Don't see red. Manage your cash flow!

I don't have a budget, but I, like most budget-less Americans, manage to make do. Still, this make-do approach just won't cut it in the world of business. The stakes are much higher, and not tracking cash flow could spell financial disaster.

"Budgeting is another word for profit planning," says Rick Caro, president of Management Vision Inc., a consulting company dedicated to the club industry. "If you don't have a budget, you tend to play off last year's results."

This isn't very wise. Why? This year's marketplace may be different, your physical plant may need changes, your programs may need an overhaul, and your staff has definitely changed.

* Think of your budget as a one-year plan. Break it down by month, and then by department, so employees can get a handle on the specifics in their particular area.

* Use basic information that is available to you. "You should understand where your numbers are coming from," says Caro.

Personal training is a good example. "If you pay trainers different amounts, figure out the most realistic average and use that rather than assuming you'll pay out at the lowest rate," says Caro. "In fact, most sessions are administered by trainers who are more experienced and get a higher percentage of the fee."

* Set aside some quiet analytical time while you draw up your initial budget. Close the door to your office or go off-site. Caro recommends a two-month time frame in which you think through your budget. Revise the numbers if they don't add up. "You may need three or four drafts before your budget is acceptable," says Caro.

* Start with what you're trying to accomplish. Last year you may have offered 30 exercise classes per week. This year you plan to increase membership by 10 percent and add four or five new classes during busy months. Once you add in the average costs of insurance, you can start building a new class schedule.

* Look at industry averages. IHRSA publishes a range of averages for everything from salaries to fixed expenses, which can serve as a good jumping-off point. Or share data with colleagues at other clubs.

* Predict sales. "Some expenses are dependent upon sales and some will be the same whether you have 500 members or 5,000," says Charley Swayne, owner of Valley View Fitness, in La Crosse, Wis. Among the factors to consider when predicting sales are:

- Current and anticipated level of competition. This should be based on the number of new clubs opening in your area and the number going out of business.

- Attrition rate. How many members do you project you're going to lose over the next year? Based on past experience, what types of new programs will you need to retain members?

- Projected number of new members. This will be based on the competition and on promotions you plan to run, as well as your recent history.

- Planned price adjustments. Will fees stay the same or go up or down?

- Other sources of income, such as personal training or physical therapy.

* Look at the past. "In any given month, something will break," says Caro. "Build in numbers that give you some contingency." To do this, list unexpected problems that arose in the past and forecast problems that may occur. And ask other owners, "For a club of your size, what do you average in maintenance and repairs?"

* Develop a sound operating budget. This relates to day-to-day club operations and should be broken down into fixed, variable and contingency expenses.

Fixed expenses, which are set in stone, include rent, debt costs, leasing costs (for fitness or office equipment), and real estate taxes.

Variable expenses, which vary monthly or seasonally, include advertising and promotion; supplies; utilities; salaries; repairs and maintenance; subscriptions; professional fees (for, say, lawyers or accountants); printing and postage; and any licenses you have to pay for.

* Don't forget your capital budget. This budget should cover expenses for big-ticket items - those that have more than a one-year life-span and a value over a certain amount. (Most clubs pick an arbitrary number such as $500 or $1,000.) Generally, clubs earmark about 6 percent of their revenue for capital items. Capital expenses include new fitness equipment, computers, carpeting, etc.

* Tie senior salaries to performance. Swayne says a small club owner should pay himself "whatever is left over at the end of the month which can be anything from nothing to 10 grand."

Caro notes that a big trend in the club industry is incentive pay, which ties some compensation to performance and results. Where the base may have been 95 percent of overall compensation, it may now be closer to 80 percent or 85 percent. "The difference is related to what the individual does to make a difference in the success of the business," says Caro. (If you can't afford competitive salaries for staff, offer other goodies such as flexibility in work time, appreciation for a job well done, etc.)

* Turn to outside sources for assistance. Don't overlook computer software programs that will help you budget and track your operating expenses. When in doubt, bring in an outside consultant to help you get your budget off the ground. And consider having your payroll handled by an expert or a payroll service to make sure your payroll taxes are being paid accurately and on time. "Payroll taxes can have tremendous interest and penalties, and the power of the state or the IRS to get their money is awesome," says Caro.

* Tweak as needed. "You have to make adjustments every month especially when things don't go the way you thought they would," says Swayne. "There are always bumps in the road: A new competitor may unexpectedly open; a business may close; or utility costs may rise."

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