Fitness Center Business Plan

1. Business Description
2. Market analysis
3. SWOT Analysis
4. Critical factors for the company success
5. Customer relationship
6. Marketing Objective
6.1. Product
6.2. Price
6.3. Promotion
6.4. Place
6.5. Implementation
7. Management team
8. Operations
8.1. Tasks and actions to start-up the company
8.2. Production plans
8.3. Personnel
9. Financial aspects
10. Financial resources and sources of financing
11. Evaluation the effectiveness of Business Plan
Resume
Works Cited

1. Business Description

Arnold Fit is a fitness center with a modern, reliable and safe equipment. Each training is held in a comfortable and relaxed atmosphere under the guidance of a professional coach. Arnold Fit is a clearly divided space, perfect internal infrastructure and the most modern equipment.

2. Market analysis

The year of 2016 has marked the arrival of significant factors facilitating the rapid growth of the gym, health and fitness clubs industry.

In particular, the following factors are especially important: [1]

  • the popularity of the fitness clubs industry was ramped up due to many marketing campaigns dedicated to fighting obesity which received a nationwide coverage;
  • the major consumer trends have shifted towards the healthier lifestyle which entails healthy food and exercise;
  • the generation of baby boomers are much more likely to join the fitness clubs memberships as they become more conscious of their age and the need to stay physically active;
  • public health initiatives provided a great aid to popularizing exercise for preventing diabetes, heart diseases and obesity among people of all ages;
  • population growth and high levels of employment activated larger demand for the fitness club membership.

The above factors are expected to provide a revenue growth at an annualized rate of 2.5% to $30.3 billion, including 3.2% growth in 2016 alone.

3. SWOT Analysis

Table 1 - SWOT Analysis

4.Critical factors for the company success

Quality

The company believes the following factors will greatly contribute to its market success: - a constant inflow of the loyal clients - a high quality of services - convenient location of the club - a flexible pricing policy - the introduction of additional services.

5. Customer relationship

While a fitness club industry is very competitive, it’s also a very lucrative one. Four out of five Americans are engaged in exercising in the fitness clubs and paying for their memberships. Moreover, memberships have grown 18.6% between 2008 and 2014, and the trend is expected to continue in 2016 and beyond.

The following are the most promising niches to focus on:

  • the generation of baby boomers who are concerned about their health due to the aging issues;
  • high-end fitness clubs aimed at the affluent customers who view their fitness club memberships not only as an opportunity to stay healthy, but the demonstration of their status as well;
  • low-end fitness clubs oriented on the people who can’t afford (or do not want) the regular fitness club membership. So basically the pricing could be so low that people won’t bother cancelling when they no longer attend;
  • special training facilities like yoga clubs, boxing clubs, or any other varieties which will combine conventional fitness exercise with a clear special training focus.

6. Marketing Objective

6.1. Product

The main product of the company is the fitness services. During a first year the company plans to employ one fitness instructor. If the business goes well, the number of qualified instructors will increase. The club is going to provide services both for beginners as well as professional sportsmen.

6.2. Price

The company is going to establish a monthly and a yearly price offer for its services. The amount of a monthly payment will be 50 dollars, while a yearly plan is expected to be 550 dollars, i.e. one month is granted for free as an incentive. After the first year of performance, the price system will be more flexible including a wider range of bonuses and special offers. Likewise, more attention will be paid to increase the loyalty of the clients with the help of price incentives.

6.3. Promotion

As the fitness club is a newly established business, the need for a strong advertising exposure to attract the first clients is the primary advertising goal. It can be achieved by the following means:

  • an extensive advertising campaign in the local media: the most popular newspapers and magazines, radio stations and TV. Further stages of the fitness club promotion won’t include these tools due to their high cost;
  • establishment of a strong digital presence due to the growing importance of the Internet and social media in the consumers’ buying habits. The major efforts will be focused on creating a meaningful social media presence and high rankings in the search results;
  • production of the handout outlets and flyers containing the information about the fitness club and a compelling call to action. Club memberships will be encouraged by offering a discount to the early participants.

The above measures are expected to provide a positive word of mouth which will produce a continuous influx of new customers.

Table 2 - Advertising costs planning for 2016 - 2020

Advertising costs. In 2016 advertising costs will be 12.0 k$. The next year advertising costs are expected to increase by 2.40 k$. However, the planning indicator will be 14.40 k$ in 2017. In 2018 it is planned to increase expenses by 1.44 k$ compared to 2017. The advertising costs amount in 2019 is planned to increase by 1.58 k$ compared to the previous year indicator. In 2020 it is planned to spend 19.17 k$ for an advertising, thus the indicator increase by 1.74 k$ compared to 2019.

6.4. Place

Arnold Fit is situated not far from the centre of New York. There is a parking nearby so the clients have the possibility to leave their car there. It’s very easy to find the club since a bright signboard indicates is location.

6.5. Implementation

Successful implementation needs a lot of initial efforts. The club's founder has to perform a set of tasks to launch the business. First of all, it's necessary to choose a suitable location for the club. The next important step is a selection and installation of the apropriate sports equipment. After thatit's necessary to organize several interviews with potential instructors to choose the best one. All these preparation jobs are expected to be over within three months.

7. Management team

To successfully run a newly established fitness club, the business is going to need three managing positions on top of the regular staff:

  • sales and marketing officer. The major areas of responsibility include planning and execution of marketing campaigns, market and competitor analysis, advertising campaigns, press and media relations;
  • director of health and wellness programs. The executive will oversee the health promotion programs offered by the fitness club including organizing and fulfilling the health education programs;
  • director of finance and administration. The executive will oversee the conduct of all financial activities with the purpose of protecting business assets and with the best interests of employees, customers and shareholders in mind.

Provided that the business grows as planned, more managing positions will be added to improve current operations and explore the potential market opportunities.

8. Operations

8.1. Tasks and actions to start-up the company

The company Arnold Fit needs to calculate the investments to perform its activity. The company also needs both fixed and working capital to launch business. The fixed capital includes capital assets.

First of all Arnold Fit needs buildings to organize the business activity. The balance value of all facilities and buildings amounts to 200.0 k$. Operating period of facilities is 20.0 years.

The company has to pay 4.0 k$ for the purchase of vehicles for the internal use and the transportation of goods.

The cost of equipment necessary to start production is 220.0 k$.

The furniture for office and production space is also a capital asset and is estimated at 30.0 k$.

The cost of computers is 4.50 k$.

It’s also necessary to purchase appropriate software to ensure an accounting department functioning as well as the overall automation of work. The total amount for this is 7.0 k$.

Biological assets, library collections and some other items may contribute to the fixed assets. The amount of the other types of the capital assets is 0.50 k$.

The table below shows the cost of fixed assets necessary to purchase.

Table 3 - The cost of the necessary fixed assets, k$


Therefore, the total amount of investments in the fixed assets is 466 k$. This amount is not included into the company’s expenses straight away. It should be written off as depreciation. The given company uses a straight line method of depreciation.

Let’s calculate the depreciation costs for the given type of capital for the next 5 years.

Table 4 - Calculation of the depreciation costs of the company’s main assets according to a straight line method, k$


Let’s show a way of calculations according to a straight line depreciation method:

Annual amount of depreciation for facilities and buildings is:
(200.0 - 2) / 20.0 = 9.90 k$

Annual amount of depreciation for vehicles is:
(4.0 - 0.04) / 5.0 = 0.79 k$

Annual amount of depreciation for equipment is:
(220.0 - 2.20) / 5.0 = 43.56 k$

Annual amount of depreciation for furniture is:
(30.0 - 0.30) / 4.0 = 7.43 k$

Annual amount of depreciation for computers is:
(4.50 - 0.05) / 4.0 = 1.11 k$

Annual amount of depreciation for programs is:
(7.0 - 0.07) / 2.0 = 3.47 k$

Annual amount of depreciation for other types of fixed capital is:
(0.50 - 0.01) / 4.0 = 0.12 k$

A company plans to rent buildings for manufacturing process or offices.

Table 5 - General occupancy expenses for 2016 - 2020

General occupancy expenses. In 2016 rent costs will be 1.0 k$. The next year rent costs are expected to increase by 0.10 k$. However, the planning indicator will be 1.10 k$ in 2017. In 2018 expenses are planned to increase by 0.11 k$ compared to 2017. The rent costs amount in 2019 is planned to increase by 0.12 k$ compared to the previous year indicator. In 2020 it is planned to spend 1.46 k$ for a rent, thus the indicator increases by 0.13 k$ compared to 2019.

Table 5 - Communication costs planning for 2016 - 2020

Communication costs. Company uses the communications to organize its activity. Planning communication costs is 2.0 k$ in 2016. In 2017 planning costs will increase by 0.20 k$ compared to previous year. Company plans to spend 2.42 k$ for Internet and mobile services in 2018. In 2020 it is planned to spend 19.17 k$ for Internet and mobile services.

Table 6 - Transportation costs planning for 2016 - 2020

Transportation costs. In 2016 transportation costs will be 1.0 k$. In the next year transportation costs are expected to increase by 0.20 k$. However, the planning indicator will be 1.20 k$ in 2017. In 2018 it is planned to increase expenses by 0.36 k$ compared to 2017. The transportation costs amount in 2019 is planned to increase by 0.31 k$ compared to the previous year indicator. In 2020 it is planned to spend 2.06 k$ for transportation, thus the indicator increase by 0.19 k$ compared to 2019.

Table 7 - Accounting services planning for 2016 - 2020

Outsourcing accounting company will provide accounting services for Arnold Fit. Planning costs amount to 18.0 k$ 2016. In 2017 accounting services costs are expected to be 21.60 k$. Accounting services costs will be 28.08 k$ in 2018 is, 33.70 k$ in 2019 and 37.07 k$ in 2020.

Table 8 - Utility charges planning for 2016 - 2020

In 2016 electricity charges are 30.0 k$. Natural gas charges are 1.0 k$, heating charges - 2.0 k$, water supply - 2.0 k$ and other utility charges are 2.0 k$. Total amount of utility charges is 37. In 2020 the total amount of utility charges will be 54.17 k$.

Table 9 - Other costs planning for 2016 - 2020

All the calculations are used to plan the future operation costs. In 2016 the indicator will be 71 k$, in 2017 - 81.20 k$, in 2018 - 93.88 k$, in 2019 - 106.23 k$, and in 2020 - 116.86 k$.

Material expenses. Planned materials-output ratio is 2.0 %. We have to solve an equation to find the total amount of operation costs in 2016:

Material expenses + Salary fund + Depreciation + Utility charges = Operation costs (OC)

2.0/100 * OC + 124.80 + 66.38 + 71 = OC
OC - 2.0/100* OC = 262.18
OC = 267.53
Operation costs in 2016 are 267.53 k$
Material expenses in 2016 are: 267.53 * 2.0 / 100 = 5.35 k$
Operation costs in 2017 are: 272.38 / (1 - 2.0 / 100) = 277.94 k$
Material expenses in 2017 are: 277.94 * 2.0 / 100 = 5.56 k$
Operation costs in 2018 are: 390.79 / (1 - 2.0 / 100) = 398.77 k$
Material expenses in 2018 are: 398.77 * 2.0 / 100 = 7.98 k$
Operation costs in 2019 are: 403.15 / (1 - 2.0 / 100) = 411.37 k$
Material expenses in 2019 are: 411.37 * 2.0 / 100 = 8.23 k$
Operation costs in 2020 are: 405.11 / (1 - 2.0 / 100) = 413.37 k$
Material expenses in 2020 are: 413.37 * 2.0 / 100 = 8.27 k$

Table 10 - Material expenses planning for 2016 - 2020

8. Operations

Table 11 - Operation costs planning for 2016 - 2020


The planned amount of material expenses is 5.35 k$ in 2016. In the next year the indicator will increase by 0.21 k$ (increase rate is 3.89%). Material expenses will increase by 2.42 k$ from 2017 to 2018 amounting to 7.98 k$. The next year indicator increase by 0.25 k$ compared to 2018 (increase rate is 3.16%). In 2020 planned material costs are 8.27 k$, the increase compared to the previous year indicator is 0.04 k$, increase rate is 0.49%.

In 2016 planning salary fund is 96 k$. In the next year salary fund is the same.

The planned amount of social expenses is 28.80 k$ in 2016.

In 2016 planning depreciated costs are 66.38 k$.

The planned amount of other expenses is 71 k$ in 2016. In the next year the indicator will increase by 10.20 k$ (increase rate is 14.37%). Other expenses will increase by 12.68 k$ from 2017 to 2018 amounting to 93.88 k$. The next year indicator increases by 12.35 k$ compared to 2018 (increase rate is 13.16%). In 2020 planned other costs are 116.86 k$, the increase compared to the previous year indicator is 10.62 k$, increase rate is 10.00%.

In 2016 planning operation costs are 267.53 k$. In the next year this costs are expected to increase by 10.41 k$ (increase rate is 3.89% ). Depreciation costs will increase by 120.83 k$ from 2017 to 2018 and its amount will be 62.91 k$. The indicator will increase by 12.60 k$ in the 2019, increase rate will be 3.16%. In 2020 planning operation costs are expected to count 413.37 k$, it increasing by 2.00 k$ compared to the previous year, increase rate is 0.49%.

8.2. Production plans

Calculation of break-even point

Break-even point is the amount of income at which the company does not receive losses. To achieve it, the income should exceed expenditures. As it was indicated above, we have calculated the amount of operating expenses. It is also necessary to take the financial costs into account, which are also paid out at the expense of the future incomes.

Table 12 - Planning of total expenses Arnold Fit

Thus, the break-even point in 2016 is 290.18 k$, in 2017 - 300.59 k$, in 2018 - 421.42 k$, in 2019 - 434.02 k$, in 2020 - 3413.37 k$.

Margin is a main source of profit for the company. Arnold Fit establishes the margin of 40.0% for its services. Let’s carry out the planning of the company incomes, adding the margin’s percentage to the expenses.

Table 13 - Planning of revenues and financial results of Arnold Fit

The following conclusions can be made according to the table data. The company will be profitable in the next year. The planned net profit is 104.46 k$. The calculations took the income tax into account, which will be 10% in 2016.

In 2017, the planned income before tax will amount to 120.24 k$. Net profit after paying taxes will be 108.21 k$. A profit growth is planned for the next years, i.e. the growth rate will be 40.20% in 2018, 2.99% in 2019 and -4.76% in 2020.The planned net profit after 5 years is expected to be 148.81 k$.

Cash Flow Planning

Table 14 - Cash at the beginning of 2016


Table 15 - Cash at the end of 2016 Inflow Outflow


Table 16 - Cash at the end of 2017

8.3 Personnel


In 2017 it is planned to decrease personnel costs by 0 k$.

In 2018 it is planned to increase expenses by 109.20 k$ compared to 2017.

In 2019 it is planned to decrease expenses by 0 k$ compared to 2018.

Before 2020 the number of employees at Arnold Fit is expected to count 3 staff, while the salary budget amounts to 234 k$.

9. Financial aspects

Break-even point is the amount of income at which the company does not receive losses. To achieve it, the income should exceed expenditures. As it was indicated above, we have calculated the amount of operating expenses. It is also necessary to take the financial costs into account, which are also paid out at the expense of the future incomes.
Planning of total expenses Arnold Fit

Thus, the break-even point in 2016 is 290.18 k$, in 2017 - 300.59 k$, in 2018 - 421.42 k$, in 2019 - 434.02 k$, in 2020 - 3413.37 k$.

Margin is a main source of profit for the company. Arnold Fit establishes the margin of 40.0% for its services. Let’s carry out the planning of the company incomes, adding the margin’s percentage to the expenses.

Table 18 - Planning of revenues and financial results of Arnold Fit


The following conclusions can be made according to the table data. The company will be profitable in the next year. The planned net profit is 104.46 k$. The calculations took the income tax into account, which will be 10% in 2016.

In 2017, the planned income before tax will amount to 120.24 k$. Net profit after paying taxes will be 108.21 k$. A profit growth is planned for the next years, i.e. the growth rate will be 40.20% in 2018, 2.99% in 2019 and -4.76% in 2020.The planned net profit after 5 years is expected to be 148.81 k$.

10. Financial resources and sources of financing

Apart from investments in fixed assets, the company also needs some other kinds of investments. For instance, the registration of the organization requires the amount of 3.0 k$. It is also necessary to collect funds for the purchase of raw materials. The predicted amount for this purpose is 2.0 k$. Additional funds in the amount of 3.0 k$ are needed to organize mutual payments at the initial stage. To make facilities function well, it is necessary to carry out repair. According to the preliminary estimates repair cost is 30.0 k$.

It is also necessary to take into account the fact that Arnold Fit will not be able to pay fixed costs at the expense of its revenue during the first month. Therefore it is necessary to create a reserve amount enough to compensate all performance costs for a single month. Since the size of annual costs amounts to 267.53 k$, the company needs 12.60 k$ per month.

Thus, the company requires an amount of 516.60 k$ in the first year including:

fixed assets - 459 k$;
intangible assets - 7.0 k$;
stocks 2.0 k$;
money on a current account 3.0 k$;
capital investments 30.0 k$;
additional amount in cash to register the business 3.0 k$
reserve capital to repay the costs 12.60 k$

The company may use both its own capital and the attracted one for the purchase of assets and reimbursement of expenses. Equity is the share capital, due to which assets may be acquired. Arnold Fit's amount of equity is 50.0 k$. Thus, the organization needs a loan in the amount of 466.60 k$ (516.60 - 50.0).

Table 19 - Loan amount distribution


Arnold Fit can get a loan for 48.0 months at 9.0% per annum. Thus, the yearly financial costs to repay the loan amount to 139.30 k$.

11. Evaluation the effectiveness of Business Plan

Calculation of the following economic indicators is performed to assess the effectiveness of the project:

net present value;
profitability index;
payback period;
internal rate of return on investment.

To obtain the required figures, it’s necessary to calculate the cash flows of Arnold Fit.
Table 19 - Cash flows of Arnold Fit


Let’s perform the cash flows discounting, calculating the discount rate in advance.

While assessing the viability of investments a discount rate or a capitalization rate is set, i.e.an interest rate, which characterizes the indicator of a minimal annual income at which the investor is willing to invest. Discount rate helps determine a special discounting coefficient based on the formula of compound interest in order to bring investments and cash flows of different years to a present time.

Discount rate in its broad meaning represents the opportunity expenses in the fixed assets and expresses the rate of profit, which company would get from alternative investments.

A discounting coefficient at for a constant rate of discount E is determined according to the formula:

i = 1 / (1-E)t

Discounting rate (i) represents the value of the attracted capital (or a total cash flow), under which the investor is willing to invest in business;

Е - constant discount rate;

t - period of time;
Table 20 - Calculation of the discounting rate Period (t) Constant discount rate (Е) Discounting rate (i)

Let’s perform the discounting of cash flows for Arnold Fit.

The discount rate is a key element in the process of income discounting. It shows what rate of return the investor should take into account when investing in a given investment project. The discount rate uses many factors, which depend on the object of the evaluation and may include an inflationary component, a return on risk-free assets, the additional risk premium, the refinancing rate, the weighted average cost of capital, interest on bank deposits, etc.

DCF = CF / (1+r)t
Discounting of Arnold Fit cash flows

One of the most effective ways to assess the effectiveness of the investment project is the calculation of the net present value (NPV), which is based on a comparison of the value of the invested capital (IC) with a total amount of the discounted net cash flow generated within a given period.

Discounted rate is set by the analysts based on the planned rate of return. In this case the percentage of return is 10 %.

NPV is calculated using the following formula:

NPV = CF - IC

NPV- the amount of net present value for the real investment project;;

CF - the amount of net cash flow (discounted to the present value) for the entire operation period of the investment project (prior to the new investments in its reconstruction or modernization). If the full operation period of the object before the new investment is made is difficult to determine, the period of 5 years is taken into consideration;

IC - the amount of capital invested in the implementation of the given project (discounted to present value if the investments are made in various periods).

Net Present Value (NPV) = 468.81 - 504.0 = -35.19 k$

Profitability Index (PI) is a measure of the investment effectiveness. This is the ratio of the discounted income to the amount of investment capital. There are also other synonyms of the profitability index, which have the same economic sense like the present value index and the index of profitability of the investment projects.

PI = NPV / IC

Profitability Index (PI) = 468.81 / 504.0 = 0.93

Payback Period (PP) is an indicator that characterizes the period for which the invested capital will bring income.

Payback Period (PP) = 504.0 / (468.81 / 5) = 5.38 years.

Internal Rate of Return (IRR) is the rate of return that was received from investments. This is the rate of return at which the net present value of the investment is equal to zero, or it is the discount rate at which the discounted income of the project is equal to the investment costs. The internal rate of return determines the maximal acceptable discount rate at which it’s possible to invest without any loss for the owner.

IRR = r, when NPV = f(r) = 0,

Let’s perform the calculation of the internal rate of return. To do this, we’ll specify the upper possible limit of the discount rate which is adopted at a level of 10%. Let’s assume that the upper threshold of the indicator is 15%.

Now let’s perform the net cash flow discounting according to the upper limit of the discount rate.
Table 21 - Cash flow discounting using a successive approximation method

IRR = 10 + (15 - 10) * 468.81 / (468.81 - (314.93)) = 12.99%
Table 22 - Capital Structure Planning for Arnold Fit

Resume

Money is needed first of all to implement the business idea. Arnold Fit has its own funds amounting to 50.0 k$, but they are not enough to realize the investment project.

It’s necessary to make an investment plan in order to determine how much money should be borrowed. The first stage requires calculate the amount of capital investments including the purchase of the facilities, vehicles, equipment and so on.

The amount of capital investment is 459 k$. In addition to capital investments, it is also necessary to invest in stocks that will be used for the production purposes. The required amount of stocks necessary to launch a business is 2.0k$.

Additionally, a certain amount is needed to register the company. The total investment amounts to 504.0k$.

The main task when starting an own business is to cross the break-even threshold. To find out the break-even point, the amount of expenses should be planned carefully.

To organize the activity, it is necessary to involve additional labor resources. The number of staff in the early stages will be 2 employees.

If the average salary in the initial stages of activity is planned to be 4.0 k$, then the annual salary expenses would amount to 124.80 k$.

Materials are necessary to produce any goods or services. Planned material consumption is 2.0, i.e. the planned cost of materials per year is 5.35 k$. Depreciation costs are a gradual reducing of the cost of the acquired fixed assets. According to the calculations they amount to 66.38 k$.

Other expenses include paying taxes, utility bills and possible payment for the lease of facilities, transportation, selling expenses. The total amount of the other expenses is planned to be 71 k$.

Thus, having calculated all the costs, we can determine the break-even point. It amounts to 290.18 k$ in the planning period.

The preliminary assessment of the market and the power of Arnold Fit makes it possible to estimate that such kind of income is real with a great percentage of possibility, that’s why the company decided to attract credit funds for 48.0 months at 9.0% per annum.

According to preliminary estimates the planned revenue of the Arnold Fit should be 406.25 k$, that makes it possible to receive a net profit of 104.46 k$.

Evaluation of the investment project effectiveness has shown that under given forecasts a payback period is 5.38 years while a net present value is -35.19 k$ for a period of 5 years.

As a result of the forecasts, the capital value is expected to be 501.41 k$ in 2017, while a share of the own capital amounts to 151.46 k$. By 2020 the planned capital value is expected to be 567.64 k$. The average weighted cost of capital will be 10.00%.

Автор: kseniya_www · 03.11.2016 19:59 · Примеры работ