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131. John Briggs | Incite Tax

131. John Briggs | Incite Tax

Fern is talking all business with John Briggs today. John is the owner of the Incite and author of Profit first for Micro Gyms, along with the part Affiliate owner. Fern has had personally been using them for 3 years. This is not sponsored Fern wanted to share how John’s business has helped Crossfit Rife be more profitable and stable. On top of that John makes very simple and understandable for gym owners as he is one as well. There’s so much to learn from this if your Affiliate Owners but coaches can also understand more way of keeping your money as well. 

Disclaimer: They are not always they are not giving you personal advice, these are just general concept and principle that could be used in the taxing world. If you want to explore these father we recommend contacting John and his team at Incite Tax or a trained accounted. Also, this is looking specify at the America Tax system. 

 Timestamps

(1:31) Profit First gym – Intro 4 Principles 
(7:46) Fern’s experiences
(12:32) Common Trends
(17:12) Things you should be asking before signing your lease.
(21:03) Member Square foot
(26:54) Onramp for your finances – safe practices
(30:28) Things you don’t need
(38:24) Tax set aside
(41:55) W2 vs 1099 – Coaches
(48:05) Corporate Rent

Resources

https://incitetax.com/

Email: john@incitetax.com

Instagram: @incitetax

Pre Order Profit First For Micro Gyms

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Fern:
All right, guys, welcome back to the best hour of their day. I am here. I've actually been waiting for this podcast for a while. I'm here with John Briggs, owner of Insight Tax and author of Profit First for Micro Gems. So for those of you who have been listening this podcast, we have referenced the profit first method. No shortage of times. And John's book is going to release in January. And I've been working with his team for at least two years at least. So..

John Briggs:
I think three actually.

Fern:
Yeah, I think it's closer to three. So first and foremost, I know you are incredibly busy trying to close out the year and then move into tax season. So thanks for cutting out some time for me, brother.

John Briggs:
Yeah. Super grateful to be here. I think we'll be able to talk about some really fun stuff that will be of value to your listeners.

Fern:
Yeah. And here's what you really want, guys. You want an account who wears a shirt that says hashtag IRS sucks. If you guys looking at the video version of that, that's Jon Shirt and a lot of stuff we referenced in the show is it is information that I've gotten from John. So we do have to put the disclaimer out here that we are not lawyers. We're not giving you tax advice. These are just general concepts and principles that we're gonna dig into. And we'll give you guys all the information to contact you on his team. But I highly recommend it. But let's just dive right in, man, because this is a deep, dark subject that a lot of people like to avoid. And for those people that kind of don't know the profit first method and we'll get into more specifics for gyms. Can you kind of give like a broad brush kind of intro to that?

John Briggs:
Yeah, totally. So to first understand it, we ask about the formula that everybody's aware of, even if they're not aware of it. If you've ever seen your profit and loss statement or you've ever looked at your texture, they're all organized the same way you have income at top. And then what's left over they call net income or taxable income. So this form has been around since. I don't know since Adam and Eve in the Garden of Items. It's established. What happens, though, is it from a behavioral standpoint, we focus on the wrong things with that equation. And so, Michael Chalo, it's created this system first. And he said, we're just going to Matt, we're not going to change this mathematically. We're just going to change our focus. And so now we're going to take our revenue. We're going to subtract out profit, a predetermined amount that we're going to establish. And then what's left over is what we can use for our expenses. So that's kind of the overall general foundation. And then when you dig in, there's four there's four principles that are really the core of the profit first methodology. The first one is smaller plates. What I love about these four core principle is gym owners and coaches are basically cheating because they're to understand this information from an additional standpoint. And we're just not sliding into financial health as opposed to physical health.

John Briggs:
So smaller plates, you consume less if you have smaller plates. The problem is, as gym owners, we have one operating account. And whatever money is in there, we think it's available. The problem is we committed that money or some of it to other people. Some of that money when our customer pay us, it's already committed to our coaches. It's already committed to our landlord. And so smaller plates. What we're saying is it's. Take off. Let's create some buckets of scenario or common expenses or cash outflows. I should say. And let's put some money in those buckets, because we already have commitments in the polls, so let's smaller plates removing or eating batched eating veggies. First it's the second one. And it doesn't take rocket science to figure this thing out. If you eat the vegetables first, have less room for that crap. Well, we have financial veggs as well and know that sometimes the first time gym owners hear this, they can be caught off guard or start to feel defensive. The truth is, if you're the owner, you're the most important person in your organization and you need to be paid. I get that what you're doing is super noble and you're changing lives. You still deserve to get paid for it as noble as your purposes. And so paying yourself that that's cash, veggie, saving money for taxes, you're going to be profitable.

John Briggs:
Why else would you be in business if you have a profit? You're gonna have to pay some tax. Let's have money set aside for that. And then not only do you work the business, you're also an owner and you deserve a return on the investment of taking on that risk that your your coaches aren't taking on. And that's fine. But you deserve to get some distributions from that. And so that's a prophetess. It doesn't go out. The three cash that you that we focus on and we say, hey, that our first then focus the rest on operating the business. The third principle is remove temptations. I love Oreos, I love butter cups, and if they're in my house, I consume them sleeves at a time. And so it really stupid of me, if I go to the grocery store to even buy that, I need to remove the temptation. When we think about these smaller kids, some of them are going to actually accumulate a very enticing bank balance because of the way we distribute them throughout the year. Well, that money is committed to something else. And so if you get in a bind. And you don't have enough money to pay for your operating expenses. We don't want you to steal from yourself to cover the operating expenses. That doesn't fix it. And so with this principle, remove the temptation, we're saying let's make these out of the mine type of thing.

John Briggs:
Last one is the ten. Twenty five. Rhythm is what we call it. Or eating it was more frequently. Now, you know, in today's day age, intermittent fasting is pretty popular, like eating smaller meals frequently throughout the day. It's still a methodology that works. Yeah. And so we're saying let's do the same thing financially, because often the general the general scenario we see is that the business owner goes the entire year and then it's, oh, it's tech time. I better get my bookkeeping done to file my taxes. That is not why you do your bookkeeping. And that's one large event. Instead, we say, what would it look like if you sat down twice a month? We we call it the ten twenty five of them because we're suggesting the tenth and the fifth. What if you sat down every fifteen days and looked at your transactions now so you can be a lot more focused instead of just doing things for tax compliance. You're actually using your information to make good business decisions. It helps you identify trends in your cash flow. It helps you identify expenses that are stupid. It helps you identify even things that are productive and that you can push money into to help you even more productive. So those are the four principles. That's the basic overview fire hydrant version of profit first.

Fern:
Yes. So I I generally like to describe this to people as like it's a it's a behavioral method. Right. So like we all we know that like basically money, food and fitness, they're all behavior based. And we already have most of the part for the most part have trained ourselves in the nutrition aspect and the fitness aspect. But then unless we come from a background of finance or we just really like numbers, a lot of us and again, myself included, I'll tell my story in just a second, we'll just ignore the books and that hopefully it will work itself out at the end of the year. All right. So I I know I forgot to I forgot to mention John is part owner of a gem of a Crossfit, affiliate. So that's another reason that I that I feel that he's so good at this because he understands it. Like just like you do as an affiliate owner and you worked out an affiliate and like. So he gets it. When I first contacted you. Well, I contacted you guys. I was I was paying like just the consulting fee first. Right. So I'd have a conversation with Mandy, who I'd deal with mostly like once a quarter. And I started working with her and I worked for her for about a year. And she saved me a boatload of money just based on like rearranging what we were doing with 1099 and W2 and then corporate rent and stuff like that.

Fern:
And then when I finally made the switch, do you guys friends like Tax? At the end of the year, my old accountant gave me a tax bill or he was like, all right. Your taxes are done. Here's your bill. And the bill was sizable. And I lost my mind. And I am I fired him like the next day. I was like, Hey, dude, I don't need you to send me a tax bill. I need you to help me minimize my tax liability. Like the IRS can send me a bill. Like they're gonna do that anyway, bro. I do not need you to do that. And it was like this was like three or four years ago in the tax bill was like twenty five GS. I mean, it was big. And because I had not been doing this, I was not at all prepared to pay twenty five GS now because I had read the book and because I'd been talking to Mandy, I was like maybe 60 to 70 percent prepared, but I was still pissed off. So I switched over. And then I've been working with you guys ever since and it's been good because the other thing in this conversation and I'm sure you know those too, John.

Fern:
So people have accountants, a lot of people have accounts and they say, yeah, my account, he does in air quotes, does my books every month. And then at the end, he's like, well. And then he'll get and then he'll give him my books at the end of the year. So my question to them is always ask your accountant if you can get a PNL or a balance sheet from the previous month and see how quickly they can get it back to you. Because a lot of them are not doing your books on a monthly basis. They're just letting it sit there, collecting a fee for you monthly. And then at the end, they're just like, all right, we got to get your books together. And I'm like, well, what the hell were you doing all year? Like, so. So I've been working with Inside Tax for like three years. Every month they send me like numerous reports, like comparative balance sheets comp. You know, you know, they give me KPI for all the stuff that we've predetermined every month. I can look at that. I get back. Okay. Things are trending up there. They're trending down these expenses or high incomes up. That is what a good accountant should be doing. Right. If you're not getting that from him every month, you need to ask.

Fern:
And if they can't give it to you, you need to get a new accountant. When I first talked to Mandy, it was super depressing because I read the profit first book and I like did the math myself and then I sent it to her as like. Is this right? And she said, yes, you have a ninety four percent operating expense knows like, all right. So we can only go up from here, we can only go up from here. And I think at one point before we expanded a couple years ago, I think I went in roughly twelve 18 months. I think it went from ninety four to I think I got it down to forty nine percent. Now, we did two things and they talked about it in the book, which is I'm trying to increase revenue and bring down expenses.

John Briggs:
That's right.

Fern:
Like, I can't recommend what you guys do enough, but there are some things I want to dig into first in. And so we talked about what is profit first. I mean, how many gyms do you know? Roughly how many gyms you guys work with now?

John Briggs:
Two hundred eighty seven.

Fern:
OK. That's awesome. That's really cool. Now, what is it? So you've seen two hundred eighty seven people come into your into your stratosphere and then do most of them come in with the same issues?

John Briggs:
Yeah. And that's actually active clients right now. So it's probably been closer to 350 over the years.

Fern:
So do most of them come in and have the same issues or like are you starting to see better trends?

John Briggs:
There's definitely trends.

Fern:
What are those that you see?

John Briggs:
I mean, it's funny, though, when you said ninety four percent the gym, I bought two because so I was working out at the gym and seeing some of these trends. They didn't have that. Only revenue they had. Was group training group training. They didn't offer personal training that it offered nutrition, which from successful gyms I've seen, they have at least three a service offerings. Now, I'm not saying there's a gym out there. They can't just group training and be profitable. I'm not saying that, but just successfully the trend that we've seen anyway. So that was I'm like, dude, you're not doing any seeing. I'm seeing these signs. I told the owner, I emailed the owner him not even knowing who I was or my background. It's like I kind of feel like you're gonna go out of business. And if I were you, I would do these three things immediately. And instead of telling me like it do to stay in your lane. You know, thanks, but no thanks. He actually invited me to lunch and said, yeah, actually. I am here like I'm funding this by myself. I've tried to sell it three times. I can't. I I'm just. I don't want to do. Seems like you want to be an owner. Sure. Here's what I was going with this rent. Expense and coaches expense. Those two alone. A hundred and 15 percent of the revenue when I bought it.

Fern:
Oh, my God. So if you if that's you, everybody, you need to contact John immediately.

John Briggs:
That is a big problem. So, yeah. Trends on the service offering a big trend. You have. If you want to be successful, I'm telling you the financially fit gyms are doing more than just group training, personal training and nutrition are the obvious to flow and work really well in a gym setting, you know? Let's see. Other trends we see are right expense and really. When we see a rent expenses problem and just say nothing like basically fifteen to twenty five percent of your revenue, you you want your rent expense to be in that range. If you can be lower, that's super awesome. But you're above 25 percent. It's going to be tough. I know that because we are more than 25 percent and it's tough, but I found it. So we find the right expense and then we correlate that we ask questions because that's what accounting is. It gives us data that allows us to ask better questions. So then it always becomes, how did you get into this mess?

Fern:
Yeah.

John Briggs:
What the story of the AM I bought into is very similar to many of these stories. We had 1,500 hundred square feet. We were maxed out at 10 people in there. All the classes were crowded. So we moved spaces and we moved to a seven thousand square foot facility. That's all right. It's a big jump. It's a very big jump. Unless you have cash set aside and purposely are making a strategic jump knowing that you actually have things worked out and it's just a matter of time and not going something, a financial burden, that type of jump is psychotic. Just because your class is full. I would argue get two more people in there starting other class times. There's a demographic out there that might be interested at the 2 o'clock class.

Fern:
Yeah,.

John Briggs:
I might be interested in an 11 a.m.. You know, it's like maximized space first before going from $1000 a month in rent to $5000 a month for rent.

Fern:
It's funny you bring that up because we expanded, I think to roughly two years ago. But I had been working with you guys already, so I had done all the math first. And basically it is what we ended up kind of doing was I had a bunch of other accounts set up and I didn't even have to take from owner pay or profit account. I was just basically took from like the marketing continued education equipment account to cover the additional rent. And then there were some issues there that I did on some bad math, but those were like we could afford it. Like we were we were running, I think, upwards of like we weren't we've never hit 30 percent profit margin, but I think we were like twenty six. So I like I had a buffer in there to eat and, you know, a couple of thousand dollars extra a month. But we needed at that point because people were like falling out of the building every afternoon. And I was just like, OK, it's time, you know. And we had the ability to expand in place. So it's definitely something you should look into. And most people, I think you're right, go way too big,.

John Briggs:
Way too big, too fast. So. Right. You've got to be aware of your space. And if you're committed to it, because most people releasing you, then, man, those little agreements are brutal. And that's alignment of financial side thing. But you kind of look at those lease agreements, a five hundred bucks to have an attorney look at it and tell them what you're worried about, which is as soon as I move in there, any noise ordinance does I need to be aware of. Does this contract give media outlets if the city come in and shuts me down or my neighbors complain like those are little things worth 500 bucks?

Fern:
Yeah, it's also good to just know, like from an attorney, you like like what? You versus the landlord who is responsible because sometimes a landlord would try to push expenses off to you that contractually they are supposed to cover, but they know that you're not that you don't know how to read the lease. And they're like, you know, you can replace the H back. And I'm like, no, that's actually your responsibility. And so says right here in the lease. So, yeah, it's definitely worth it. And I made that mistake far too many times.

John Briggs:
Let's see other trends that we see. I mean, shiny objects sign shiny object syndrome is a real problem. It's a real syndrome that people have. I can't say I'm a worthless piece of equipment we see. And then we'll ask the clients, like, how did you especially knowing like from the owner side, it allows us to be more thorough. So how are using that piece of equipment? Is it generating more revenue for you? No, not really. All those Alice stones, really, they're just sitting there. I mean, we have our Alice stones. They're outside of the gym, our giant two tires. Free for anyone to steal. People only want to steal it.

Fern:
My first my first thing is like a if you got our stones, get rid of those damn things. If you want to do that stuff by the rogue strong man, sandbags filled up with sand. Sand is like basically free if you go to the beach. So do that. Do not buy those damn stones. They're a hazard.

John Briggs:
Just not to mention the like.

Fern:
Tear up your forearms. Oh, gosh, yes. It's it's ridiculous because if you do buy the sandbags, you will use them far more frequently and you could maybe do some strong man stuff like that. But just don't don't do stones. It's a terrible idea.

Fern:
Well, it's one of those things, too, I think. You. You have to. Al is ask yourself the question which a lot of journalists aren't doing. Is this expense going to protective if I'm going to buy this equipment. And I see how I'm going to earn additional revenue from it. I can't. There's a there's a basic level of equipment that you need. And if you don't have it, your retention rates are crap because you're not providing a service. I totally get that. I'm talking about the other stuff, the shot, even even GHC machines. Right. Just things that are kind of. You see them in every gym. But how often are they really used?

Fern:
I've been in very few gyms were like, that's a staple of their programming. We've been as high as five and we're down to two and I'm considering going down to one. Like they're just real estate monsters. They cost five to six hundred bucks at this point. They take up space. Nobody uses them. I'm like, you'd be better off buying. You know, setting off a couple of months for a four scrubber for that instead.

John Briggs:
Especially when you think about the value of every square foot. You know that that's if you have three. Let's two more at least two more people you can fit in a class potentially picking up that type of real estate. Yeah. So those are just some a trends that we see with regard to rent.

Fern:
Have you guys. I don't know if you wrote about this, but I think you did write about doesn't want to read emails, but about trying to figure out like what the good was the algorithm for like square foot per member.

John Briggs:
Yeah. There's other like I know Khalifa has some tricks on that. Brower has some books on that. The general consensus I feel like is hundred square feet, 225 square feet. If you're using a barbell.

Fern:
Ok. Per member,.

John Briggs:
Per member.

Fern:
OK.

John Briggs:
So which is super cool to think about. Like you really need to understand your operational capacity if you have like measure your floorspace the idea by one hundred square feet. That's the most amount of members you could we have in that class. And now in my mind, if that number is higher than fifteen. Now you have to consider how well can I fit 30? Because if I can't go all the way to 30. I really don't want one coach in charge of 20 people, especially with it. Yeah. I get the 15 that's even for our gym. Twelve. And we're we're getting uncomfortable. And in the few classes we have, that might be a little of that. Almost 90 percent of the members are more than couple years of experience anyway. So I got sidetracked. So you take that number. But now you know, OK, I can fit this many people first class. What is my. You're. Yeah. You're good at. So how many people can I fit per class? I time's up by the revenue that I make per class. I can no, this is the max revenue I make per class. I mean, the class is going to have one of their ideal hours. You can literally back into effectively your max revenue possibility or your training classes.

Fern:
And I think one of the other things people don't consider is it's always people are basing their their consideration to expand on a couple hours in the day instead of saying, well, listen, we need a bigger space and like you do not need a bigger space of only two of your classes are overflowing. What you need to do is figure out how do you A, fill those other classes first and then B, potentially think about trying to fill every hour of the day before you do anything in there. And there's some gyms that do this. And I think it's literally just because geographically where they're located in a generally in their metropolitan metropolitan area. So like New York, Boston, those you're going to see gyms like that that have classes on the hour every hour because they have to because they have higher churn rate, because it's just bigger, denser population. But there's no reason that you can't back your way into that in a place that isn't like that population dense. There's plenty of people in every city. So you should consider more class times, get people more classes before you ever consider expanding. For sure.

John Briggs:
Yeah. And you know, a problem we don't have in my gym, which I would love to have soon, is the idea that we have more interest in that class period than we have capacity to fit them in. But the thing is, the orange theory is that the world have proven. You just Jews lose their system. They have so many people who want to use their service. And they're requiring you to check in. And if you don't check in, that they hit you with a fee because you just took us up and that's on top of your normal membership. You can have the confidence if you have those classes. That's going to happen to you as well. Like people will figure out and if you have people drop off, that's fine. But there's nothing wrong with having a like model.

Fern:
Yeah. You don't have to do it for all of your classes. You can lose out or just you're just your high volume class. For us, it would be like maybe 4 and 5 p.m. we'd be like 4, 4 and 5 p.m.. Guys, you need to register for the class first. Otherwise, you're not getting in.

John Briggs:
Yep, exactly. Instead of just 8 a.m. classes really full, you know, we should probably we should move to a different location.

Fern:
Or do or do you do? I mean, there's so many ways to do that to like you. How can you get more revenue? Could you turn it? Maybe your max capacity is 15. Could you split that? And then maybe push to 30 in a 90 minute window vs. or a two hour window instead of fifteen people in a one hour window.

John Briggs:
Right. And these are the questions they should ask themsevels. Right. I think every jam with where they're located, whatever. Gonna be able to have different answers to that. Yeah. That's what they should do. They should ask themselves good questions so they can give themselves good answers.

Fern:
So I know I was. I was actually on a phone call with a couple of gym owners earlier today. And so. So you get into private first. It seems incredibly overwhelming. You're like, I got to set up more bank accounts. I got to do percentage math. And like, this is this is bugging me out. And I'm not sure I do a great job of explaining it. But he does talk about it. Michael does talk about in the book about like don't overshoot those percentages at first, because then what you end up is breaking you're not breaking the rules and not actually fixing the behavior problem. So what I'm kind of referring to is let's say you figure out you're operating at ninety four percent. You're like, you know what, I want a six percent profit margin. Like on day one, I'm like. So that's what I'm going to set in place. And then that doesn't work because I haven't had time to fix the problems. And now I'm just stealing from all these bank accounts and then doing the same shit, but with just more bank accounts now. So I think I started with just one percent.

John Briggs:
Yep. And because if you keep doing that for a couple months, you're give up.

Fern:
Yes. And you're like this doesn't work. And I'm like no, no, you did it wrong, you know. So how do you how do you try to onramp people into the. Because I'm so far removed from the on ramp portion of it. I honestly don't remember.

John Briggs:
No. And I think it's safer. Crossfit, affiliate owners are going to understand this better than than even other microchip owners because of the importance we put on safety and teaching the proper movements before we let them go wild. It's no different when someone comes enu maybe that doesn't have a full air squat. You're not going to really teach them an overhead squat. You're not going to teach them a snatch because I won't go too far. It's unsafe. Exact same issue with this. And so the idea is, you know, we're gonna set the bar low with the member. Let's get you to a fault that there squat. Just strengthen stuff before we start putting you in a weird, awkward positions financially where we're doing the. And so we recommend the profit count with just one percent. That's it. It doesn't matter how whatever the assessment is showing if people aren't in the habit of it. Let's just set aside ones 1 percent for profit. And even if you're starting in ninety four percent operating expense and we know we need to get you down to 40, we're not doing that at quarter. Right. That in an 18 month period. We do. I believe you can find 10 percent of expenses cut any corners.

Fern:
Oh Yeah. And this is what I. Yeah. Yeah. This is what I had. Like I told you all the data, Mike, when I first came in. Mandy and I were going back and forth about five dollar expenses. And I'm like, if you're not doing that, you're not doing your due diligence on reducing your overhead as much as possible. And when and when he says like only necessities, it means like literally, if you don't need it to operate the business, then you get rid of it means no paid music services like none of that shit. Like your members are gonna have commercials in their music. I'm sorry. Yeah.

John Briggs:
Turn on the fricking radio. It'll be okay. Yeah. So we are 1 percent, but then we do a lot to make an initial big leap at expenses and say let's try to find that 10 percent immediately, but they will find that 10 percent. Then it's much slower. Like let's do 2 to 3 percent maybe. Let's play with it. Look, let's not put pressure on you because. Yeah, if you don't have them on your operating expense account and you didn't do it the right way, you are going to take from your profit account. You are going to take from your tax account instead knowing you're going to do that. Just think those percentages and your operating expense account for a little bit until we can get this habit going. And of course, the whole time we're relentless on cutting the expenses because the beauty is once you cut the expenses, then you really know, well, maybe it's a shovel problem. Like I literally just don't have a big enough shovel. I'll have enough members. I really do need more income as well. So it's like I am lean, like with ESL, where my gym is lean as we can possibly be without cutting classes, without, you know, Bruening member experience. We just. We have too big of a space. That's the problem. These guys moved from a 50 0 square foot facility to six thousand, hoping that the free six months of rent that they negotiated so proudly, not knowing that that's what they do. Yeah, keep doing that. The six months wasn't gonna be enough for them to quadruple their membership base. Yeah. Now we're stuck in a bad decision for the previous owners trying to fill the space. We just literally need more members. At this point, we would never have known that if we hadn't cut expenses first.

Fern:
So what are some of the like the weird expenses like if somebody is listening to this or like now we're running lean like it, but you guys look out and you're like, you don't need this. You don't need those. You don't need this.

John Briggs:
You know, honestly, your music services. Yeah, that's a big one. I can't tell you how many gyms we have multiple services that they're paying for.

Fern:
But I think we had four when we did it, I was like, oh, my God. And like, by the way, there's good free ones out there. Like, you can go on SoundCloud and get one hour playlists, like we're like at no cost. You can get on fit radio. It's free. Like you do not need to pay Spotify premium. I'm sorry, you just don't. And if you don't have a profit margin, then you sure as shit don't need Spotify you.

Fern:
Yeah, totally. CRM is I. You know, if this one's tricky because I get when you switch to CRM. If you didn't handle the onboarding of your client the right way, you're going to get new payment information. And you are going to lose members when that happens. And I actually was speaking to an F forty five franchise person as three locations in the area over there, and they forced her to switch CRM. Durk, because they're a franchise that she lost, she lost like 50 members or something.

Fern:
Oh, a lot. Wow.

John Briggs:
Yeah, aways. I would just look at your CRM costs if there's a way for you to reduce it. Do it if there's a way for you to switch. If it makes sense, don't feel like there's any strong. Service out there, there's like. This is for sure the go to CRM for the micro-chipped space,.

Fern:
But that's I think they're all.

John Briggs:
They're all praising commons there.

Fern:
Yeah, they're all basically the same. Some of them have different, you know, plot pros and cons, but like at the end of the day, they all pitch their lowest paid service to. So like this one's cheaper. Like you, but you can't actually do anything with that. The lowest one like that one is literally just nothing. But when you add it up, a lot of them like they're basically the same. And it's just kind of like, which one are you most comfortable with? Like just use it, you got to use one and then figure out other ways. Like maybe you don't want to pay three to four percent on transactions, like maybe bring everybody on a.S.A.P to like reduce that costs or something like that. But like there's always ways to try to cut that stuff down.

John Briggs:
Yeah, and I'll not who merchant processing fees is a big one where with Zend planner and. If you don't do this step to make yourself what they call PCI compliant, which if you're not familiar with that world would even be aware that you have to look for it are hitting you. Twenty four. Ninety nine. Because you're not on PCI compliant and all you have to do is ask for a couple mean I should say a couple. It's about an hour worth of questions. You have to freaking answer, but they'll take off that fee once you've answered those damn questions. Merchant processing is a problem when it comes to hidden expenses.

Fern:
Yeah, I've figured it out. I pay about twelve grand a year. Merchant processing fees. There's a lot.

John Briggs:
Yeah. For my tax firm, it's psychotic.

Fern:
I can't imagine. I can't even imagine.

John Briggs:
All in the name of convenience. So if if you're okay with the S H, which unfortunately takes us ten days from the day you practice it to actually hit the bank account, your fees. Are that so small? Yeah. So is there those somewhere. What other expenses do we see there? Well here's the way I look at it. And maybe this will. As a general guideline. So the gym, much can take this and. Maybe you have an action item for themselves. Normally, Jack's gonna count this question. They're gonna tell you, hey. Well, you should focus on fixed expenses and your variable expenses because then else understand it. I give you permission as an accountant to throw those two terms out of your head and never remember that again because it's worthless. It's accounting jargon. It doesn't help you make better decisions. I don't care if my rent expenses the same every month, I have to pay it. What I do care about, though, is my rent expense productive or not productive. Those are the two classifications gym owners should be focusing on productive, not productive. And it can be as simple as that in the book. I have an entire chapter where we go over, analyze the expenses and list out like nine questions that they can ask about every single expense. If they're honest with themselves to really get down to the answer of this is bringing value to my members. Adding revenue, blah blah blah. But that they really should just go through every expense. I mean programming for example, if you're not profitable.

Fern:
You should not be broke. You should not be paying for programming.

John Briggs:
You should not be paying for programming. Right.

Fern:
That's two hundred bucks. So twenty four hundred bucks a year, you know, for programming. So if you're not running a profit margin, those are the things that is not necessary. Like figure out how to write programming. I'm sorry.

John Briggs:
Yeah. And guess what? There's so much material out there anyways. It wouldn't be that hard work.

Fern:
Here one for you Crossfit, dot com.

John Briggs:
Yeah. Yeah. Exactly. And honestly, like you're going to have members playing. Guess what? It doesn't matter what programming you do. You're always going to have members who complain about it.

Fern:
Always.

John Briggs:
It's just that it's rip the beasts even today. That worked out today like we did this clean and jerk thing. We're on NCFit.

Fern:
Yupe.

John Briggs:
Is one of their standard workouts for every 30 seconds to clean and jerk. We did that yesterday. Today's workout was like Max Power cleans my food. If to do it, if you program, not workout in, that's clean and 40 reps in 20 minutes, don't give me cleans off anything for at least a week. Help like you still do. You do it in your workout on your great because you have more workouts that you enjoy and you don't like it. That's one thing. This is a side note. This is one thing I learned about gym ownership that I feel for you, Jay Honor. And it I this is why it's super important to have voices like you in the industry, because I have never experienced a scenario where members think they know so freaking much about how to run your business. Never once. As an accounting firm that I have a client come up to me and say, hey, you know, I think you should write your tax this way. Never. But in the eight months I've been an affiliate owner, it's like a weekly thing. Hey, I got a suggestion for you. Yeah, you do.

Fern:
Yeah, I bet you did. Yeah. It's one of those things where, like, I literally don't even entertain that conversation anymore. I'm like, it's it's it's it's like somebody who, you know, filed for bankruptcy, trying to give me financial advice. It's like you don't know what you're talking about. Like, you just want to do that, which I'm fine if we just had the conversation. You want to do that, then I'm good. Maybe I'll try to fit it in there. But you don't know what you're talking about. So, yeah, I get it.

John Briggs:
Till you have your own money at risk. You let me make that if you think it's a bad decision. I'm going to own that because it's my money. Yeah.

Fern:
Oh, all right. So the other thing on there is and we've kind of gone back and forth and there is this is one that I think is super important because this is the one that always kind of. So this one, an affiliate fee using your insurance premium, which is like taxes affiliate fee, insurance premium. Even though we all know that's coming every year, I'm like, fuck. I've got to pay that insurance premium. So and it's the same thing with taxes like it is.

Fern:
And this is a mindset shift that I had to make at some point, which is like I want to have to pay taxes because that means I made money. Now all I want to do is figure out how not to pay so much in taxes. Right. But the whole comment about like that's a tax write off and I'm like, you don't know. It's like this scene from Princess Bride. And she's like, you keep saying that word. I think it means which you think it does. It's like you two shouldn't be talking about tax write offs unless your accountants like, listen, you need to burn twenty thousand dollars by the end of the year. Otherwise, Uncle Sam's coming to get it from you. How much money should people be setting aside roughly for taxes?

John Briggs:
So we do have a new table. If you're familiar with the Profit, first book she studied thousands of. Businesses across hundreds of industries. The benefit of having a book specifically for Micro gym is I was able to just study my gym and found the finance fit ones and so we have a new table that has those percentages in and five to 10 percent. Yeah, I would even say 10 percent conservative. Like you'll have money leftover if you save most for most gym owners. If if you save 10 percent, there's my left over the year to distribute to themselves.

Fern:
So in in my experience to you. It's I think at least it's going to take you a couple years to catch up to that where you're ahead. Right. So like if you're not doing this before, you're gonna be behind. So if you're one or your two, you're doing this, you don't have enough to cover it the following year. That's because you're still catching up from years of not having enough money. So like you'll be setting aside essentially last year's taxes this year to catch up. So it will take some time for that to unfold. But I think it took us three years before I got to the point where. Where I was like, hey, how much are we going to owe? And I got the number and the number we had set aside was significantly larger than that.

Fern:
Yeah. Oh, shit. We have so much money. And that is when those. And I was like, well, hey, how much of this can I use? Because that was just tax money that I didn't count on having a trial in order to not have to pay any. So then she was like all of it. And I was like, okay, cool. So it's like ski ergs, barbells, all the stuff. And then I got a tax return after that because but I had planned for. All right.

Fern:
I was prepared to pay a significant amount in taxes, but didn't have to because there was a plan in place. But we used a 10 for a long time and it took about three years before that was over for before was that. So that's a big one is just setting aside the taxes. And I took his advice in the in the book, which is like you need to label that account like either not your money or governments money otherwise. Like, you'll just take from it.

John Briggs:
What did you label it?

Fern:
Not your money,.

John Briggs:
Right? Yeah, I like that better because I when he says I'm like, no. I refuse to say that this is the government's money. It's my money. And I am agreeing to pay the taxes. But.

Fern:
Yeah, I would agree. There's. And there's two other things I want to get into. So this one is and obviously this one I think is a little bit depending on how you run your business. But like there is all this going back and forth about W2 versus ten ninety nine. And I know where you stand on this. But I want I want you to elaborate on that. Because I don't want to speak for you.

John Briggs:
Ok, good. So I feel like there's been two camps in the microchip industry before a was introduced to it and got involved. And it was either coaches are always W2 or coaches are always independent contractors. And the reality is, is neither one of those are correct. Coaches are always what they are. Now, there are twenty four factors that the IRS looks at when they make a determination. Just if the coaches truly independent or if they should be a W2 person. And you have to look at those factors. You also have to look at your state rules. California lost just last year, asked a bill or law slough. Basically, there is no such thing as an independent contractor. The state of California anymore. It just. Yep. It's it is rarely rare situation. But Uber. Uber had a court case come against them and they simply said, well, if what the contractor is doing is the primary source of revenue for the business, then it can't be an independent contractor. They have to be employees. Great. Well, what that means is if you're in California, your coaches have to W2. You have to be compliant.

Fern:
Significant expense that if you were w if you were to ninety nine coming your way like on payroll.

John Briggs:
You have to add basically eleven percent and if you're in California. Twelve percent. So if I one hundred dollars is really hundred twelve dollars. A thousand dollars is really whatever that is. Hundred and what. Yeah. But anyways so the way I like to explain it is. If you want your coaches to be independent contract state law, allow it. I think both parties are better off with that scenario. The gym owner pays less payroll tax and now the coach as an independent contractor can take advantage of the exact same tax deductions as the owner get to take advantage of that either tax law.

Fern:
Yeah, because a lot of a lot of the coaches are like, well, you just don't want to pay payroll taxes on what? Well, yes. Correct. No, no, I fucking don't. But you get a benefit as well. And that's where I think people miss the boat on that. They're just like all this is just for you. And I'm like, no, no, it's is equally as much for me as it is for you.

John Briggs:
Yeah. And with tax reform of 2018. In the past, if you were a W-2, you could claim these things called unreimbursed employee expenses as a tax deduction. As an employee. That only exists now if your military and it's only related to your military stuff. OK. So that makes being an independent contractor that much more attractive because your miles driving to the gym, your workout clothes, the supplements, you take this healthy so that you can actually cope classes, your L1 ones, your cell phone so that you could be in contact with the business that's contracting with you and the clients that you serve. All of those are write the corporate strategy that you mentioned about. Those are things that a coach can even take advantage of. So if a coach makes like fifteen grand or less, obviously you could probably deduct almost all of it and enough expenses so you'll pay any tax. But if you're doubling down fifteen thousand, you're paying year income tax on that.

Fern:
And now I think we're a lot of people make this mistake or coaches, they think that like write offs means that I have to spend all of the money. I'm like, no, no. There is inherent kind of expenses, if you will, that if you're just tracking them, all you're doing is reducing your taxable income. And I think there's like this weird disconnect there. They think, well, that just means you have to spend more money. I'm like, no, no, no. If all things remain equal and you continue doing exactly what you're doing, you just need to categorize these things appropriately, because now they come off the top in and instead of paying instead of having 50 grand in taxable income. Now you have like 20 grand in taxable income, which is a far lower tax bill for you to pay even with even with you having to pay the self-employment tax that you were freaking out about.

John Briggs:
That's exactly right, we're just talking about expenses it's already probably taking on.

Fern:
Yeah, yeah. Your travel you. Your phone bill, if you're doing different stuff like that, like all those things, are you there? They're deductible in your as a 10 on nine where again what you said if you're if you're a W2, like you're just paying taxes, like you're paying the gross amount. Yeah. Twenty percent right off the top. Just taken.

John Briggs:
And so I just I just believe that if if both parties can get on board with that you can create relationship in such a way that they can't be independent and both can benefit.

Fern:
Where they're applying those 24 factors so they can work out and you know?

John Briggs:
They they could just email me. I'm sure it's. We have a ton of blogs. We even have a checklist created. You know, if they just want to e-mail me like twenty four point checklist, will we know it to them?

Fern:
OK.

John Briggs:
Because we. Because what we did is we took the twenty four points and we rewrote it to help the gym owner understand if you want your coach to be a contractor. This is how this factor relates to that. OK. Got it. They can let us just go down column. Yes. No. Because a thing is two people think well one factor that they are probably employees, but I've twenty three that say they're contractors. Yeah. It's it's not just an all or nothing. It's definitely a case by case scenario.

Fern:
Yeah. And the idea is for like you the gym owner and the coach is to keep the majority of your money like that goal.

John Briggs:
That's all we're trying to do.

Fern:
That's the goal. That's the goal. So talk a little bit more about the Corporate rant, because even though I think this is like now commonly known and understood when I tell people that, like their their brains explode, they're like, wait, what?

John Briggs:
Yeah. Shockingly, it's still not as commonly known as you think. So the way I've been describing it lately is because this people understand it better this way. On the East Coast, they call it the Agusta rule because of the Masters golf tournament that happens in Augusta, Georgia, every year. And what happens is a city of like two hundred and fifty thousand people quadruples for courses. The Masters Tournament. And all these people have really nice house isn't like. Oh, do I? It's my rent house. And because they're wealthy, I'm sure they've paid lobbyist. Which is why we call it a casserole. Maybe they're the ones who created this tax rule that I'll get into. But basically it's how do I get rental income off it? To not have to actually pay any income tax on this income? Well, they they pulled it off and because they pulled it off and it's now a tax code, as business owners, we can benefit from the same tax deduction. So here it is. The tax rule is if you have a rental property, you rent it less than 14 days during the year. You are not required to claim rental income. If you have income less than 14 days rented, did not required to claim income means it doesn't show up anywhere on your tax returns. Businesses have meetings. They rent spaces. They rent hotels, their own convention centers. Well, you have a businessman. You should have at least monthly meeting anyways with the owners, even if it's just you to have a strategy meeting that good business principles. So we have to see this rent from you as an individual, your living space. One day per month, that's twelve. We're under the 14 day rule. So any income you call for that personally? You don't have to report it anywhere. But because it's common business principle that makes it ordinary and necessary, which the two stupid words the tax code uses to say something can be expensed. So your business takes a rent expense. You don't pick it up as rental income? Well, we've effectively done is expensed a distribution to your pocket and you have to pay any tax on that.

Fern:
For fifteen thousand dollars in case anybody hasn't done the math on that. Yeah, yeah. So, yeah, that was one that I was like, oh my God, you know. And then and it works, right. Like so like we'll do. And if you haven't guys haven't listened to the podcast on that. We did on meetings like go listen to that and just do it at your apartment or do it at your house like whatever. It doesn't matter. But like you can take advantage of this and reduce your tax liability and get an expense which if you want to get more in detail, talk to John. But like that's a huge plus to you. And then there's another one. So we talked about corporate rent. We talked about the taxes. And then the other one I want to dig into because I know you added this in there as well. Is the equipment account that you recommend that people do, because this is a recurring cost that we have to deal with as a gym owner.

John Briggs:
Yeah, there's no outright you you might be lucky. And one year you don't have a single repair you have to do. But there was still wear and tear on your equipment. It will have to be replaced. And so we we have found it's about 5 percent is what financially fit gyms are being a site of their income. And we're saying let's be proactive with that expense instead of waiting. Like right now, our gym is not profitable. So we're used to hope and pray method, which is terrible. That's a terrible method to use. I hope that rubber doesn't break down because when it does, I have to come out of pocket. I put money into the business to fix it or to replace it. Why do that? Don't do that. If the profitability set aside 5 percent. Like every month or twice a month. Reccommend. And now you gonna build this reserve so that as the needles come up, you cash already available for it. And what I love about the equipment account, you will probably get to the point where you'll have more money in that count. Then you know, you need psych. Look, even if all my piece of equipment broke down, I don't need this much money. You're. Guess what? That's your money, you know. You don't want to take whatever you want. You shouldn't spend it on yourself. Great. You want to go on a great trip. Awesome. You buy the shiny object now. Go for it because you can do that without affecting your operations or your profitability. You want to do crazy marketing camp, nerd event, whatever. Use that money for whatever the hell you want when it's too big. It's worth it.

Fern:
Or if you have this crazy list. And we saw that as a Crossfit, brave when we were in Raleigh last week. They have a gym wishlist that's built by the members. So basically you can put that in there. I know exactly what all those things cost. And now I can figure out exactly when I'm going to purchase either any one of those items. Right. So I just go down the list. I'm like, well, that only costs 200 bucks. I'm like, we can do that next month of I'm setting aside 5 percent. Because when I started doing this like a couple years ago and I got it as high as 9 percent, this was before we expanded. I just had it in there. And we're just going to start grinding away at some things that we want to get to. And what it does is it gets you in the mindset of reinvesting into your business instead of like trying to keep everything in, just like I'm going to spend this much on. It doesn't always have to be equipment. It can be upgrading your bathrooms or like painting the walls or like that. You know, like all that stuff that needs to be done. If we're gonna compete with some of these forty fives and orange theories like you need to beautify your space and that equipment. Can I label equipment and maintenance? Because it might it might be equipment one month and it might be maintenance the next month. So it doesn't always have to be one or the other. But that was one of those things where it wasn't I wasn't caught off guard ever. If something broke, I might not be able to cover it that month. But I'm like, OK, bassoul or setting aside, I'll get it fixed in the next forty five days. It's not a big deal. And it's just a habit. The. There was something else I wanted to ask you to. Anything other than some of the tax distribution in the equipment account that's like significantly different that you guys put together. Yeah. Elaborate on all of it, but I'm just curious.

John Briggs:
The biggest other change is we have to add a team member expense bucket.

Fern:
Oh, that's what it was. Yeah. Yeah.

John Briggs:
Because it's I mean team member expense and rent are your two largest expenses. We need to account for this. But we like the team member expense because when we were running this based on the old modmodel . Every single time it did an assessment, we had to ask 500 question, how do you pay your coaches? Oh, you pay them for nice. Oh, you pay them a flat fee or you do both. Well, you pay them wages. They're like eight or nine different compensation models. I've come across. And every time we had to figure out based on the original definition. OK, well, this is to come out a real revenue and this needs to be operating in this. And I literally as I'm typing the chapter up on how we've done this analysis. I am like four pages in two just explaining how a gym owner can get this right with all these different expects exceptions and I'm I'm like reread it just like this is brain damage. Like, I even want to read this and I'm in love with numbers. My gym owner who I'm in to serve is not going to feel served. So, like, give up. Forget it. We're gonna take that of the real revenue calculation working and give it its separate account. And then we'll just analyze gyms based on that data and what we found. And so we found. Twenty five percent is what most financially fit gyms are running at, regardless of revenue size. If if you're at 25 percent, you are. All right.

Fern:
We know other and when you say when you're saying member X or team member expense is since you're just talking like you're what's your payroll figure, correct?

John Briggs:
Payroll. All payroll, not just coaches. If you have a front desk person, all that stuff. We know other models that recommend. Forty four percent and so on. And we think that's also pretty healthy. So we just in general say twenty five to forty four percent.

Fern:
Yeah, we're like 40. We're like, yeah, we're 25 percent and then 40 percent for payroll.

John Briggs:
Yeah. Awesome. What I love about the epiphany that happens is that this doing it this way and adding this one step, which is if you're the owner and you're coaching a class. That specific pay for the class comes as a team member expense bucket. It's not owners pay like, yes, it goes to your pocket and you're the owner, but you have to pay yourself for coaching classes out of a team bucket because that's how you realize when you can start stepping away from coaching the classes that you're coaching.

Fern:
Oh, got it.

John Briggs:
You're not paying yourself for that. You don't know if you're in a healthy range or not. And so I you really simplified.

Fern:
So you have to fit what you're saying is. So I was having a hard time unpacking that because I was like just because I guess I'm a little bit past that. But what you're saying is like, what does it cost me to run this business if I never coached a class?

John Briggs:
Yep.

Fern:
Yeah. Because I was like, wait. Well, I don't pay myself for class anymore because I pay myself a separate centage of revenue at this point. Right. But I don't have to coach any kinds of. I don't want to. You don't?

John Briggs:
Exactly. But some owners have to.

Fern:
Exactly That's where I was. That's where the confusion was. Yep. Got it.

John Briggs:
Yeah. Someone test out and shouldn't have to. You can't afford for them to replace them. So because they don't have the simplicity of seeing that. Yeah. Just by transferring the money they they made the decision without all the data.

Fern:
Well and the other thing is if you're doing it this way and and this is again like you might have to resort to this and like hard times. But if you if that is your payroll and you don't coach any classes, you will, you know, it's a real quick way to get some money back. Start coaching more classes again where it's just like, oh, again, it's all it's all. If I look at it this way, it's all about like having the ability to do that in the event that you need to use, like, hey, if I need to pull back. I don't know if you pay. If you let's say you pay on average twenty five bucks a class and you have one hundred and thirty five classes a month and you need to pull back 50 percent of them and you're going to coach 70. You know, you just pull back almost two grand back into your pocket. Now do you want to coach seventy five classes a month. Probably not. But you might need to. Right. So then it's just. OK, cool. Let me eliminate seventeen hundred and fifty dollars worth of expenses and get back in there, because that can be the difference between like folding your business and not folding.

John Briggs:
Right. At least gives you enough time to survive. And I think what's going on.

Fern:
Exactly. So I agree. That's cool. Anything else anybody these guys should know about either the book or any of that stuff?

John Briggs:
No. I mean, you can pre-order now if you Google Profti For Mirco Gyma Amazon.

John Briggs:
If you guys the other thing is, if you guys haven't done sign up for the email because he sends out some really cool emails that have like a ton of information in there. And what I appreciate about you guys is you guys are full on board with the content train. So like you guys put out and provided me a ton of value before I ever paid for your services. So I took a lot of that advice. The concepts made sense because I'm a gym owner and and so if you guys are unsure about it, like you don't have to go in there immediately. And then like I said, they do offer like a consulting fee. And you guys still do that, John?

John Briggs:
Yeah, we do consulting.

Fern:
Yeah. So it's basically I don't know if it still works this way, but basically I would do like a quarterly call and on remember what the cost was. But basically you guys would do a quick run through of what we had going on and then give me some kind of like tax advice essentially. And that saved me a bunch of money before I ever started having you guys do my books. And then that meant that eventually kind of transformed into like, OK, well, now we work full, full time. So there's ways you don't have to go all the way in. But do this is great. I think there's a ton of good stuff in here. If people need to get a hold of you guys, what's the best way to get a hold of, you know, INSIGHT Tax?

John Briggs:
Our Web site is tax dot com. Just contact us. People can always e-mail me directly, John, at insight's tax dot com where we're just happy to help. We it's funny. So on the last thing they all say to you. One thing I learned when I wrote the book is this idea of a core method you to get a core message in your book. And surprisingly like making money or keeping your money is the core message of my book. The core message is, is it as a general, you deserve to be profitable, because that's the problem I have. I see in the industry is we don't need gym owners falling on swords. Why you do. I mean, Sarpolus cheesy, but you are saving humanity. Can you imagine if everybody came to your gym? The amount of, well, how their health does to the world, how it cleans up the insurance world, how it gets rid of like corrupt pharmaceutical? I mean, it's limited when people are healthier. And so that's the main message in my book. And that's what I'm working towards is I want you guys to know they deserve to be profitable so that they don't feel guilty when they get in self-sabotage. So anything we can do. The book is just part of that. Reach us. We are happy to help. Sure. We're in business. And if it gets to the point, we need to tell you, you have to charge you for it. We'll let you know. Yeah, but we're happy to help.

Fern:
Yeah, it's I can't recommend John and his team an insane tax like they've always been Johnny on the spot for me, even when I've handed them some messes, sometimes on occasion. But they help me work through that stuff. And I think the real takeaway is this is a learning process for anybody that's gonna do this. Like it's very much a team. Issue. Right. So it's not just like you hire John and inside tax and they and they solve all the problems for you. Like they're basically there to help you keep accountable, answer questions you have, but you're still gonna be the one who has to execute this on that ten and twenty five rule. Like you still need to understand the process so that you can execute it and get yourself to a point where you are profitable, because that is going to allow you to run an awesome gym that's gonna be around for years to come. So dude, this has been awesome. I really appreciate it. I'm really looking forward to the book. I will definitely be buying it. And if you guys are not gonna buy it, you should because you're gonna learn a lot. And I think the biggest thing that was for me, John, was like it just changed my frame of reference for how I looked at everything. Like once I read that book, I was just like, oh, I've never looked at things like that before. But now I look at it completely different. So that's the big takeaway for anybody who's not done a deep dive into this stuff. You you absolutely will not regret it.

John Briggs:
Yeah, thank you.

Fern:
Absolutely awesome, brother. I appreciate it. This has been fantastic and if you guys have questions, I'll reach out to John or if you just want to reach out to us. We can do a handoff for you, but we will see you guys next time.

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