What if your business wasn’t a labor of love that required an occasional cash infusion from your savings? What if your business actually improved your lifestyle? It can be done. And the owners of CrossFit Medis in Sweden did it. Oskar Johed will explain how his business supports him and his partner after this.
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It’s Two-Brain Radio. I’m your host Mike Warkentin. What’s your net owner benefit? This number includes anything your business pays you or buys for you. The higher the number is the more a business is doing to make your life better. If you have a negative number, your business is likely making your life worse. At CrossFit Medis in Sweden, partners Oskar Johed and Karl Solberg posted top numbers in the Two-Brain family for October. So Oskar is here to share his wisdom. Oskar, welcome to Two-Brain Radio this morning. How are you?
I’m doing well. Thank you Mike.
I said this morning, but it’s afternoon in Sweden. I think. How has CrossFit Medis doing these days?
It’s doing well. And since the last time we’ve spoken, we’ve opened another location as well. So we are running two locations currently.
Congratulations. The reason you’re on this show is to tell people about your net owner benefit, score for October you and Karl Solberg, your partner, had one of the top scores in all of Two-Brain, and we want to pump you for information. How does that sound?
I’d like to share anything I have to make people’s net owner benefit go up.
I appreciate it. So what was your net owner benefit for October? And can you tell us some of the things that it includes besides just pay?
Yeah, so I think in US dollars, I think it was about 16,000 US dollars for October.
Is that for both owners or is that for each owner? How does it work?
That’s split between us. So more specifically, so as hopefully most people know the number includes any type of benefit that we derived from the business. That could be pay. It could be dividends. It could be pensions. It could be anything that the company essentially pays for us. So for us, it’s mainly going to be salary and cash payments and some can be in dividends and some can be in regular salary, but that’s where the majority of our numbers come from now. No we also have our company pays for some life insurance and so on and so forth. So that’s included in that number as well.
- That’s interesting. There are other gym owners, like I know Chris Cooper’s talked this in his blog. His company pays for his truck and other gym owners pay for theirs and pays for their cell phone, there are gym owners who write off portions of home offices or things like that. It can even go as far as like, you know, pens, pencils, notepads, and whatever else, whiteboard markers, and whatever else that might provide you with a benefit outside your gym. Correct?
Correct. Like anything that the company pays for us to either run the business or anything that you’re allowed within the legal boundaries of the country that you can have your company pay for you. So that’s going to be, it’s gonna differ per country, but generally anything that the company can pay for you is generally favorable because that’s gonna be paid with pre-tax money.
Yeah. And that’s a big one because it really, I mean, tax laws are different all over the world, but no one likes paying tax. So if you can pay for things that benefit your lifestyle before you pay income tax and the company takes the hit on that, because I’m not sure what it is in Sweden, but in Canada, corporate taxes are much lower than they are for personal taxes. That’s going to be a benefit to you. Is that the case in Sweden as well?
Yes. And that’s the reason why our numbers are the way they are. So for income tax, we could pay up to 50, 56%, but corporate tax could be as low as 20%.
Right? So there’s the first tip right there guys is if you’re listening, check your local tax laws and figure out what the rates are, wherever you’re at, if it’s in Canada and Sweden, you know already that your corporate tax rates are going to be lower than your personal income tax. And then you can start talking to your accountants to find the legal ways to put things through the business. And of course you want to stay on the side of all laws and so forth because the IRS and the CRA and whatever it’s called in Sweden, will figure things out. You got to stay on the side of laws, but if you do that, there are some very legal ways to put things to the business that does benefit you as an owner. And I want to ask you about one specific one that you mentioned that I haven’t heard before. That’s life insurance. What is that? The company pays for your life insurance?
Yes. So, the company as a benefit, we can set up store company pays for pensions as well as life insurance. Because our government probably understands that our system is not going to be able to provide us with lifestyle that we have after we stopped working or the traditional sense when you stop working when you’re 65. So it’s favorable for us if the company pays some of the pensions life insurance for us, because that’s going to reduce the tax burden for the company and for the individual.
I haven’t heard a ton of gyms. I am sure there are some out there, but you’re the first gym owner I’ve had a chance to talk to about this who have actually set this, something like this up. For most gym owners, they’re just thinking about just pay or maybe a company car or something like that. When did you come up with this idea of life insurance and pension for you through the company? Was that I know you have a financial background. Was this something that was related to that? Or how’d you guys figure this out?
Well, I think that’s most people. So the pension system in Sweden is built that way. So that obviously some parts of your income tax goes towards the general pension. That’s not enough. And then you can have your private life insurance and also a pension, but then the company can pay for it as well. So it just comes down to talking to someone that knows stuff about the tax system, I would say generally, and talk to an advisor. Now, and then that’s going to be my general advice to talk to someone that knows about this, because like for instance, in Sweden, you can either have 40 or 30% corporate tax or 20%, depending on how much the total salary is for the company in relation to the owner’s benefit. If that makes sense. So if we as a small business employ a lot of people, we can have dividends with lower tax rate. So there are different ways you need to figure out. So just don’t go by, you know, don’t just do the simple way of just like accepting status quo and go with it. I think this is something I should actually invest time and money into figuring this out because over time stuff like this compounds.
Yeah. And it’s really one of those Two-Brain principles where you look at ways that you can get your business to work for you and do more for you as a business owner and where you spend your time. And for some people, potentially you, because you have this financial background, which we’ll get to in just a sec, you probably have an advantage on some of these things, other gym owners maybe don’t, and it’s going to be well worth their time to talk to a professional who can navigate tax codes and corporate laws and so forth very quickly. And you know, at our gym CrossFit 204, years ago, we got a bookkeeper and a corporate accountant, and they saved us so much time and money because I don’t like figuring that stuff out. It’s not a good use of my time.
I’m just banging my head against a wall. If I ask an expert, they tell me, yes, you can do this. No, you can’t do that. Do this, save that. And I can follow those instructions. So I love your advice. It’s really important for gym owners to talk to someone who knows, because I really think that that’s going to be a huge investment. Like you said, it compounds over time. So like, you know, an hour or two invested now setting up, say a life insurance pension plan might benefit you the tune of a million dollars when you’re 65. So tell me a little bit about your financial background. I know I know a little bit about it, but just give us a quick update on that, and then a little bit about how that influences your gym, because I know, I understand that when you and Karl set this thing up, you didn’t set it up just as a hobby, which is the mistake that I made back in the day in 2010. But you guys set it up as a business that would support you. So tell me a little bit about how that influenced CrossFit Medis.
Right. I spent 16 years in corporate banking. I spent, I was advising multinational corporates on like how to manage their liquidity, cashflow and stuff like that. And I also spent a few years doing trust trading. So I have decent understanding of accounting and the ins and outs of numbers and how they relate to each other. So that was favorable for us when we set up our business, the gym, because we both had business or we both had families we need to provide for. We were fairly old when we started our gym, so we were like in the thirties plus, so we needed to bring in home some money. So we couldn’t necessarily for longer period go without pay. Now. So we set it up. Here’s another thing.
So yes, you talked about this before about, you know, what are we doing to get to the point where right now? Well, we did, both of us did work probably the first year for free. So we essentially depended on our wives. Now the one thing we’ve done over the years, we let things compound, as we talked about. I’m a big believer in compounding. So you don’t have to put in twice the work to be twice as good. You just have to be slightly better then let time do the magic. So our numbers might be pretty high today, but they obviously weren’t as high last year and the year before that and so on and so forth. So we set it up with an understanding of how to run a business and we paid ourselves after.
Yeah. So I think the key there that I’m getting from you is that, you know, you didn’t set this up just on a whim and you didn’t set it up as a hobby. And like I said, I made that mistake where I had another full-time job. And I set up my gym on the side as a hobby that I was really passionate about, but eventually it was taking up too much of my time and, and not paying enough. And I really wanted to increase my net owner benefit, which was probably less than zero for a lot of years. So you guys didn’t make that mistake. You decided right from the beginning, OK, we’re going to set this thing up properly. We’re going to use it to support our lifestyles and our families. And we’re going to incrementally increase. I love what you said, you know, let time do the work. That’s, you know, it’s the same thing for fitness, couple of workouts or a small improvements every day creates this monolithic improvement in years. So I love that you guys have set that up for your gym and you talked to me just before the show about how this net owner benefit isn’t something that just happens. It’s kind of the function of a thriving, successful gym overall. Right. Do you agree with that?
Yes, obviously, in order for you to be able to pay yourself a general salary or dividends or any kind of benefit from the company, there needs to be enough surplus profit for you to distribute that to you as an owner, right? So you don’t necessarily have to have high net owner benefit because your business is thriving, but there’s no way you can have a high net owner benefit if your business isn’t thriving. If that makes sense.
So talk to me a little bit about profit margin. Is that something that you set up right from the beginning at a certain percentage and you know, was it good or has your profit margin increased over time to a point where you’re now comfortable and you can drive up this net owner benefit. How has that gone?
Obviously for, you know, as I said, the first year, Karl was the only person working in the business, I was still at the gym and he probably had dozens of dollars in pay that year. Dozens. Right. And the first year I left the bank to work in the business, I didn’t take salary the first year. So that was, we took a calculated risk that we needed to keep this money in the business, to keep paying rent, to build up momentum and get the flywheel spinning to the point where we are right now. So we’ve always had an understanding, I think, of where we wanted the business to take us and what we needed to support ourselves, but also the long-term commitment we made to our members and their families, which is we want to fundamentally improve their health and fitness.
So we can’t just have a business that is doing great one year, and then it’s losing money next year to the point where we have to cut our phenomenal staff, because we’ve made a commitment to them as well. So I think that even though we are clear on what we’re doing good today, and obviously our business is way different today than it was how we ran the business six or seven years ago, we had the same vision, the same idea of how we run it. We’re just way more professional now. We haven’t really changed a lot at the fundamental core of the business. And I think that’s been helping our success.
For you it wasn’t, you really weren’t taking a short-term view where it’s like, OK, we just got to survive the year we have to find rent for this month. You were really setting up like a long-term plan right from the beginning that would allow you to create obviously stability for your family. But I love this part, also stability for your clients, right? Because if your business goes under, you’re left with 300 or whatever, clients who no longer have a place to train and their health is going to be impacted by that.
Yes. Yes. I think that sums it up very well.
So you work as a certified Two-Brain mentor. So you work with gym owners all over the place. What are some of the mistakes that you see that would affect people’s net owner benefit number, like whatever stage of entrepreneurship the mentees that you’re working with are at, what are some of the things that you try to correct with them so that eventually they’re going to have this large net owner benefit?
Right. I think it comes back to what we talked about a few minutes ago is that in order for someone to have a high net owner benefit there needs to be enough profit for you to take that out of the business. So obviously in order you, we can talk about profit first principles or whatever, but there are two parts. You need a high revenue, but also you need to make sure that you control your costs. Generally costs are not generally the big problem. I think where people could be slightly, like we haven’t bought a lot of stupid equipment over the years, because we said from the start that we’re not going to be competitive gym, whatever that now means. But like, so we haven’t, we don’t spend too much stupid stuff. But that’s a weird—so the less you spend, like if you don’t need a yoke to run the business, whatever the cost of the yoke, that could be essentially money you take out of the business that would increase your net owner benefit.
And same thing goes for profit. Now, I think the best way to run a profitable business is to be consistent and be very clear on who you’re for and who you’re not for. So making sure that this is what I think people get, you know, trip themselves up. They have a long-term vision of where they want to take it, but their daily actions are not necessarily taking them towards that. They’re so bogged down and doing random stuff. They’re not necessarily taking them towards their vision or their mission or whatever you decide to call it. So they take a longer route to get to where they end up, where they should end up. So their profits are not high enough because they aren’t clear enough on how to run their business. And that’s generally made because the daily decisions, they don’t have a good filter for deciding, am I going to do this?
Yes or no. Is this something that is long-term gonna drive up the profit for my business? And gonna be of service for the clients and my staff? Yes or no. Because if you’re doing that consistently, then time is going to work magic for you. And you’re gonna probably over years, double your revenue as well as profit, but not necessarily working twice as hard.
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That’s actually fascinating that you kind of tie it all together in this long-term vision. And I’ll break it down into one specific thing that you mentioned. There are so many gyms out there that have blown tons of money on glorious equipment. You know, and I made this mistake. I didn’t make it to a huge degree, but I definitely bought some things that we just didn’t need. And, you know, you mentioned a focus on exactly who you serve and what do those people need to accomplish their goals. And Chris has created some YouTube videos about this. What do you actually need to get a client fit? And for most people it’s not, you know, the special treadmills, it’s not the yoke, it’s not the strongman things. Chris had a video talking about the viper log that he had in the back of his gym that’s now collecting dust, the reverse hyper. That glorious fitness equipment that you buy because you think it’s cool, but it doesn’t really offer a return on your investment. And like you said, every mistake that you make like that with gear or anything else, but we’re talking specifically about gear here, that takes away from your profit and your net owner benefit and the function, really the focus there is that you have to know who you serve and what they need. And a lot of gym owners don’t think about that, or they don’t have a clear picture of it. You know, I made the mistake too. And you mentioned this, competition. Competitors need more stuff than the average person. The average person probably needs a plyo box, maybe a barbell and a skipping rope. Right. Did you know right from the beginning, what your customer avatar was and who exactly you would serve when you set up your business?
I think so. I think we’ve been very consistent with attracting the right type of clients for our business. Like we set up from the start, we still have a shirt-on policy. And the reason why we had that is that we took from marketing perspective, like when we opened in Stockholm, maybe there was, I don’t remember the exact number, but let’s say there were 20 gyms in town. So if anyone wanted a CrossFit gym, you know, regardless of location, you had like a one in 20, we had like a 5% chance of being picked. But if we decided that we’re going to be an outlier, we’re going to be something very unique in one sense, which is probably going to be attracting right type of clients, we said, if we have a shirt on policy, we’re the only gym that has that in town, we’re going to be the only gym in that category.
So for the people that don’t care, we’re essentially a 5% chance of being picked. For the people that do care, whatever signal it says to have a shirt on versus shirt off, we’re going to be the only choice. So that has kind of guided our clients from the start. So even though the clients we had six years ago are very different from the clients we have today, our clients today are buying way more personal training than in the beginning, for instance, but they showed the same characteristics and to have the same understanding, and we still believe in the same type of delivery of our service.
That’s interesting. I love that you’re narrowing things down and making it easier for specific people to choose your business, as opposed to someone else’s. Talk to me a little bit about staffing, because a lot of owners will get into a trap where their net owner benefit goes down, or it doesn’t increase because they end up spending way more money on staff. Have you always had a clear picture of how much of your revenue goes to staff and have you, or have you made adjustments over the years to make sure that as an owner, you know, Chris Cooper’s talked about eating the sandwich, you get fed because if you guys don’t get fed and your families don’t get fed, your staff doesn’t get fed.
Yeah. So we, I think from the start, I think the numbers that we talked about, you know, 22 and 33 and 44% of the 4/9ths model is a phenomenal tool to make it simple for most people. But we’ve now come to the point where we don’t rely on those numbers as like dramatically as we did in the past, but they’re still guiding, like we need enough money to, you know, 33% profit margin is still something we look at. And our fixed costs. Our rents are very high. We got two gyms here in town. And so we pay about, I would say 15 or 16 thousand US dollars a month. So we can’t do too much about that. We can drive down the only way to drive down that number is obviously to increase your revenue, but we also want to make sure we pay our staff as much as possible because we want to keep them.
It’s very expensive to hire and getting staff that stays for a while and then leave. So it’s a balance. Like we we’re never going to be able to pay more than other service industries that will—never is a strong word, but it’s going to be harder for us if someone is looking for pay, but we’re taking the long-term shot as well to talk about our vision, mission values and see how they can play an integral part in actually fundamentally improving our members’ health and quality of life. So we want to talk about the long-term vision for them as well, how they can build a foundation here, but we also want them to make as much money as possible. So we keep charging more for our services continuously, but, you know, we can’t overpay staff because then the business is not going to be around unfortunately.
Right. And for people who don’t know, the four ninths model is you’re guiding lighthouse for how to structure your business, essentially. And like you said, you want a profit margin of 33%. You want to keep staffing to 44% and then fixed costs should be 22%. And there is some variance in that, of course, depending, like you’re saying, you’re now in a place where rent takes up a lot. It’s just a starting point where people could look and say, OK, I need to carve out some profit and it should be 33%. My salary cap, 44%, my fixed cost 22, and a mentor can help you adjust those and say, OK, you know what? Your rent, you don’t have an option. Your rent’s a little bit high. We can make some adjustments here and there. But the point of the 4/9ths model is to make sure that you are setting aside a realistic profit margin that will support your lifestyle and the rule of thumb right now, 33%, which is gym owners have done that.
I mean, you’ve seen in your mentees, a lot of gym owners have hit that percentage and it increases their net owner benefit. And sometimes it requires some adjustments to fixed costs. And that might be like, wow, you’re not using your space. And it’s paying so much rent. Let’s make some adjustments. Some people have staff costs that are way out of whack, that are actually creating unsustainable businesses. So that 33% profit margin actually allows owners to have a net owner benefit. Whereas if it’s zero, you have nothing and you’re in trouble. Your gym’s not going to be there for your staff or for your clients. You talked a little bit about, you know, net owner benefit as a function of just your gym in general. Do you have specific plans to drive this number up or is it just, we’re going to make CrossFit Medis the best business that we possibly can? And the net owner benefit number is going to come up as a result of that? Which plan is yours?
So the specific plan is obviously to be slightly better tomorrow than yesterday. If we keep doing that broken record again, but like we do believe in compounding and we have pretty ambitious goals for the business. Like we want to keep being better, you know, each day. And here’s the coolest thing about, you know, putting numbers into context. If you could be 1% better today, which is theoretically, if you could be 1% better a day for a year, that would be 38 times better. Now, but that’s pretty cool, like at least—so in order for someone to be twice as good next year, you don’t have to do that much work. You just have to do something better and keep that going and let time work for it. Now, the other way, goes around. If you’re like 1% worse each day, I think that’s going to be like 98% worse than you started. But specifically to drive the numbers up.
Yeah. We want to keep making sure that our business keeps growing. I think we’re probably going to aim to hopefully, maybe at least 50 or 60% higher revenue next year. And as a function of that, I think our net owner benefit could follow along because we are monitoring the profit margins. And if the gym, you know, increases its revenue and the fixed cost stayed the same and we have a salary cap of 44%, that essentially that our profit is going to increase by 50%, which means that we can allocate 50% more to ourselves or invest in something, another business if we want it to. But that’s essentially not doing anything. The point is not to drive up the number. We just want to keep building an anti-fragile business that just keeps making the opportunities for our staff to create meaningful careers and to fundamentally change our members’ health and quality, and also bring home enough to our families, Karl’s and my family. So we can have them, support them the way we want.
I love it. So for a gym owner who’s out there right now, and hasn’t thought about a net owner benefit at all. And it’s just, maybe it’s just a labor of love. They’re doing everything at their company. And they haven’t thought about this. What’s something that someone can do right now to take action. Whether it’s a short-term small thing, that’s going to have compounding effect in 10 years or something else that they can do right now. What would you recommend that owner do to see more benefit from their business?
I think there are a few perspectives that we can double click on. Like one, obviously I obviously believe in mentorship and I do believe in what we do in Two-Brain, I think to get outside perspective is very helpful. Now we have something that’s kind of different from the way we run our business compared to other ones, we have a external board of directors. So we have a mentor, even though Karl and I are mentors ourselves, we do have a mentor in Two-Brain. But we also have a board of directors that keeps us accountable. So we have a shared, or it’s actually the board, you know, the chairwoman of the board. She has been on multiple boards on the Swedish stock market. So she keeps us accountable. So we have an outside perspective, which is like, they don’t necessarily have an ownership in the company, but we have elected them to be on the board so they can ask us the questions we don’t necessarily want to work on.
So, outside perspective is very important, that accountability or whatever you want to call it. I think that’s one thing. If that’s a mentor or board directors or some kind of advisory board, having someone else to keep you accountable is very important. Now. So then short term, I think, or that’s both, short-term, long-term. I think setting a long-term goal where you want to take your business and then obviously work back towards that, but making sure that every day you’re taking steps that takes you towards your long-term goal. Cause I find myself multiple times, I set a you know, long-term plan forward in the future, but the daily steps, daily actions I take are not necessarily taking me right there. So then I’m going to be disappointed in the future that what we’re doing does not take me there, but it’s because of daily decisions. I avoid some of the harder decisions, the harder conversations. But if I have a clear plan and I know where I want to take it because I have a reason for me to be in a place in five years, then it’s going to be easier for me to take necessary steps today and stay away from the easier things that are not taking me there. And that too comes down to accountability. Now I have a partner, we have a mentor, but we also have a board, because running a business is very, very hard.
Fascinating, and people, if they’re listening out there, I mean, the advice is to get some outside perspective. I talked about that a little bit with specific regard to financial experts, but the outside perspective of a mentor is invaluable. I’ve experienced that personally. You’ve obviously experienced that as a business owner and as a mentor helping other business owners. If listeners want to hear more about how to bring can help, you can certainly book a free call. Go to twobrainbusiness.com and click the book a call button. And you can hear exactly how a mentor can help you with your business. That mentor is going to use the Two-Brain roadmap to target specific actions, small actions, small steps that are going to have a huge effect over time. And I love what you said about compounding. Two-Brain Roadmap is a compound interest tool where every step that you make on this roadmap, and we have all these different milestones and categories where you’re taking specific action to cross things off your list. And as you cross off more and more things, you develop this huge business momentum over time, which will then create a huge net owner benefit. We actually have this all mapped out step by step, but I really think it is a compound interest tool. Would you agree Oskar?
Yes, absolutely. I think that’s it. I think that if you start understanding how to get something moving and then let it work its magic, time is phenomenal. So the dashboard and the roadmap are tools to make sure you’re taking the right step and focusing on spinning your flywheel so we can keep spinning that plate until you can take the next one. So I think that over time, if you start doing the right things at the right order, that roadmap is phenomenal to visualize compounding.
Thank you so much for your time today, Oskar. It’s always a pleasure talking to you and I appreciate your perspective, the long-term vision inspiring gym owners to drive up their net owner benefit. Will you come and talk to us again?
I’d love to.
Thank you so much. We’ll talk to you next time. Thanks Oskar. That was Oskar Johed on Two-Brain Radio. For a host of free resources from Two-Brain founder, Chris Cooper, head to twobrainbusiness.com and click free tools. You’ll get over a dozen free guides that will help you in your business today. I’m Mike Warkentin. Hit subscribe for more episodes of Two-Brain Radio.