Knowing your financials
A few months ago I wrote Is 50k enough to open your own academy? And I was really surprised by the amount of comments and feedback that I received.
Short answer: Yes, you can open your academy with $50,000. In fact many people have done it with far less.
Having this much money or more will not only afford you better facilities in a better location but also access to highly skilled instructors.
Being able to bypass a lot of the physical hands on work that many martial arts academies with less resources go through initially. Letting you focus on developing systems and people.
But there is a catch.
With more resources there is a tendency to think that most problems can be solved by throwing money at them.
In fact, sometimes too much money can be a bigger problem than not having enough money if you can believe it.
I wish I had 50k when I cofounded my first martial arts school. It would have made a lot of things easier.
But because we didn’t have a lot of money. That forced my business partner and I to keep track of where every dollar went. Keeping costs as low as possible
I’m going to ask that you take the same diligence and self discipline that you use everyday in your martial arts training and try to apply it to your business.
No easy task.
We are going to go over a few technical terms but stay with me.
My friend Charles brought up some important topics that I did not mention in my first post that I am going to address in this post. Charles writes:
I’d add financials: knowing the numbers. How many students to break even? Churn rate. How many students in Marketing gets people in the door, sales is what turns them into students. What other ways can you monetize besides the $100’ish a month?
Breaking even is an accounting term that means that your martial arts business is able to meet all of its financial obligations and total costs including: rent, utilities, payroll, insurance etc.
This means that you are not losing money in your business but also not making money.
But that’s okay!
You would be surprised by the number of companies that haven’t made any profits. A number of tech companies come to mind.
Instead focus on knowing your finances.
It’s important that you have your finances down because when you decide to open up your martial arts business you are no longer just responsible for yourself and your family’s well being.
You are also on the line for those that you employ and their families, as well as all of your clients and their families.
I’m not saying that you will have to be a math wiz or a CPA, but you will need to know some basic accounting and little bit of financial literacy too.
Of course being a business owner, profiting is the next step once you break even. But your profit will be determined by your expenses.
For academies starting out, keep your expenses as low as possible. This might mean that you will have to do a lot of the hands on work yourself at first, but that’s okay.
Find the best, most efficient way to go about running and operating your program and then use this experience to create systems for your future employees.
I put together a sample of a small martial arts academy’s monthly financials. Just to see the how the cost of operating a school can easily add up.
Everything is pretty self explanatory but for now I just want you to focus on the part that says net profit. This is where you will see if your business is making money, losing money or breaking even. In this sample plan the net profit is zero, so that means that the monthly income that this fictional business was bringing in was enough to cover all of its expenses for that month which is great!
Even if you have a lot of resources and cash saved up, keep your expenses small.
You will thank me in the long run.
New Students In
Bringing in new students will always be the lifeblood of a martial arts business.
For newer schools, your initial income will come from acquiring new students (marketing) but as Charles brought up earlier. It’s what you do when you get them through the door that really matters.
Knowing your breakeven point will allow you to calculate the amount of students you will need to obtain, and retain in order to keep your business running.
Once you have that figured out then any number over that will be pure profit for you to invest back into your business systems (marketing and sales) so that you will be able to make even more money and make your service better (premium equipment and amenities).
The important link here is your sales system. Sales is the process of turning those new prospects into paying students.
I will go into more detail in a later post but for now just know that you will need a system.
Have a system for when prospects walk into your academy.
Have a system when prospects check out your website.
Have a system for your existing members to refer their friends.
If you don’t learn anything else from me, the importance of having systems is key.
Churn rate is the percent of students that no longer pay for your service.
This also includes employees leaving as well.
No one likes to talk about this in the martial arts industry but most students will fall off of training at some point. Only a few will stick with it all the way to black belt.
Of course some students do find their way back. I have a friend that completely stopped training in 2008. Right before getting his purple belt.
Only to find his way back to Jiu Jitsu in 2015.
That’s a seven year lay off!
But it’s not the norm.
If you have your own academy you will become really sensitive to this.
You will notice when certain people begin attending classes less frequently.
That’s when you will need to motivate them to keep training.
I know that life happens.
But Jiu Jitsu is capable of so many positive life changes. That to let people quit. Only to regret leaving and to take years to get back into, seems like a big mistake.
Once you know your churn rate you will have a better picture of your business.
Use the churn rate to see where people are falling off in your business pipeline.
For instance, many students drop off at or before blue belt.
Can you develop systems to help you identify this drop off?
Can you develop systems to help you retain those students?
And for the students that you aren’t able to motivate to keep training, will you be able to replace them with new students and through other means.
When you first start a martial arts academy. Your students will be your livelihood.
Through acquiring new students you will begin to break even and hopefully become profitable.
As you gain more students it’s unavoidable that a few of those students will drop off (churn rate). But as long as you are able to replace those students with new students at a rate higher than the churn rate. Then you are in business.
Once you have a client base of over twenty students you are ready to monetize your martial arts business in other ways.
Producing your own brand of gear.
Adding additional classes such as kickboxing and conditioning classes.
Instructor training programs.
If you can dream it, you can do it.
Most businesses fight tooth and nail for the level of brand loyalty that is built in to martial arts.
But it does come at a price.
The price of having integrity and building, and developing relationships.
Don’t underestimate the power of relationships.
Especially in this industry. Relationships are everything.
If you try to monetize before you have grown a loyal client base then you may risk alienating your existing clients. Many of which could be among your first students that believed in you enough to entrust their martial arts study to your hands.
Know your students.
Know your finances.
Grow your school.