I speak with at least 10 to 15 gym and dojo owners a month. Most got into the business for martial arts or training people, and managing money was never part of the plan. But a school runs on money, and somebody has to manage it.
Take a karate school in Indiana we work with. Next to classes, it runs an after-school program, a summer camp and eight vans that need fuel every week. Then summer comes. Families pause their memberships, income drops to the after-school program, and the staff still need paying for the last 15 days of camp. Rent doesn't pause either.
The owner had looked at Dave Ramsey's envelope method, where you take cash out of the bank and pay each bill from its own envelope. For a school with eight vans and a camp, that would take too much time. Separate bank accounts weren't much better: someone still has to sit and move the money by hand every time dues come in.
Today that owner is one of our most committed users, with nearly all of the school's money in Sequence. Every payment splits the Profit First way as it lands, with percentages set from a bad month, so rent and payroll go out on their dates from money already set aside. I'd add one more account for summer on top of that.
What does Profit First look like in a gym?
In a gym, Profit First runs on seven accounts. That's the gym version John Briggs lays out in Profit First for Microgyms, built on Mike Michalowicz's original method. In his walkthrough on Two-Brain Radio, Briggs keeps Mike's five accounts and adds two:
Income: where every membership payment lands first.
Profit: a share you take before anything else.
Owner's pay: your paycheck, set by percentage.
Tax: money for the tax bill, at the share you and your accountant pick.
Operating expenses: rent, software, insurance and the rest of the bills.
Team member expense: coaches and staff, in their own account.
Equipment: mats, bags, sparring gear and everything that wears out.
The idea behind all seven is Mike's: a share of every dollar goes to each account before you spend any of it, and the gym runs on its operating share. Mike has you make those transfers by hand on the 10th and 25th. Sequence makes them as each payment lands. The problem is the calendar. In Briggs' walkthrough, none of the seven is set aside for a slow season, and in a school like this one, summer is the season that breaks the plan.
Why do steady dues still leave summer short?
Profit First percentages sized for an average month run short in July, because an average month never shows up in summer.
Let's say your school brings in $37,800 in a normal month. Rent is $4,350, so you send 12% of every payment to the rent account. Payroll is two runs of $5,480, so 29% goes to team member expense. In a normal month, both accounts fill right on time.
Then July comes in at $26,400. The 12% fills the rent account to $3,168, and rent is still $4,350, so you're $1,182 short on the 1st. The 29% fills payroll to $7,656 against $10,960, so you're $3,304 short there too. And that's before the payroll for the last 15 days of camp, which comes due after the camp payments have already stopped.
I made those numbers up. Don't do the math. But the point is the split did exactly what you told it to. The percentages were sized for a month that summer doesn't give you.
How do you set percentages from a bad month?
The karate school works out each bill's percentage using what it brings in during a bad month. Pick a bad month from outside summer, the kind you get a few times a year. A bad-month percentage covers the bill in those slow months, and in every other month it fills the account a little past what the bill needs. Summer usually runs lower still, and the summer account covers that.
Same school. Let's say a bad month comes in at $31,900. Rent is $4,350, which is about 13.6% of $31,900, so the bad-month percentage for rent rounds up to 14%. Payroll is $10,960, about 34.4%, so payroll's bad-month percentage is 35%.
Now a good month lands at $43,700. That same 14% sends $6,118 to the rent account. Rent takes $4,350, and $1,768 stays put. Do that across a spring of good months and the rent account walks into July already holding a cushion.
So you might ask, "Doesn't that leave less for owner's pay and profit in a good month?" Yes, a little. That's the trade. You're picking covered bills in July over a slightly bigger paycheck in March.
What I always recommend is to run it through a cycle or two, watch where the money piles up, and then adjust. If the rent account is sitting on three months of rent, bring its share down and move that share to profit. You can change any rule whenever you want.
How does a summer account work inside the split?
What I tell gym and martial arts owners is to give the split one more account for the months people are away, and send it around 5% of every payment. Bad-month percentages keep the bills covered in an ordinary slow month. The summer account is for the stretch that's worse than that.
Here's how it moves through the year:
Every payment sends 5% to the summer account. On a $37,800 month, that's $1,890. It's one more slice of the same split, the same way profit and tax get theirs.
The account fills toward a target. Let's say you set it at $9,700, about what your worst summer has come up short in the past. Sequence lets you put a savings target on an account, so you can see how close it is.
Once it's full, you lower its share. Move that 5% back to profit or owner's pay until next spring. Nothing about the account is locked. You decide when it fills and when it stops.
In the slow months, a schedule pays it out. A rule on the 1st of July and the 1st of August moves a set amount, say $2,400, from the summer account into payroll. That covers the gap between what July brings in and what the team is owed, including those last 15 days of camp.
Nobody running a school is surprised by summer. The money for it gets spent in April, because it sits in the same checking account as everything else. A summer account keeps it somewhere it doesn't get spent. Landscapers use the same kind of reserve to get through winter. In your first year, the account may not be full by July, so if you're starting in spring, give it a bigger share for a few months and then bring it back to 5%.
How do rent and payroll get paid on their dates?
Rent and payroll, a gym's two biggest bills, each get their own account and their own date. A backstop, if you want one, catches a short month before rent is due.
Rent. The rent account is part of operating expenses, and the split fills it with every payment. On the 1st, a scheduled rule sends the full $4,350 out of it to the landlord. That's how the karate school runs it. Rent goes out on its date from money that was set aside as the dues came in.
Payroll. Payroll works the same way, with one wrinkle at the karate school. The owner still runs payroll from a local bank and sends the team member expense money there from Sequence. If you do the same, time the rule to the day your payroll provider pulls the money, which is often a few business days before payday. Money going from Sequence to another bank moves by same-day ACH, depending on the receiving bank's cutoff, so send it the business day before that pull. You don't have to move your payroll provider to make this work. Our post for dental practices walks through payroll timing in more detail.
Payroll every two weeks also means two months a year have three paydays. Size the payroll share on two runs, and let those months draw on the cushion the good months built.
The backstop. This one is optional, and I'd add it for a school with a summer camp. Five days before rent is due, a rule checks the rent account. If it's holding less than $4,350, the rule tops it up to $4,350 from the summer account. In a normal month it finds nothing to do. In a short July, it fills the gap before the 1st instead of after it.
What's the full setup the karate school runs?
The full setup starts where the money comes in. Among gym and studio accounts on Sequence where the payout platform shows up, 58% are paid through Stripe. So step one is pointing your Stripe payout at a feature called an income source, an account inside Sequence with its own account and routing number. Think of it as the person at the door. Every payment walks in there, and the rules decide where it goes next. That's the core of how Sequence works for gyms and studios.
One thing comes off before the split. If you sell uniforms, gear or drinks, the cost of that product and any sales tax you collect on it were never the school's money. Mike calls what's left Real Revenue, and the percentages run on that.
The same goes for sales tax on memberships, where your state charges it. The cleanest way is to point retail sales at a second income source, so that money never enters the dues split. From there, every payment splits by percentage into the accounts below. The shares are illustrative, built on the bad-month numbers from earlier. Yours will differ.
Account | Share of every payment | What it pays | When it goes out |
|---|---|---|---|
Team member expense | 35% | Coaches and staff | Business day before the payroll pull, to the payroll bank |
Tax | 15% | Your tax bill | When your accountant says |
Owner's pay | 15% | Your paycheck | On the 10th and 25th |
Rent | 14% | The lease | The 1st |
Equipment | 8% | Fuel for the vans, sparring gear, mats | Spent on cards, any day |
Profit | 5% | You | Once a quarter |
Summer | 5% | Payroll and rent in July and August | Scheduled, in the slow months |
Other bills | 3% | Software, insurance | Their due dates |
Two notes on that table. A, the tax share is the owner's choice. Many owners set aside 15 to 30% of each payment for taxes, and your accountant can tell you what's right for you. B, rent and payroll are the two accounts studios lean on most. Among gym and studio owners who split their money into accounts on Sequence, 44% keep one for rent and 37% keep one for payroll.
The equipment account is where the school's eight vans live. The team buys fuel and sparring gear on Sequence debit cards, and the owner runs every expense they can on a card. Each card draws from the account you pick, so a fuel stop comes out of equipment money and never touches rent.
You don't need all eight accounts on day one. The karate school started with one income stream paying into Sequence and one still going to its old bank. After a month or two, the owner moved the rest over.
What if you teach on a floor fee?
The floor fee is the instructor's version of rent. If you teach lessons in someone else's studio, you pay the owner a fee for the space, and that fee is a bill like any other: it gets its own account and its own share of every payment.
An independent lesson teacher we work with pays the studio a floor fee of 12% of what they bring in, capped at about $800 a month. The fee depends on how much they teach, so they set it as a percentage with a monthly limit. Their floor fee account takes 12% of every lesson payment until it holds $800, and then the floor fee is covered for the month. Stylists who pay a salon a percentage run the same split, and our post on booth renters walks through it.
Some instructors we work with also teach on a W-2 at one gym and on a 1099 at another. If that's you, keep a separate tax account for each income stream, so the money for the 1099 work isn't mixed up with a paycheck that already had tax taken out. The share for each is your call with your accountant.
What does the karate school look like two years in?
The school now runs 95% of its money through Sequence. That's the owner's own number, from when I asked how much sits in Sequence and how much in outside accounts. Payroll is the main bill the school still pays from a local bank.
Vans still break down. What changed is where the owner handles the repair bill from: "I can look at the money and go, okay, I need to move money here. I don't have to go to the bank."
The school also gets something back from the spending it was already doing. Because the team runs fuel and gear on Sequence debit cards, the card rewards cover the cost of its Sequence subscription.
Ask the owner to sum it up and they keep it short: "It saves me time. That's the easiest way to say it." [ARI: once the case study is live, name the school here and link it, anchor "full story"]
Where should a gym owner start?
Start with one rule. Point your Stripe payout at an income source and split every payment into the accounts you already think in: rent, payroll, tax, owner's pay and profit, with the percentages taken from a bad month. Add the summer account before spring, so it has a few months to fill.
Then go through a cycle or two and watch where the money piles up. If an account keeps overfilling, lower its share. If July still comes up short, raise the summer account's. You set the plan once, and Sequence follows it every time a payment lands. You can change any rule whenever you want.
Ready to set this up? See how Sequence automates Profit First for gyms and studios.
FAQ
How do you run Profit First in a gym?
Split every membership payment into its own accounts the moment it lands, with each bill's percentage sized from a bad month outside summer. Add a summer account inside the split, so rent and payroll stay covered when members pause for the season.
How do studios cover rent in slow months?
Give rent its own account and size its share from a bad month, so good months build a cushion. For a short July, a rule five days before rent can top the rent account up from a summer account.
How much should a gym set aside for summer?
Around 5% of every payment is where I'd start. Watch one summer, see how short July and August come up, then adjust the share.
How much of a gym's revenue goes to staff?
On Two-Brain Radio, Briggs puts healthy gyms at 25 to 44% of revenue on team member expense. Your own number depends on how you pay coaches.
Do I have to leave my bank?
No. The karate school in this post still runs payroll from a local bank. Sequence sends the payroll money there on schedule. You can check yours on the list of supported banks.
Does this work for dance and Pilates studios?
Yes. The setup is the same for any studio on monthly dues. Instructors who pay a floor fee give it its own account and a capped share of every payment.