As an entrepreneur, creating a business plan and documenting it provides clarity and direction to your vision. By identifying your new studio’s objectives, then building a plan to achieve them, it provides added insurance that you know where you are going and how you are going to get there. A business plan is a roadmap for success.
For a studio owner, the business plan provides direction and clarity on who you are, where you are going, and how you will get there. A business plan, especially for a new start-up business such as a fitness studio, must incorporate a financial forecast/projection, which projects the revenues, expenses and cash flow for the business over a period of at least five years.
The preparation of financial projections is an integral part of the planning process, and for many, if not most investors, the financial projections are the single most important document they consider.
Building a Plan for your Studio: Core Attributes of a Quality Business Plan
The first step in the business planning process involves conducting the necessary research to understand local market dynamics and how your studio’s concept or value proposition fits. Investors want to understand, as should you, the underlying business opportunity and how your concept can take advantage of that opportunity, assuming it exists.
- What are the needs of the local market and how well is it being served? For example, if your studio concept involves offering integrative sports performance, you want to know if there is a demand for it in the market.
- How does your concept or value proposition differ from what already exists? Gaining clarity on your concept’s unique sales proposition and its implications for business success are critical.
- Obtain benchmark data on other studios and the industry in general. It is vital for you to understand what the “norms” are in the industry as it pertains to market penetration, revenue generation, expenses, investments, etc. The Association of Fitness Studios has been compiling this data for years.
Once you have completed the research, document the key insights and their implications for your business. Additionally, begin with the end in mind. Once you understand the dynamics of the market, you’ll need to frame the journey of your business by providing a compass for the actions and strategies you will need to take. Some examples for a fitness studio might appear as follows:
- Client and/or member domain
- Acquire 100 paying clients using personal training on average twice weekly by the end of Year 1
- Retain 90% of all new clients by the end of Year 1
- By Year 3 reach 300 clients using the studio services twice weekly
- Hire only the best instructors, those certified by a nationally accredited organization and who have at least five years professional experience
- Keep total payroll costs under 50%
- Delineate your marketing and sales strategies.
- No matter how unique and differentiated your business concept is, it all comes down to your story, and how will people hear about it.
- Frame your financial model. Provide a clear description of your revenue model as well as your approach to expense management. In this section of your business plan include:
- Price points for membership (if offering memberships) as well as the price points for services
- Projections on membership and service usage, along with projections on the mix of revenue from each
- Projections on staffing levels and salaries, or if using independent contractors, provide payment scheme and head count
- Projections for rent and other operating costs
- Estimates for start-up costs (construction, design, equipment, pre-sales, etc.)
There are a variety of other components as well to consider such as a portrayal of the organizational structure, biographies of the key players and your exit strategy. If you’re at this stage and need further assistance, reach out to us at AFS and we’ll get you all the resources you need.
Creating a Financial Forecast
Once a business plan has been completed, the next step is to create a reliable financial forecast (financial proforma). As a start-up business you will want to create, at the minimum, a five-year financial forecast; then once you are in business, generate an annual operating budget.
No financial forecast will be 100% accurate, but the objective is to present a realistic projection of what you expect. Examples of assumptions you would consider for a fitness studio include:
- Average annual price point (dues) for a membership if your business model calls for memberships.
- Average price for each service you intend to offer. For example, if you will have three price points for individual personal training and another for group training then you will want to establish an average price point for each.
- Membership capacity, if offering memberships, for each year. Projections for membership capacity should be based on your market research.
- Fee based service usage. In the majority of studios this is the primary source of revenue, and therefore calculating usage levels is critical to projecting revenues.
- Rental fees and rental levels. Some studios rent space to others. In this instance you would need to assume an average rental charge and a specific number of trainers you intend to rent to. Depending on the market, studios charge as little as $250 a month rent for a trainer to as much as $2,000 a month.
- Payroll. If your intent is to have employees, then this will be your largest expense. Check the AFS Operating and Financial Benchmarking Reports to gauge the accurate percentage of revenue to set forth.
- Contract labor. Contract labor represents the staff, such as trainers and instructors who rather than employ, you retain as an independent professional and establish a fee for each service they provide. The easiest way to forecast this would be to assume they receive a given percentage of the revenue they generate.
- Rent. If you will be renting a studio, then this will likely be your second largest expense.
- Utility costs. If you are renting space, then you need to factor in an assumption. The best approach is to identify the utility rates per square foot for your building.
- Other operating costs. There are a lot of items that go into your operating costs, items such as internet expense, administrative costs (contracted bookkeeper or accountant, supplies, phone expenses, educational expenses, etc.).
- Marketing costs. It’s best to work through your marketing strategy then establish a realistic assumption that will allow you to fulfill the marketing strategy.
Other Cost Assumptions to Consider
There are a host of other cost assumptions that need to be considered when preparing your financial projections. The most common ones include: property taxes, principal and interest payments on any debt you plan to obtain, depreciation expense (cost associated with the loss in value of your business’ fixed assets) and insurance (general liability, property, and professional liability).
Once you have established your financial assumptions, then it’s easier to build on the financial projections. Unless you are a financial analyst or have a background in building financial projections, it is recommended that you retain a professional experienced in preparing financial forecasts. It is best if you build your assumptions into an Excel worksheet, since this will make it easier to build out the forecast for the next five years.
A well thought out and documented business plan tells them that you know your business and what is required to achieve success. The budget represents the financial targets that can be expected if your business plan is followed. As an entrepreneur it is essential to have a clear understanding of the revenues you can expect to generate, the costs it will take to achieve those revenues, and finally, how much profit you can expect.