Mastering Strategic Financial Management in Pilates Studios: Navigating Towards Profitability
Welcome to the third of ten focused blog posts in our special series on What makes a Pilates studio truly profitable. Drawing from my 20 years of experience in owning, running, and consulting for Pilates studios, I focus here on strong forecasting and Strategic financial management and its importance in developing a profitable Pilates studio.
In the UK, the financial landscape of Pilates studios varies widely. Boutique Pilates studios, typically sized between 800 to 2000 square feet in leased buildings, see turnovers between £200K and £400K, with net profits ranging from a loss to 20%. In contrast, smaller home-based studios, spanning 300 to 700 square feet, have turnovers between £30K and £80K, and net profits range from 10% to 30%. These figures are grounded in the realities of running such businesses, where "turnover is vanity, profit is sanity, but cash is king."
In the specialised world of Pilates studios, having a nuanced understanding of strategic financial management as opposed to standard accountancy which is tailored to the industry’s unique rhythms and demands is not just beneficial – it's crucial. The difference between the most profitable studios and the less profitable ones a difference of up to and over £100K a year in larger studios and as much as 25K a year in studios at home often lies in their approach to forward financial planning based on current performance, particularly in leveraging a business plan, financial forecasting, and strategic cash flow management.
The Business Plan: Vision vs. Short-Sightedness
Profitable Studios: These studios approach their business with a comprehensive plan that outlines their vision, goals, and strategies. They understand their market, set realistic targets, and have a clear roadmap for growth. Their business plans are living documents; performance and forecasts are regularly reviewed in detail to explain the divergence from budgets and put measures in place to correct the divergence. Updates to forecasts reflect changes in the business and the operational goals agreed between the financial strategist and owner.
Less Profitable Studios: Often lack a detailed business plan or treat it as a one-time exercise. They may have vague goals and lack a strategic approach to achieving them. The business owner, without wider industry knowledge or detailed Management accounting skills, takes responsibility for financial management but is often too optimistic to see patterns in the figures that need addressing, and the insight from past experience to understand the best strategies to solve problems or achieve excellence. This lack of direction can lead to missed opportunities and inefficient use of resources. Lacklustre performance then leads to self-doubt and a reduction in enthusiasm combined with an increase in personal stress which affects staff and customer morale and ultimately retention of both.
Financial Forecasting: P&L, Balance Sheet, and Cash Flow
Profitable Studios: Employ detailed financial forecasting, using the three pillars of P&L, balance sheet, and cash flow statements. They understand the importance of each, and actively use these tools to make informed decisions. By analysing profit and loss, they monitor operational efficiency; through balance sheets, they assess their financial health; and with cash flow forecasts, they plan for future financial needs.
Less Profitable Studios: May underutilise these financial tools, often focusing only on the immediate numbers reflected in their bank accounts. This lack of comprehensive financial analysis can lead to poor decision-making, cash flow crises, and a reactive as opposed to proactive approach to financial management.
The Role of the Financial Manager in the Pilates Studio
Profitable Studios: Understand that while bookkeepers and accountants are essential for maintaining financial records, it's the financial manager who makes a significant difference. A financial manager with specific experience in fitness facilities, and ideally Pilates studios, brings invaluable industry insights. They recognise operational patterns and nuances, helping the studio navigate its unique challenges and opportunities.
Less Profitable Studios: May rely on general financial advice from accountants or family and friends who lack industry-specific knowledge. This can lead to generic strategies that don't fully address the studio's specific needs, or capitalise on potential opportunities within the Pilates market.
Innovative Cash Flow Management: The Three-Account System
Profitable Studios: Implement smart cash flow management strategies like the three-account system, segregating funds for operational expenses, tax and regulatory commitments, and surplus for reinvestment. This disciplined approach ensures they're prepared for upcoming financial obligations and can strategically reinvest in their business.
Less Profitable Studios: Often manage their finances through a single account, which can lead to short-sighted decisions. They may find themselves overconfident about current performance leading to unnecessary or unwise expenditure leaving the bank balance unprepared for tax payments or other financial commitments, leading to stressful scrambles to meet these obligations.
Conclusion:
In conclusion, the financial success of a Pilates studio hinges on its approach to strategic financial management. Profitable studios stand out due to their well-crafted business plans, detailed financial forecasting, and the insights of a financial manager who deeply understands the Pilates and fitness industry. Furthermore, their innovative cash flow management, exemplified by the three-account system, ensures they are well-prepared for future financial needs. In contrast, less profitable studios often miss these nuances, leading to reactive financial practices and missed opportunities for growth. For Pilates studios aiming for financial prosperity, embracing these aspects of financial management is not just a choice but a necessity for thriving in the competitive fitness industry. In my opinion, a larger studio should be budgeting 2.5% of their turnover for skilled financial management consultancy, whereas a small business at home should be prepared to commit 5% of turnover if they are looking to sit at the top end of profitability, rather than reside with most with lacklustre performance.
Author: Chris Onslow - Pilates Consultant
Chris Onslow, has run Pilates focussed businesses since 1998. He and his team specialise in supporting Pilates entrepreneurs and business owners. With a rich history of owning and running successful Pilates studios in the UK, and supporting others in Europe and the Middle East, Chris has broad expertise in maximising profitability and optimising operational efficiency. His agency provides top-tier advice on selecting new, pre-owned, and hireable Pilates equipment from renowned brands such as Align-Pilates, Balanced Body or Stott-Pilates/Merrithew. As the founder of Mbodies Training Academy, Chris continues to revolutionise Pilates education, offering premier online and hybrid CPD and qualification courses for Pilates apparatus instruction and special population CPD. Discover more about how Chris can support your Pilates Business or home exercise choices at www.pilates-consultant.co.uk