According to Dr. Thomas Stanley, there are approximately 3.5 million millionaires in the United States. Two thirds of them are entrepreneurs. The word entrepreneur was coined by the French economist J.B. Say in the year 1800. He said, “The Entrepreneur shifts economic resources out of an area of lower and into an area of higher productivity and yield.”
In the highly competitive, rapidly evolving business world of today, only individuals who can convert resources from “an area of lower and into an area of higher productivity and yield” will have the greatest degree of affluence and opportunity.
If you are reading this right now, I would guess that you are to some degree, entrepreneurial in nature.
Entrepreneurs are no strangers to risk. The Small Business Association estimates that 95 percent of all businesses fail within the first five years of operation. In order to minimize risk and increase the chances of success, a business needs to start with a clear plan. According to research conducted by AT&T, only 42 percent of all small business owners ever create a formal business plan. Of those who do, 69 percent credit the plan as being significantly related to their success. A business plan is comprised of six major components. They are:
- An executive summary
- Business description
- Market strategies
- Competitive analysis
- Operations and management plan
- Financial components
This is your basic description of what it is you do. What are your products and services? If you are looking for investors, this is the first part of your business plan they will see. Therefore, the executive summery must be clear, compelling and specific in regards to the financing you require.
In your business description, you will explain your business in greater depth and detail. When writing this section, you will need to answer the following questions:
- How big is the fitness or wellness industry?
- What trends or socio-economic factors will effect its growth in the future?
Project your businesses growth potential based on these factors. When stating your projections, it’s imperative that you use facts, statistics and anecdotal evidence to support your forecasts.
- What are the applications of your offering to the end user?
- What is it about your offering that creates a point of differentiation from similar services in the market?
- Who is your target market?
- What is your distribution system to get your product/service to your target market?
- What are your advertising and promotional strategies?
- What is your customer service strategy? Philosophy?
Define your market according to variables such as size, growth, demographics (who are your prospects?), psychographics (what do they want?), geographics (where are they?), emerging trends and overall sales potential.
Identify the strategy you will utilize to fulfill these initiatives, such as:
- Price: What are you going to charge for your services? What are your margins going to be? Margins are simply the difference between the money you make and the profit you keep. When figuring out your margins factor in costs such as materials, distribution, marketing costs and overhead.
- Distribution: How do you move your product from where it is housed to the customer? What are the costs associated with this? Study the distributions system that’s utilized by your competitors. Is there any way you can modify your distribution system to either save costs or create a unique advantage for your customer?
- Sales: What processes do you have in place to meet your sales goals? How will you generate leads? What does your sales process look like start to finish? If you are planning to employ a sales force, what is their compensation structure?
According to infoUSA, there are 29,065 health clubs in the U.S. alone. What are the strengths of your competitors? How can you position against them? What are their weaknesses? How can you gain a competitive advantage by exploiting them?
Operations and Management Plan
This describes your standard operating procedures, or how your business will run day to day. Create a job description for each member of the management team. What support staff will you and/or your management team need?
Financial statements indicate the profitability of your business in the short and long term. You will need a detailed income statement detailing your businesses ability to generate revenue. You will need to project revenue as well as operating expenses. An estimation of your operating expenses will look something like this:
5,400 SFT at $8 per SFT + $2 SFT C.A.M
|Payroll (w/benefits and burdens)
|Occupancy (rents and rates)
|Utilities (heat, air, water, lights, phone)
|Advertising and Promotion
|Insurance (property and liability)
|Repairs and Maintenance
|Professional Fees (legal/accounting)
|Supplies (janitorial, office, club)
|Other (e.g. technology, entertainment)
|Incremental Profit Margin
Finding a Space
Bill Parisi, founder and owner of the Parisi Speed School franchise, gives the following advice to his franchisees:
- Shop around for a Real Estate Agent and Real Estate Attorney that is well known and respected in the community, someone who is hired by you, has your best interests (not your landlords) in mind and someone you feel comfortable working with. This will pay off enormously in the end.
- Regardless of the advice you receive, drive through the neighborhoods that have the best demographics to get a first hand look and feel.
- Consider looking for space that is industrial but is close to or part of an office park. This is known as a flex space. Taking the time to look at multiple options could bring the rent per square foot down into the single digits, which makes profitability easier.
Additionally, your world exists within a 12 to 15 minute drive time or a five mile radius. You should look for a location that has at least 100,000 people living within that radius.
Things to Consider
Consider the following before signing a lease agreement:
- Lease terms must be contingent on approvals of proper zoning. Again, working with the right Real Estate Attorney can save you time and headaches in the long run.
- Ask your landlord for an internal fix up or build out budget to prepare your space. This structure will act as a loan from the landlord. Make sure you know the total move-in-costs before signing a lease.
- Always get the right of first refusal to purchase the building.
- Does the lease term match your growth forecasts? Are you going to outgrow the current space within the next five or 10 years?
- Make sure things such as the lighting, AC and heating units are in good working condition prior to finalizing any agreement.
- Imperfect flooring or roofing can be very costly. Make sure the flooring is level and the roof is in good condition.
- The landlord should be responsible for separating electric and gas meters.
- Make sure you have (or have the ability to create) one parking spot for every 100 square feet of space.
- Make sure the landlord provides you with a building layout that indicates entrance and emergency exits.
- There are many variables within the lease that are negotiable. Often, you can get concessions by simply asking. It’s a good business practice to be reasonable when asking for concessions. Consult with your Commercial Real Estate Agent concerning the current market conditions before entering into negotiations.
- The landlord’s attorney will most likely draw up the lease. Have your Real Estate Attorney review the lease before signing it.
- Have a best and final offer in mind before beginning a negotiation.
Make sure your lease includes a bail-out clause if your business does not perform to a measure that has been predetermined by you and your landlord.
Additionally, you can gain considerable peace of mind by adequately insuring your business. Generally, a business insurance package consists of:
- Workers Compensation
- General Liability
- Property Casualty
In addition, many insurance policies will also offer what is called an Umbrella Policy, which provides an extra degree of protection. Keep in mind that while the policies listed above can protect you from loss incurred from repairs and reconstruction, they do not cover lost income from the period that your business is inoperable (or if you’re injured, for that matter). Therefore, it’s prudent to consider both a Business Interruption Policy and Personal Disability Insurance.
Regardless of everything else you may do well, your success or failure as a business owner is largely dependent on much time and research you devote to the above factors. Owning your own business requires some hard work, but the pay off in the end is always worth it. Good luck.
- Stanley, Thomas J. The Millionaire Mind; Simon & Schuster Audio Abridged. Copyright 2000
- Drucker, Peter F. Innovation and Entrepreneurship; Harper Business. Copyright 1993
- Lesonsky, Rieva. Start Your Own Business; Entrepreneur Media Inc. Copyright 2000
- Bangs, David H. Business Plans Made Easy, 3rd Edition; Entrepreneur Media Inc. Copyright 2005
- Covello, H. Hazelgren, B. Your First Business Plan 5th Edition; Source Books, Inc. Copyright 2005
- IHRSA’S Guide to the Health Club Industry For Lenders & Investors 2004
- Plummer, Thomas. Making Money in the Fitness Business; Leisure Publications. Copyright 1999