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Financial Report ANALYSIS


Make deciphering financial reports less overwhelming with three basic steps


BY BILLY KATELNIKOFF


of their businesses. However, to truly appreciate the numbers, owners must understand how to decipher variances, drivers and graphs and charts. Here is some basic information to get started on building your skill base.


F


“changes from one period of time to another.” Understanding the variances in your financial documents can help identify opportunities and problems in your business. Sometimes changes are simply a matter of timing, such as a personal training peak sales period or a time of year when expenses come due. Changes in sales figures or expenses


1 Analyze Variances


from one year to another tell you a sto- ry about your business. For example, if your year-to-date membership sales figure has decreased this year, you may initially assume that your member- ship base is down. However, instead of assuming this, you should investigate further. Perhaps the club actually has the same number of members but has lost higher value members and gained more lower value members. If this is the case, you may want to


change to the way you look at promo- tional discount membership sales or the options you offer prospects.


fined as “the activities that shape your numbers.” Some examples of key driv- ers are: • number of members • number of new members


2 Analyze Drivers 34 Fitness Business Canada March/April 2014 Drivers of financial results are de- Variance is simply a fancy term for


inancial reports–like profit and loss statements, balance sheets and sales reports–give club owners a summary view


• number of cancelled members • monthly membership fee per contract


• square footage of club • number of daily member visits • number of employees • number of members at each contract level


Compare increases and decreases


in your financial figures to the above key drivers. For example, if you no- tice an increase in personal training revenues, don’t simply attribute this to better personal training salesman- ship. Instead, for example, compare in- creased personal training sales figure to the number of cancelled members. You could discover that you simply had fewer cancellations during this time period. On the expense side of the profit


equation, compare equipment mainte- nance costs to the average number of employees as well as to the number of visits by members per day. If you no- tice that the number of visits per day has decreased and the number of em- ployees on staff has increased while maintenance costs have increased, look for reasons that maintenance costs may have increased. This could be a one-off occurrence that can be easily explained, but there is also the possibility that there could be prevent- able expenditures. With increased em- ployee costs we assume that we have more staff per shift and, therefore, it should follow that regular preven- tive maintenance processes should be more effective. So if a club notices in- creased repair expenditures, it could


mean that these staff members are not following through on their preventa- tive maintenance responsibilities and need a reminder or retraining.


make pages of figures less overwhelm- ing. Graphing out monthly or yearly sales figures and comparing them to key drivers (such as cancelled mem- bers, new members, and commission and wage costs) can sometimes pro- vide a shocking visual. For example, in the graph below


3 Analyze Graphs and Charts Graphs and charts often help can


sales are increasing, which is posi- tive news, but the number of cancelled members is also increasing. Without a graph to help you recognize this trend, there is the risk of missing the big pic- ture. FBC


350000 300000 250000 200000 150000 100000 50000 0


Sales Wage Costs Cancelled Members


Year 1 Year2 Year 3 Year 4 Year 5


- 450 - 400 - 350 - 300 - 250 - 200 - 150 - 100 - 50 0


Billy Katelnikoff, B.Mgt., CA, is owner of Power Forwards Chartered Accountant Firm which provides chief financial officer services with an emphasis on improving profitability and making key organizational decisions for privately owned fitness clubs in Canada. Contact him at www. powerforwards.ca.


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