Creating a Cashflow Projection to Boost your Profitability

Entering a new financial year offers a fantastic opportunity to get ahead of the game in financial management. Gill Cummings-Bell BA (Hon’s), M.Sc. PGCE. MBA provides her expert guidance to help you smash your financial goals this year. 

If you’re aiming to sustain and grow your business, effective financial planning is crucial, and one of the most powerful tools at your disposal is cash flow projection. This guide will walk you through the importance of cash flow projection and provide a step-by-step approach to help your group exercise business flourish.

What is cash flow projection?

Cash flow projection is a financial estimate that predicts how much cash will flow in and out of your business over a specific period of time. It helps you to anticipate and plan for the financial ebbs and flows throughout the year, so that you can ensure you can pay your expenses and for staff, and importantly, avoid insolvency! Done well, it can help you to plan effectively for growth. 

Cash flow projection is useful to:

• Anticipate cash shortages by forecasting cash inflows and outflows, giving you the chance to budget and plan for any potential funding throughout the year.
• Manage expenses as you can see when you’re likely to have larger outputs.
• Budget effectively to ensure you don’t overspend
• Identify opportunities where you may have more incoming cash, and considering how this could be invested.
• Effectively set your pricing.
• Support funding applications, as cash flow projections are often a requirement to show your ability to repay loans or provide return on investment.
• Reduce stress, by allowing you to know and plan your finances effectively.

So now you know what cash flow projection is and why it’s important. But how do you go about creating one?

How to create a cash flow projection

Creating a cashflow projection isn’t as complicated as it may seem. It’s really just about making predictions based on what has happened in the past, and what you know about your upcoming activities. To do an accurate financial projection, you should gather all of your financial information from the previous years and consider any changes that you are aware of. A cash flow projection should cover a period of 12 months, broken down into quarters or months. It looks like this:

Opening balance – what money you begin the period of time with, in this case it’s monthly.

Total income – all business-related income that you expect to make within that period

Total expenditure – all expected spend within that time period

Net cash flow – what is left from your income after the expenditure has been spent

Running balance – the opening balance plus the net cash flow. 

Step-by-step guide to cashflow projection

To start to build you cashflow projection, follow this a step-by-step process:

Step 1: Identify income sources, these may include:

• Regular income from group classes and private sessions.
• Occasional income from special events or seasonal workshops.
• Revenue from selling apparel, equipment, or instructional materials.
• Fees from training courses that you run

It’s helpful at this point to analyse your past income data to identify trends and seasonal variations so that you can take these into account.

Step 2: List fixed expenses, such as:

• Monthly payments for your teaching space.
• Electricity, water, and internet services.
• Liability and property insurance premiums.
• Payments to staff or assistant instructors.
• Travel, if this is regular.

Fixed expenses remain constant, making them easier to predict, but it can by useful to add a 10% contingency for any price hikes. It’s better to plan for higher costs, than get stung based on the previous year’s costs.

Step 3: Estimate variable expenses, such as:

• Marketing costs including advertising, promotions, and social media campaigns. Don’t forget to include things like printing and distribution costs
• Repairs or replacements of equipment such as mats, sound systems, etc.
• Purchasing items like cleaning materials or office supplies used when you’re not on the mat

Variable expenses will fluctuate based on activity levels, but you can review past records for a more accurate estimation.

Step 4: Project monthly income and expenses

• Create a month-by-month forecast, accounting for expected income and anticipated expenses.
• Factor in seasonal trends, such as increased enrollment in January and potential dips during summer vacations.

Use spreadsheet software or financial planning tools to organise and calculate projections.

Step 5: Calculate net cash flow

• Subtract total projected expenses from total projected income for each month.
• A positive net cash flow indicates a surplus, while a negative figure signals a potential shortfall.

Understanding sales and profitability

The income from group exercise instruction isn’t always stable. There can be times when attendance is limited, and times (such as during illness) when your income may dip. It helps to understand what you should set your income goals at in order to achieve profitability. 

If you have been in business for more than a year, you can look at your previous year’s income, expenditure and net profit (the final total you made after all of your expenses are deducted). In order to grow a net profit, you can either increase your income, or reduce your expenditure. But it helps to first understand where you need to set your prices to ensure profitability in the first place. 

Determining pricing

The price at which you set your classes will determine your income. If they are in-person classes, you will be limited in the number of attendees. In order to be profitable, the total income from your classes must exceed your expenditure. 

An example:

You run a yoga class with space for 20 participants

Your basic costs per class, for travel, sustenance and miscellaneous costs are £20. 

On top of this, you have annual costs such as yoga mats, blocks, training courses and other expenses, totalling £7200 for the year. 

Say you do 12 classes a month, that equates to additional expenses of  £50 per class (12 classes x 12 months = 144 classes. £7200/144 =£50)

Your total costs per class then are: basic costs per class + annual costs = £70 per class total 

Divided by the number of attendees, the costs are £3.50 per participant per class, if your class is full. The likelihood, however, is that your classes won’t always be full. So you should work out the average attendance at your classes instead. (This is another great reason to record attendance in your classes!)

Say, in this example, the average attendance for each class is 15. £70/15 is £4.60. This is now a more accurate cost per participant per class. See the table below…

Your pricing of attending must be higher than the break-even price in order to ensure your profitability. To achieve stability of income, you may need to set your price significantly higher than the break-even price to account for the fact that attendance might not always be great, and that your costs may go up. Give yourself a generous margin when you’re setting the class cost. It’s important though to understand that attendance and price can be closely linked. If you put your prices up too much, your attendance may struggle (unless you have an extremely dedicated following). 

Market research

It’s worth doing market research to see how much your competitors charge for similar classes in the area. That will help to ensure you’re not under pricing your classes and that they remain competitive. Here are a few ways to research pricing for local classes.

1. Search competitor websites: Look at the websites of local and online fitness instructors, gyms, and group exercise classes. Check their pricing pages for membership fees, drop-in rates, and package deals.

1. Social media platforms: Instagram, Facebook, and LinkedIn are great places to find fitness instructors advertising their services. Note their pricing when shared or message them directly to enquire.

1. Booking platforms: Check platforms like ClassPass, Mindbody, or Eventbrite for classes similar to yours to see listed prices.

Competitive Analysis Spreadsheet

Once you’ve got hold of the details of your competitors classes, you can create a spreadsheet to see how you compare. It’s worth considering the following:

• Class type (e.g., Yoga, HIIT, Pilates)
• Instructor experience level
• Location (In-person vs. Online)
• Pricing models (Single class, monthly membership, packages, etc.)
• Additional perks (Free trials, discounts, etc.)

Important tips for financial stability

Set aside a buffer

Planning your cashflow is a great step towards ensuring the stability of your group exercise business, but it’s not infallible. Having a cash reserve to cover unexpected expenses or income shortfalls will also help to prevent any shocks to the system that could come from price hikes, unexpected equipment breakages, drops in class attendance or any other unexpected disruptions.

Consider diversifying income streams

Your skills as an instructor can be shared in many ways. Offering online classes, developing your own group exercise system, or renting out studio space during idle times could all provide profitable opportunities to ensure you’re not only relying on face-to-face delivery of service.

Save profit

Aim to save as much as you can, and enough to cover at least three to six months of operating expenses, so that, should anything happen, you have some financial security.

Update your cashflow regularly

Regularly updating your projections with actual figures will improve your cashflow projection’s accuracy over time.

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