Executive summary
The purpose of this business plan is to provide a complete planning procedure of a new venture named “ABC Fitness Center”. Fitness and health care services are not new business concept but the basic objective of formulating such venture is to offer unique services. Three young entrepreneurs have initiated to form this ABC Fitness Center in Washington DC on the partnership basis.
The estimated capital has fixed as £2200000 and 40% of fund comes from long-term bank loan and three partners equally invest rest parts. ABC will be a core fitness club that is going to start its operation from 01 June 2011 with an aim of offering a number of diversified services including exercise, aerobics, gyms, walking track, racquet sports, pools, basketball courts, swimming, instrumental, yoga and other recreational activities.
ABC intends to offer services at low price as its ultimate goals are to achieve a strong place in the market. However, this business plan considers the industry background, target market, pricing and promotional strategy, market trends, size, marketing facilities, services, and the objectives of the business.
This business plan also includes a marketing plan, financial plan, operational plan, marketing strategy, harvest strategy, milestone scheduling and so on.
Organizational structure, management team, form of ownership, board of directors, share distribution, and implementation timetable are also significant factors of new venture. However, financial plan is the most important segment, as it will demonstrate the key financial indicators, breakeven analysis, projected cash flow, and balance sheet, projected profit and loss account.
Business Description
General description of the business
The ABC Fitness Center is a new gymnasium and health club that will be established at 20, XYZ Street, Washington DC. The main objective of formulating this sort of association is to give an opportunity of maintaining physical fitness, wellness, exercise, training, games, events, and recreation to the identified target customers.
However, the exclusive facilities of the center will contain general fitness, and exercise opportunity, children health care, circuit training room, whirlpool or hot tub, cardio- room, running track, swimming facility, personal fitness equipment, basketball courts etc.
Industry background
The gym and fitness center industry has been growing far rapidly than ever as it preserves the key social concern and helps in cultural refinement and in a better treatment of human resources by raising the number of vacancies by creating more employment and raising the GDP rate of United States.
Amongst these factors, the increasing demand for fitness services are met by businesses like New York Sports Clubs, Boston Sports Clubs, Golds Gym, The Hardcore Gym, 24/7 Fitness Club, Equinox, Angel Fitness, The Total Training Center, 1 0n 1 Fitness Training, 360 Health Club, A New You Fitness Center, American Fitness etc.
The demand for these services is increasing as awareness among people about physical fitness and personal success are rising. At present time, many people of US are suffering from diseases like high blood pressure, overweight, and obesity and gymnasiums can put a significant impact in lowering stress levels and blood pressures.
This increasing rate of unvarying diseases like hypertension, high stress levels, cholesterol, and sleeplessness has thus contributed to raising the number of fitness clubs in the country throughout past forty years and it is now proved that daily workouts play a restorative role for lessening these threats to health.
Economy factors
According to US Bureau of Labor Statistics (2010), in August 2010, the unemployment rate of Washington was 8.9%, whereas employment was 3,219; the basis of Washington DC’s economy include services, monetary institutions, manufacturing (particularly aerospace machineries, shipbuilding, food processing, and wood products), agriculture, lumbering, and tourism;
In 2001, the city’s gross state product was $223 bn, from which general-services made up $52.1 bn, financial-services $41 bn, trade $37.3 bn, government $30.8 bn; production $27.4 bn, transportation and public-utilities $18.1 bn, and construction $11 bn; moreover, the public sector in 2001 constituted 13.8% of gross state product, above the 12% average for the states.
Technological factors
Over years, Washington has achieved tremendous technological advancements for which reason the local businesses in the city are taking a full advantage by using the fastest broadband services and online services.
The city has fixed telephone network that extends from the busy central streets to peaceful places; it also possess a series of delivery platforms which supplies services, internet protocol networks, and way in to global satellite infrastructure; in fact, the city is fully equipped with hi-tech equipments to deliver the utmost technological support to the local businesses.
Many of the gymnasiums and sports centers in Washington DC are now utilizing this technological support to launch their own e-commerce sites through which they can offer online membership to public and can maintain online payment systems. Technical support also helps to ensure effective communication with the suppliers of equipments and between the management and the employees.
Goals and potential of the business and milestones
The ABC Fitness Center has both financial and marketing objectives, for example –
- It would like to reach break- even point by 1st year of its operation;
- It aims to attain total service revenue of $320,000 in 1st year, $440000 in 2nd and $444000 in the 3rd year.
- Offer service at reasonable price, for example, customers get from $15- $500;
- Making a positive cash flow by the end of 2011;
- Arrange IMC campaign to aware customer about health.
Uniqueness of product or service
ABC fitness center will offer various types of services that general fitness clubs does not usually offer. The first floor of the center would be a ‘Exercising Hall’ that would contain essential products like treadmills, elliptical cross trainers, exercise bikes, rowing machines, boxing equipments, vibration trainers, cardio equipments, communication information displays, multi-gym machine, racks, dumbbell set, and weight mats.
It would also offer sports facilities through its ‘Sports Corner’ that would contain a tennis court, snooker board, a 24-yard swimming pool, and basketball facilities. Moreover, after a couple of years of establishment, the company plans to open a segment for martial arts training (including judo, taekwondo, karate, and wushu) and a super deluxe spa for both men and women.
Marketing
Research and analysis
Target market
Mintel (2010) reported that global financial crisis has not made any difference to the spending habits of 54% people of developed countries, but 38% people severely affected and 8% people are not aware about the affect. However, the ABC Fitness Centre will target those people who have enough capability to spend for recreational purpose that 58% people of Washington DC will be main target market.
In addition, this center will highly focus on young people, women, overweight and fatty people, and patient. It will arrange different facilities for different segmented customers as it will target children, old- aged, individual sports fans, and players.
Market size and trends
Total population of Washington DC was 6,664,195 in 2009, out of which 30.4 percent were under 18 years old, and 12.1 percent were 65 years and above; however, the main target customers of the fitness centre who ages from 18 to 65 contributes to 57.5 percent of the population.
The population’s 25 percent suffers from obesity and 36 percent from overweight; most importantly, overweight and obese peoples use to visit gyms in a regular basis. Obesity is a chronic-disease that causes a higher possibility of early death- in Washington DC obesity is epidemic and this is rising day by day.
Competition
ABC’s major competitors in Washington DC are Fitness First Club, Gold’s Gym, MINT, Washington Sports Club, and so on. Many also pose a number of competitive advantages, for instance, Fitness First Club has many branches in Maryland, Washington Sports Clubs operates about 19 health & fitness clubs, and Mint health club has restaurant, aerobics studio, and multi-optioned swimming pool.
Moreover, most of the fitness center has well establishment and subsidiary, so promotional activities is important to compete with local fitness club like Bally Total Fitness, SomaFit Spa, and VIDA Fitness. In addition, competitors offer too many services with high quality whereas ABC fitness center will start with short rage of services.
Estimated market share
According to IBIS World (2010), even in the middle of recession, the fitness industry in US had a stable growth-rate with membership rates rising constantly and income rates being persistent; researches suggest that demand for fitness centers will continue to increase by next 5 years, as people are becoming more health-conscious and the aging-population are emphasizing more on keeping healthy.
ABC fitness center estimates to hold approximately 8% share of the fitness industry by these 5 years. The following figure shows the market share of the gym and fitness center industry:
Marketing plan
Market strategy – sales and distribution
Market segment: the marketer of ABC Fitness Center will also careful about the buyer behavior and grouping them into four segments, such as, cautious (health conscious and aware about fitness club), apathetic (hard to predict the behavior of the customer), brand oriented, and practical group (only concern about their actual demands). ABC will target cautious and practical group, as they are more logical than others.
Customer service: Consistent service with training of instructors and staff by the external expertise, follow- up registration cars and telephone call from different members for getting feedback, regular contact with members with newsletters, telephone call, e- mail or fax, continuous improvement of quality of services;
Distribution outlets: It will be a single servicing center as it has no subsidiary or outlets. In addition, Gymnastics services will be offered directly by the main center at 20, XYZ Street primarily but it will consider of opening branches at other location up to public demand.
Marketing costs: The marketer has fixed the total budget for marketing activities, which can be shown as –
Competitive Advantage and differentiation: The place of ABC Fitness Center serves as a distinctive advantage over the rivals in the industry. In addition, the quality of services, experience of the trainers, efficient employees, low cost pricing strategy, and online registration facilities are the key competitive advantage of the compant.
BCG matrix: – The BCG Matrix can show possible market position that ABC Fitness Center will achieve as below –
- Stars: this segment indicates high growth with high- share in market;
- Question marks: This part point outs high growth rate but low market share, which is entirely different from this fitness center;
- Cash cows: From the very beginning, the ABC fitness center will try to occupy this position and it will also try to achieve relatively high market- share though it has lower growth prospective in terms of existing fitness and leisure centers. In addition, ABC wants to change its position if it can arrange more investment from banks or individual;
- Dogs: ABC fitness intends not to occupy this business segment, as it indicates low market share and low market growth.
Pricing Strategy
This Fitness Center will setup a general pricing structure consists of a series of price levels, which characterizes flexible and reasonable pricing based on service features, customer demands, and so on. As it will be loyal customer based fitness center, it will offer services at comparatively low price but it has to face severe problem. However, the ABC consider following issues to offer services at low price –
- Due to economic downturn, the purchasing power of the customer has reduced;
- There are many established fitness center provide similar or upgrade services;
- However, ABC wish to offer low price as it will recruit skilled trainer and other employees from Asian citizen;
- It will purchase equipment for fitness center from local market to reduce initial cost;
- It will try to offer somewhat below than competitors; such as, it will ask only $10 for 3 month membership whereas competitors ask $19.99 or more for monthly membership charge.
Advertising and promotions
The management teams ABC Fitness Center will start working to build strong brand image, therefore it is important to point out the strengths, and competitive advantages for advertisement, as these advantages will assist the company to induce the customers of Washington DC.
In the content of advertise, the ABC center will highlight the positive sites, emphasis on the importance of fitness center in public health, environment of this center, and the advantages of the membership. However, the advertisement will contain these points to draw attention of the customers because they are base of the fitness club.
As a result, it should require huge investment for advertisement but initially it will not spend more money for this purpose, as it has concentrate on other segments. However, it will increase budget for this reason for the second fiscal year. In this context, ABC Fitness Center will use print media like journal, magazine, and electronic media like TV and internet, social networking site like twitter, and Face book for advertisement.
SWOT Analysis of ABC Fitness Center
Strengths
- ABC fitness centre has a number of skilled trainers and personnel which is fully equipped with the latest exercise equipments and theatre-room that contains abundant seats; it is in an outstanding location for which people are easily attracted;
- It has the capacity to serve customers in a unique way and it possesses a strong social position owing to the societal appreciation; the company also offers lower charges for some of its services and provides fitness facilities for patients as well.
Weaknesses
- Due to lack of experience at managerial level, the company has some limitations to manage its resources and workers effectively in order increase productivity at minimal operating costs; this in turn, lowers its revenue;
- It does not possess sufficient amounts of nursery instruments for attracting the kids;
- Its swimming pools are smaller in size than that of its competitor’s, besides of that, it has no bar although the demand is quite high;
- Importing exclusive gymnastic instruments require higher costs; for this reason, the company’s total outlay stands to be quite high.
Opportunities
- Currently, a large number of people in the US are suffering from a variety of health troubles, such as sleeplessness, obesity, high blood pressure, physical disability, diabetes, and osteoporosis; researches shows that these diseases can be kept under control by regular workouts rather than taking medicines that can have severe side affects;
- It has a good opportunity to diversify its product line in order to make higher profits by including segments for old people and athletes.
Threats
- Because of the global financial crisis, many people are rethinking to spend so much on regular exercises and consider about the opportunity costs of exercising;
- ABC fitness centre has many direct and indirect competitors as in Washington DC there are various gyms, swimming centers, cinemas, and other sport clubs.
Operations
Identify location and advantages
At initial stage, the management team of the ABC Fitness Center finds out a perfect location for the club considering the business prospect, market demand, customer behavior, social-cultural factors, and other important factors.
In order to so, they recommend five places in different state and their first choice is Washington DC, and then New York, Maryland. After investigating the places, the management decided to establish a fitness center in Washington DC and they select this place due to following advantages.
- The ABC Fitness Center select the place, which situated besides the road;
- This location has large space for car parking;
- Advantage of cultural factors;
- The transportation services will be extremely well;
- Availability of employees at reasonable remuneration;
- Local Banks supports new ventures;
- Proper use of natural assets will be possible.
Specific operational procedures:
To run the new business, ABC fitness center would require a range of essential fitness equipments that would include treadmills, elliptical cross trainers, exercise bikes, rowing machines, boxing equipments, weights, table tennis tables, vibration trainers, cardio equipments, communication information displays, multi-gym machine, benches, racks, dumbbell set, weight mats, intercom, chairs, tables, computers and so on.
Interior and exterior designing and decoration tools of the fitness center are also a vital aspect when it comes to inspiring and attracting a customer to join in for regular workouts, because, in spite of everything, it is a lot more fun to train in a well-decorated and eye-catching calisthenics zone than in a messy underground room.
Interior decoration of the calisthenics zone might contain images in the ramparts with gorgeous colors, large mirrors, and photographs and frescos in the walls; murals are great motivational tools as well, since they make people feel like running beside a beach or jogging through a rainforest while exercising on the treadmill.
Personal needs and uses
The central management of the fitness center handles all its functions through four divisions, namely, human resources, administration and finance, operations, and marketing; the operations department handles day-to-day services of the center, whilst marketing department carries out its marketing activities.
Administration and finance division deals with financial activities such as scheduling, communicating with members, collecting fees and overdue fees, and dealing with registration related matters whereas HR department manages worker selection, reward, compensation, training and motivational efforts.
For conducting regular classes, there use to be 8 main trainers, 10 assistant-trainers, 5 swimming coaches, 6 peons, 4 security guards, 6 sweepers, and 2 pool-men.
The labor supply generally comes from the local community- ABC fitness center, for example, trains and employs the assistant-trainers, guards, sweepers, etc taking them from the city itself. However, most of the main trainers and swimming coaches comes from national levels and they generally belong to different sports federations around the country.
Wage rates –
Proximity to supplies
ABC fitness centre has two separate suppliers for supplying fitness equipments and furniture (racks, chairs, tables, benches, etc). Interior and exterior decoration services are provided by Washington DC based local interior designing company.
Exercise equipment service, located in 1414 8th street NW, Washington DC, is its main supplier of gym instruments. The proximity of the company with its suppliers is a great advantage because less distance of the fitness centre and suppliers allows low transportation costs. To transport equipments and furniture, the company usually hires 2/3 trucks or Lorries at fairly low charges.
Management
Organizational structure
The organizational chart of “The ABC Fitness Center” will be simple as it is a new center, which has no subsidiary. However, it must have two different business segments for training and entertainment including it offers swimming training programme, cinema, health and fitness services, and practicing services, shopping, eatery, and cultural events. However, the following chart shows the structure of the fitness center –
Management Team – Key Personnel
The Chief Management Team will control the entire fitness center and he/she will take most of the decision for the enlargement of the center. Two major units will have four sub-divisions to solve different problems, and these sub-divisions are operation, HR, marketing, administration, and finance department.
However, the employees of marketing department will engage to serve the promotional activities, research, and service marketing. Among these four departments, marketing department will perform most significant job to establishing the business, creating brand image, building awareness program, maintaining relationship with the customers, and so on.
Operation department will play fundamental role to scheduling the activities and prepare operational plan. Some time this department will modify the service range considering customer demand and offered services of competitors.
On the other hand, human resource management team is responsible for hiring and training employees, and fixing compensation of the staff and managers. The role of finance and administration team is also important as they maintain accounts and administrative activities.
Legal structure – stock agreements, employees, agreements, ownership
All the businesses operating in the US are bound to follow the rules and legislations provided by the US government. The laws like the Equal Pay Act 1963, Age Discrimination in Employment Act 1967, Americans with Disabilities Act 1990, and Civil Rights Act 1991 fastens the operations of all the businesses in the Washington DC including gyms and sports centers as well.
Forms of ownership: – The ABC Fitness Center will be formed under partnership agreement by David, Tomas, and Roger. Some important provisions are –
Each partners will equally invest and arrange 60% of total capital and the distribution will be –
- Partner A: $440000
- Partner B: $440000
- Partner C: £440000
- Most importantly, partners will equally share profits and bare losses;
- All partners will actively take part in the Chief Management Team;
- Partners will avoid conflict of interest among them.
Board of Directors, advisors, consultants
In the beginning, ABC Fitness Centre will select board of directors, which includes chief management team (CMT) or CEO, managers of four sub-divisions, and 3 directors for sub units. In addition, it will appoint 2 advisers for legal department and other issues but it will not recruit any non-executive director initial stage.
According to the Memorandum of the center, the advisers will suggest about major strategic decision by discussing with board of directors include CEO and they must consider the market demand. However, this fitness center will have finance department and the activities of this department is to prepare annual budget to control the Center successfully in difficult economic situation.
Financial plan
Important Assumption
The ABC Fitness Center starts its business with the total budgeting of the company of $2200000 in which 3 entrepreneurs provide the 60% of the fund and the bank provide the remaining 40%. The ABC will take loan from Bank of America and the interest rate of the bank is 5% which will be paid by 10 years.
Key financial indicators
The main financial indicators of the ABC Fitness Center including –
- Constant Gross Margins
- Net Worth
- Sales on Credit
- Return on equity
Other features-
Projected capital expenditure:
Total = $2200000
Pro- forma Profit and Loss of ABC Fitness Center
Pro- forma income statement:-
From the projected income statement, it can be said that this fitness center makes no profit or loss in the first fiscal year that means in the break-even point; however, this center will gradually make profit from second year.
Pro- forma balance sheet
For the year 2011:
For the year 2012:
For the year 2013:
Pro- forma cash flows
Break- even analysis
Pandey (2007) stated that break even is a point were there is exist no profit or loss from business and if the business generates less than from the break even than it incur a loss and if the business produces more than the breakeven then it makes profit.
By examining the pro- forma income statement for the projected years, it can be idealized that at the end of the 1st year of its operation, ABC will reach at break- even point where projected profit will be $320000 and expenses $320000 that means no profit no loss situation, which can be represented graphically as –
Critical risks
Potential problems
Kuratko (2008) critical risks indicates the effect of unfavorable trends in the industry, over estimated costs, lack of effective strategic plan and so on. However, the ABC Fitness Center could have suffer following difficulties –
- Member registration or signup is slower than expected;
- It has already mention that Bank will funding 40% of total capital but there is risk of shortage of capital and It will be difficult to start operation with this fund;
- The budget for promotional activities is not sufficient to build brand awareness;
- It has to face a great challenge to develop relationship with customers because of communication gap;
- The buying habit has changed due to global financial crisis;
- several competitors are operating on diversified track to attract patricians’ attention while ABC fitness center is going to initialize some structural limitation;
- To comply the regulation in terms of safety net;
- Key personnel may decide to leave due to dissatisfaction.
Obstacles and risks
The ABC Fitness Center may face number of risk factors like –
- In first year of its operation, the ABC Fitness Center has to expend large amount of money for infrastructure development;
- It would be difficult to control operating costs;
- Increase the price of equipments of fitness center in national and international market;
- Most of the competitors asked comparatively high price for services, so if the ABC Fitness offer low price then it could loss brand oriented customer;
- Local instructor may ask high remuneration.
Alternative course of action
The ABC Fitness Center should take a number of measures to overcome such risks. As following –
- The ABC Fitness Center should recruit skilled instructor for training segment as it will help to create brand awareness of fitness center;
- Financial problem can be removed by altering of its ownership form, for example, it can convert the ownership as Limited Liability Company;
- It should arrange funding from alternative sector;
- The pricing strategy should be different due to sustain in the competitive market and build a strong players;
- Increase budget for market research;
- It should take initiative to open new branch within 3 years of its operation;
- In addition, it should focus on new ideas and invention of new services;
- Building up of long- term customer lifetime value to create community relationship.
Milestone Schedule 500
Timing and objectives
- In the 2nd quarter of 2011, ABC will advertise in the newspaper to draw attention of member;
- Workers will provide daily update to the managers for future initiatives and they will use phone or e-mail;
- Within first year of its operation, it will complete recruitment process.
Deadline and milestone
The management team of ABC Fitness Center will complete initial activities within last quarter of 2010, for example, choose a location in Washing DC. They also arrange their 60% capital within this time frame. In addition, they will contract with equipment suppliers, infrastructure developers, constructors, designers, and other small companies.
Table 1: Milestone Scheduling. Source: Self generated.
Relationship of events
All the tasks are interrelated with one another, for example, without preparing a business plan, entrepreneurs cannot submit the proposal for bank loan. At the same time, bank loan is important in order to purchase fitness equipment, raw material and appoint employees, trainers and advisers. In addition, Bank loan also important to coordinate all the operational activities, promotional and marketing activities.
However, market research is essential to assess market risks, external business environment, position of competitors, and customer behavior analysis. ABC Fitness Center will fail to reach expected level without proper market research. Formulating web site, IMC campaign, advertising, review of marketing plan and strategy is required to meet the business objectives.
Harvest Strategy
Liquidity event
There is a provision that majority can purchase minority’s share, for example, if a member of ABC Fitness Center decides to leave the Center, the majority shareholders of the board will be able to purchase that member’s share. On the other hand, all members of the ABC Fitness Center can decide to stop the business, and then they have the opportunity to sell the business at the negotiable price.
Continuity of business strategy
Should a member of the board decide to leave, the business strategy will be continued as planned and voted upon by the board of directors. Should all the original members decide to exit the venture, the business strategy will be passed on to the successor and the successor can choose the appropriate business strategy.
Identify successor
If necessary, the board of directors will select the successor by voting. However, 75% vote will be required to appoint a member of Chief Management Team.
Strategic Acquisition
Hitt, Ireland, & Hoskisson (2001) pointed out that harvest strategy is an acquisition of the business by a strategic buyer. In this case, Fitness First Club and Washington Sports Clubs could be possible strategic acquirer, as these organizations have willingness to expand the business.
Reference List
Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2001). Strategic Management. (4th ed). Singapore: South- Western Thosmson Learning.
IBIS World (2010). Gym, Health & Fitness Clubs. Web.
Kotler, P., Armstrong, G. (2006). Principles of Marketing. (11th ed). New Delhi: Prentice-Hall Private Limited.
Kuratko, D. F. (2008) Entrepreneurship: Theory, Process, and Practice. (8th ed) South-Western College Pub.
Mintel (2010) Health and Fitness Clubs – UK – October 2009. Web.
Pandey, I. M. (2007). Financial Management. (9th ed). New Delhi: Vikas publishing house Ltd.
US Bureau of Labor Statistics (2010). Economy at a Glance. Web.