twice a month, but no more than once a week. And when you’re sitting down, you’re taking the money that’s now deposited into that income account. And you’re putting into these other buckets that you set up and just knowing from experience that when I was having my deposits sent into my operating expense account, it just didn’t work as well. Just setting up the income account is going to at least give you some clarity on the rhythms of cash with your gym right now. And then you allocate to whatever number of accounts that you have decided to set up.

Mike (38:36):

John, thank you so much for writing that book and for taking the time to share this with everyone, do you have a website that people can go to to find out more?

John (38:42):

Yeah. So profitfirstformicrogyms.com has all the information you could want. We have a bunch of free resources. In addition to that, incitetax.com is our accounting firm brand. We also have a ton of resources there. As a CPA, I had to include an entire chapter in my book on tax strategies. We talk in more detail about a lot of those strategies in blog posts on our website. So either of those websites hopefully will serve you guys really well.

Mike (39:17):

Yeah. And I know that you are no fan of the IRS and you’ll make sure they get every dollar they’re owed, but not a penny more. And that’s important for everyone. So if you’re not super happy with your tax situation, figure that out because John has some clever ways for you to save as much money, keep it legal, but don’t give them more than they need. John, thank you so much for being here. I really appreciate your time and I hope some gym owners contact you.

John (39:42):

Thanks Mike.

Mike (39:43):

I’m Mike Warkentin, your host on Two-Brain Radio and John Briggs was my guest today. Stop what you’re doing and join the Gym Owners United group on Facebook. Chris regularly posts articles, instructional videos, and advice in there. It’s the only public group he’s in. That’s Gym Owners United on Facebook. Join today.

 

Thanks for listening!

On Monday, Two-Brain Radio presents marketing tips and success stories. Chris Cooper delivers the best of the business world on Two-Brain Radio every Thursday. 

To share your thoughts:

To help out the show:

  • Leave an honest review on iTunes. Your ratings and reviews really help, and we read each one.
  • Subscribe on iTunes.
Share on facebook
Like
Share on twitter
Tweet
Share on google
Share