You're busy running a business, but don't neglect the financials
RJW Tumbles, A Children’s Gym, has been in business locally since 1995 and was purchased in 2000 by its current owners, Dawn & Scott Henderson. Prior to purchasing JW Tumbles, Dawn Henderson had several years of experience in working with children, as an Assistant Teacher and also as Director of Nursery for a local church. With Dawn’s obvious talent and patience in working with kids, the purchase of JW Tumbles was an ideal fit.
Over the past several years, the business has expanded from one store front to two and now employees 14 people. The class volume has more than doubled in the original location and now both gyms have roughly 150 students each.
However, with the growth of the business also came a false sense of security. Focused primarily on the marketing and operational side of the business, Dawn assumed everything was OK financially. This assumption proved to be a crucial mistake that delivered a sudden and painful wake up call to their business last year. While business appeared robust and class levels were high, bookkeeping for the business was neglected and soon produced a stark reality – the business had suffered a large operating loss for the year.
As business owners, how many of you have experienced a similar situation? Probably more than may admit. While all the surface level indicators appear strong (ie, good sales activity, happy customers, happy employees, etc), below the waterline the business is truly not healthy. It’s a common scenario that can take any business owner by surprise. The causes for this kind of problem are fairly typical. The owner is working many hours and is heavily involved with sales, marketing, and other operational facets of the business. The long hours and high level of activity can lead to complacency and a false sense of security that the business is doing well financially. As such, the owner may simply abdicate the books to someone else or delay updating them for some period of time. What was then important, but not urgent, now becomes a potential financial crisis.
Another scenario where many business owners struggle is the fear of financial information. Given their fear, they abdicate the financial duties to their bookkeeper, accountant, CPA, spouse, etc. While they may have updated financials, the information is essentially viewed as a “foreign language” to the owner. Given their lack of understanding, the owner doesn’t have the knowledge they need to make meaningful management decisions for the business. Even worse, an attitude of denial can easily creep in and overshadow the brutal reality that the businesses’ financial health in not good. So, the owner continues down the path, working harder and harder to get more business and somehow get ahead, without realizing that they’re only accentuating the problem, not solving it.
For the Hendersons, thankfully the business survived the neglect of the bookkeeping during that period of time and it ultimately proved to be the catalyst for change in their business. That change led to taking action in several areas to prevent this mistake from happening again. With some outside assistance, they were able to analyze the cause of their financial loss and take the necessary steps to fix it.
First, procedures were established for ensuring that the bookkeeping was updated on a regular basis. Second, they had to shift their mindset (and the mindset of their entire team) when it came to discounting or other accommodations. While individually, these discounts and various accommodations appeared to be small and insignificant, cumulatively they inflicted a major hit to JW Tumble’s profit margin. Through training and other education, the staff gained new perspectives on the impact of discounting and now better understands what the business needs in order to maintain its profitable growth.
Third, the Henderson’s realized that they had done a poor job of collecting and measuring key performance metrics for their business. Key information such as lead source data, conversion rate, average dollar sale, transactional frequency of customers and profit margins were all critical numbers that needed to be collected, tracked and reviewed monthly, at a minimum. In addition, monthly financials statements are now produced and reviewed against budget to evaluate progress and ensure goals are met and positive trends are occurring.
Other Information About JW Tumbles:
When Dawn and Scott purchased Tumbles, it was a single storefront with about 60 regular students and less than 10 birthday parties a month. Currently, JW Tumbles has two locations with over 150 students per location, employing a total of 14 instructors. JW Tumbles is frequently sold out of birthday parties weeks in advance. Dawn has added many successful programs like themed Kid’s Night Out babysitting, Open Gym, and Summer/Winter and Rodeo Day Camp. Tumbles also is very active in the Tucson community volunteering at school carnivals and events and local charity functions like the Komen Race for the Cure, Jewish Community functions, YMCA Kids Day, and more.
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