The Fitness Business School – When to Scale and When to Scale Back

Welcome to the podcast and in today’s episode we’re going to talk about when to scale your business and when to scale back. So if you want to determine what the right path is for you, stay tuned.

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Hey, Pat Rigsby here and I want to talk with you about when to scale your business and when to scale back your business. See the first one people talk about very regularly, everybody talks about wanting to grow, wanting to scale the ladder. Nobody really talks about, Hey, when should I scale back, when should I downsize a little bit and really kind of dial things in? So I’m going to talk about both of them today because frankly in my own business, I’ve experienced both several times over.

So first off, let’s talk about when you should be scaling, when you should be kind of putting your foot on the gas and trying to grow things. Well, the first kind of benchmark or barometer is when when your cashflow and your profits are strong, when you feel like, Hey, you know what, we’re always in a good place when it comes to cash. We’re not really ever having to worry about when we’re going to have enough cash flow to pay our taxes or to pay our bills or anything like that and we’re generating a healthy profit. We’re probably generating a profit margin well above 20% and we’re doing it at a consistent level, not just during our peak month. So when you’ve got this really healthy foundation as a business, you know you’ve got a really a strong foundation to build on, not just this kind of kind of foundation of sand, if you will. And that’s key because let’s face it, anytime you’re starting to dilute your focus, anytime you’re starting to kind of spread out where your attention goes, that initial business has a high probability of taking a step back.

Now, it doesn’t mean it’s going to take this leap back and you’re going to lose all sorts of ground, but it does mean that if things are operating at an all time high and you’re giving it 100% of your professional attention and all of a sudden now you’re giving it 60% we can expect it to back off a little bit.

So we need to make sure cashflow and profits are strong.

Number two, we need to kind of look at things and say, okay, are we close to capacity during our peak hours or during our peak time slots? See, capacity’s kind of a funny thing in not just the fitness industry, in businesses as a whole, every business has kind of peak times peak hours. A restaurant isn’t sitting there saying, okay, how do we maximize 2:30 in the afternoon? They’re looking at how to maximize dinner, maybe lunch or breakfast, depending on the type of restaurant. You know, department stores probably aren’t thinking about how to make the most of, you know, October 10th or something like that. They have the holidays approaching. They just got through labor day sales and back to school stuff. So every business has some sort of ebb and flow in what they’re doing.

So we need to think about how to do the things great that we’re already doing good. So looking at it that way, during your peak hours, and typically in a adult fitness business, peak hours are before work and after work and maybe mid morning, are you close to capacity there? Are you at least at 80% of capacity during your peak hours? If you’re not, then now’s a good time to probably kind of put some, you know, put some effort and focus on those things. Because if you’re not at capacity when you’re giving it 100% of your attention, odds are when you’re dividing your attention over multiple locations, it’s going to be tough to reach capacity in either spot. All right, so that’s two.

Number three, do you have a systematic approach in place that allows you to play your best role in the business whatever that is? I’m not here to tell you that you have to be this kind of E-Myth style business owner that doesn’t do any of the actual service work, doesn’t do any of the selling because frankly I think that’s probably an inaccurate way to think about small business in almost all cases.

So what you need to have in place is a way for the business to operate in a successful, sustainable way that doesn’t require you, doesn’t mean you can’t fill some of those roles if you choose, but you’re doing it by choice, not by obligation, not by necessity. So do you have systems in place that allow you to function at a high level? They’ve kinda been stress tested because you have been close to capacity. So you know that they’re working when you’re dealing with a high volume of leads, a high volume of clients with as much staff as you probably need to operate at a high level. If you have that in place and it’s been stress tested and you’re playing your best role now we’ve probably got a pretty solid business that we can start to look to scale.

So those are our three variables. Are we in a position where cashflow and profit are strong? Are we close to capacity and do we have systems in place that allow us to play our best role? So on the flip side of that, when do we think it’s time to maybe scale back? And I know I’ve been there, right? Because you push growth so much because that’s what’s kind of thrust in our face. We’re all told, Hey, you need to grow. You need to scale up, you need to be a big business. And that’s kind of the benchmark. People throw out these lofty numbers of, Hey, we attracted a hundred clients in the last 60 days, or we’re generating X number of dollars in gross revenue. And a lot of it’s fluff. A lot of it’s a lie that’s there to market and attract kind of people who are in a point of desperation.

But the reality is it drives a lot of people’s behavior and it pulls them forward maybe faster than they should’ve gone. So how do we know when it’s time to scale back? Well, the first thing I would tell you is if cashflow and profit aren’t strong, right? If we’re always kind of feeling like, you know, things are in a pinch and we need to move money around to be able to pay our bills. If there’s not much profit left after paying your team and yourself, or maybe you’re not even paying yourself some of the time, well that’s clearly a red flag that’s going to tell us that we need to back things off a little bit and start to dial things in and optimize them.

The second thing that we need to think about is are we doing high return activities? If not, that’s not a good place to be as a business owner. If you’re spending your time on a lot of low ROI stuff, if you’re doing a lot of the answering the phones, a lot of the data entry, a lot of the customer service. If you’re feeling like, Hey, I’ve got to clean the bathrooms and I’m the one who needs to take out the trash. It’s not that those things are menial tasks that we’re above doing because I think all of us as small business owners have been there. It’s that if we haven’t graduated past that, then we probably need to take a couple steps back and optimize our business model and get things in place so that all those low ROI tasks aren’t as dependent on us.

And then finally, do we not have systems in place that allow us to play our best role and really support the operation at a high level? Do we feel like we’re always putting out fires? If that’s the case, you know, we aren’t in a position to be spread too thin. We need to step back and say, okay, how do we optimize these systems? How do we really tighten things up to make sure that the clients get the type of experience that they want, that the prospects are getting the followup that they need to move them forward on that path. We’re becoming a client that we’re generating the high quality leads that we want to reach so that we are keeping that prospect or client pipeline full, that we’re doing things in a profitable way because our margins are high, our pricing’s right. We may need to step back and say, okay, are we doing things the way that we need to do them in a consistent fashion? Do we have the systems in place that allow us to grow or are we just kind of scrambling every time something comes up? Do we feel like our business is always high friction and high stress? If that’s the case, again, we need to probably take a step back.

Now, the good thing about being willing to downsize or scale back is this is not a failure on your part. This is actually the mark of a smart business owner because if you’re willing to take a step back, tighten things up, optimize them, then you’ll be better prepared to move forward knowing what’s to come, knowing what challenges you’re going to be facing down the line. Then the person who just kind of goes in there blindly and hopes and throw stuff against the wall. So you know, I mean there’s nothing wrong with hesitating a little bit, taking a step back to set yourself up to succeed over the long haul in the future.

Let’s face it, a lot of people in our industry didn’t get into our industry with a significant business background. They got into this with a service mindset, with a fitness or health background with a care for people. But you know, we’ve had to kind of figure the business stuff out along the way and you know, some of them we’ve had to figure out through trial and error or on the fly. So there’s nothing wrong with taking one step back to eventually take 10 more steps forward. So hopefully that helps you when you’re trying to decide, Hey, is it time for me to add that second location? Is it time for me to scale and add a virtual second location and scale online? Or have I grown a little bit too fast or a little bit too big and do I need to kind of throttle things back and tighten them up before I continue to expand? Hopefully this makes you make those decisions a little bit more comfortably, a little bit easier, and more successfully.

Thanks for listening. I’m giving away a bundle of my bestselling books, the ideal business formula, the fitness entrepreneur handbook in the path. All you have to do is go to patrigsby.com/podgift to get it. Also, make sure to subscribe to The Fitness Business School with Pat Rigsby so you don’t miss an episode and you get yourself on the fast track to creating your ideal business.