Operating a gym can be a very profitable endeavor, thanks to customers who typically pay yearly or monthly memberships. When dealing with prepaid assets such as gym memberships, however, things can get tricky if you don’t you manage that unearned revenue well. No matter how popular your gym, if you lack the cash flow to keep facilities well-maintained, you run the risk of losing your core customer base, which could result in your having to refund unused membership fees. Learning to manage your prepaid assets is extremely important, especially when embarking on new endeavors that lack long-term clientele.
Gym Memberships as Prepaid Assets
When your gym receives upfront payments for yearly and monthly memberships, it’s receiving payment before it has earned the revenue. In accounting terms, this makes those gym memberships prepaid assets, or funding for future use or services. You reduce the carrying value of those memberships on your balance sheet through amortization. This makes tracking renewals and notifying customers of membership fees due exceptionally important. Monthly memberships are also prepaid assets because members can ask for pro-rated refunds for unused time unless you clearly state a different refund policy at the time of the contract. You can add “no refund” clauses, but you should usually return funds to dissatisfied customers if you want to avoid bad reviews and ratings.
Managing Membership Cash Flow
Not keeping your prepaid yearly membership fees separate can lead to cash-flow standstills that leave you scraping for pennies, and that goes double if unsatisfied customers demand refunds. To ensure you have funds available when customers ask for refunds, you should set membership payments aside in an unearned revenue account, then move amounts over monthly as customers use their time. By keeping track of your revenue as it occurs, your business is more likely to have the cash flow necessary to handle monthly bills, such as rent and insurance, and to address maintenance and repair issues in a timely fashion.
Additional Revenue Streams
While membership fees generally cover several your gym’s financial requirements, additional revenue streams help bolster your bank account, especially in January, when individuals looking to meet their New Year’s fitness goals prepay for their new yearly memberships. To take advantage of all the seasonal traffic in your gym while boosting your bottom line, consider setting up a juice or smoothie bar, selling pre-bottled protein shakes and other healthy drinks, or offering complementary supplements for those doing weight training and cardio. Another idea for generating additional revenue is charging new members an initiation fee, which is a one-time fee charged at the time of account setup that requires monthly payments to stay active. You could charge customers a $100 fee that covers a lifetime initiation, but still charge a $20 monthly fee the customer can pay yearly or as they go. Remember that initiation fees count as deferred income and must be entered as such for accounting purposes. While operating a gym can be challenging, it also has numerous rewards. Keeping cash flow running smoothly helps take some of the stress and worry out of managing your business while providing clients with a stable, reliable place to learn and continue healthy habits.