Reinvesting – Functional Obsolescence

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  • Reinvesting – Functional Obsolescence

Beating Functional Obsolescence

Gym ownership is actually a pretty dynamic business, in case you didn’t already know that (you’re welcome). Rapidly changing trends mean that you always have to be on the lookout for a shift in what the membership expects. On a more basic level you need to reinvest to protect your assets, as they say. You can’t have old, broken-down exercise machines that just take up space. You can’t afford to have shabby signage outside with burnt out lights or missing letters.Dynasty Buffet signage Fail with burned out lights

That is why, as a gym owner who sees other gym operations all the time, I’m always taken aback when other business owners follow the philosophy of “two for me and none for you". “Me” being the business owner who fails to reinvest. “You” being a broken down, smelly gym. To keep the revenue coming in, you need to make investments that update your facility, keep equipment maintained and keep it clean to stay relevant to the expectations of the membership.

Put Back In Before You Get Chucked Out

In a "for-profit" enterprise of any description the name of the game is one thing: survival. Yes you want to make a profit of course and as a responsible business manager you have to look out for the assets of the business, both in the short and long term. There is no way to guarantee that you will succeed and that’s why going all out for maximum value is the key. All too often business owners of all descriptions, not just fitness center and gym owners, make the fatal mistake of confusing profit with value. The purpose of business isn’t just to maximize profits. That can be dangerously short-sighted. You have to look at the value of the business as an asset and plan for the future.

Taking a profit is paying yourself. Yes, you need to do that to justify having the business, if not to survive. Hopefully, you’re not living to work but working to live and attempting to build a business that will work for you. However, if you take the full payment now you’re never going to retire. In fact, you’re probably going to end up working for somebody else.

Seriously, You Need To Reinvest

It’s not "two for me and none for you" or even "two for you and none for me", that’s equally ridiculous. One for me and one for you in this case means to live sensibly and reinvest in your business to keep it relevant and current to the trends in the fitness market. Functional obsolescence is a real concern in the fitness business. It’s not just an accounting entry for depreciation and tax write-offs. It’s a real issue of the degradation of functional utility. For gym owners it’s having exercise machines that don’t cater to the current thinking about what is healthy and/or safe. It’s not having a space for classes or enough space for group activities that are in demand. I think there’s a valid argument that not having up-to-date management hardware and software could be counted too. When potential members are browsing to find a new gym they are looking for a few basic things, by which they’ll judge you. Things that go away pretty quickly if you haven’t been reinvesting adequately. The same’s true of existing members, they are probably browsing the competition with a critical eye. You need to be putting enough back into your enterprise that they don’t hit the cancellation threshold.

Functional Obsolescence Is So Passe

I like to keep the tone light-hearted here at the Insight Blog, but there’s a serious point to be made. You have to put in the investment to continue to get the income back out of it. If you can’t decide how much to invest out of your income you should speak to your financial advisor or accountant. They will be able to help you come up with a plan that is the most tax efficient beneficial to your business. Functional obsolescence will be accounted for as part of your write-down for depreciation. Don’t be the kind of entrepreneurial vampire that sucks the life out of your small gym business and then wonders what happened! Make sure that you reinvest enough to keep the business alive and the customers happy. Keep your assets healthy and in good shape so you can pass on to the next generation when the time comes.

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Over to you…

What is the main facility or service feature that you need to reinvest in?

Have you had a customer experience where it was blatantly clear that the owner was not reinvesting back into the business?