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Cash Flow Management - Terry Van Der Mark
A receivables-based financial structure is what health clubs today need to survive. In other words, a club
doesn’t really want to collect a lot of cash up front and instead should focus on collecting monthly dues on a consistent
basis. In our philosophy, a club is not defensible if it collects more than 10% cash at point of sale. There are a couple of
reasons for this:

1. As the monthly receivables base gets built up to a point where it covers the majority of the club’s overhead, the
amount of new cash needed each month decreases. This makes the club more stable in the slower times of the year
such as December and in the summer months. It also takes the pressure off of the sales team so they don’t have to
high-pressure prospects to become new members. For example, a cash club’s overhead is $30,000 per month and they
have $3000 in monthly dues coming in. They must bring in $27,000 in cash each and every month just to break even. A
similar club across town also has a $30,000 per month overhead but they have $24,000 of monthly receivables coming
in. They only have to bring in $6,000 in new cash each month to break even. Which club would you like to own?

2. It was mentioned earlier that after a club passes the two-year mark it gets tougher to maintain the excitement of being
a new club. Measures must be implemented to keep the freshness of the club in order to continue to attract new
members but also to keep the retention rate high. Our research shows that a club must be revamped every four years
to keep it defensible against new competition that might move into the area. If a club’s receivables base is high, there is a
greater chance for profitability so the club has the ability to create an accrual account for future capital improvements.

A club with a good receivables base also looks more stable from a bank’s point of view if a loan is needed to do the
capital improvements. The bank looks at the receivables base as an asset.

Want the truth about your business? Receivables never lie -
Thomas Plummer
Receivables (what and how you charge and collect from members) tell you just about everything you need to know
about the health of your business. Receivables will be down when:

Your staff is not providing adequate customer service.
You have high loss rates with your contracts.
You’re not charging a reasonable initiation fee.
Your monthly dues are too low.
Your collections system is not effective.
You do not establish multiple profit centers.
Your member renewal rates are too low.

Receivables are the true foundation of your business. Without a strong and stable receivables base, your success
becomes too dependent on membership sales. This “volume approach” forces you to spend too much time and money
on bringing new dollars into your business. On the other hand, clubs that put their strongest efforts into collecting the
most money from the most members usually succeed. It’s a simple concept, but one that few club owners and
managers actually put into practice.

A large, dependable receivables base helps you move from day-to-day money management into long-term financial
planning. And, just as importantly, it spotlights the areas of your operation that are being neglected so you can be more
responsive to needed improvements.