Beware of the Predator…Premises Costs
| By Christina Spotswood |  |
Passion can carry your business only so far. Add business know-how, and perhaps some outside expertise, to the formula to create a thriving business
Many independent club owners purchase fitness facilities because they love fitness. We are the teachers, motivators and fitness technicians spreading our passion to the masses. We know which programs work, what classes to run and how to service our members properly. But do we know enough about the mechanics of business to run a profitable fitness facility?
As much as we love our businesses, they still need to be viable. Without proper research you may end up disappointing all of those you have converted to the fitness lifestyle.
Location, location, location
One of the first considerations for a start-up or an expansion facility is location and its cost. When making this decision, ensure that the total occupancy costs, including base rent, amortization of leasehold improvements, real estate taxes, common area expenses and utilities (fixed operating costs), total no more than 20% of your gross revenue. Your business will not have clear sailing if you have a ratio higher than this. It will be like trying to gather speed with an anchor dragging behind you.
When investigating a space, look at the square footage available and the number of members on average the space will hold per square foot. IHRSA’s club operating benchmarks show that for clubs under 20,000 sq. ft., you would have 8.9 members per indoor sq. ft.
For example, a 10,000 sq. ft. club could hold a membership base of 890 members. Industry statistics tell us that an average yearly revenue of $600.00 per member is typical. So, in this example, this facility at full operation should achieve gross revenues of $534,000.00. This means that the maximum cost for fixed operating costs would be $106,800.00 (20% of $534,000.00). (These numbers are all estimates based on IHRSA statistics and can vary – however you still don’t want to your fixed operating costs to be more than 20% of gross revenues!)
Bring in hired help
Consider hiring a leasing consultant to negotiate a fair lease rate. It’s much easier to start this way then to have to renegotiate into the term of the lease agreement. Not all leases are created equal. Many landlords will give discounts to entice a tenant to their spaces; the landlord may provide the majority of leasehold improvements for a slightly increased base rate or perhaps a lower base rate if you provide your own improvements. Either way, education is a key negotiating tool.
Paying for a leasing consultant now, could save thousands over the course of a lease agreement and keep your business operating. A leasing consultant is aware of the going lease rates in your area and can advise on fair market value for the property you are considering. In addition, a fitness business consultant can be an invaluable source of industry information and may also be able to help negotiate the murky waters of lease agreements.
Christina Spotswood is the owner Absolute Fitness & Personal Training in New Hamburg, Ontario, and a member of the ProFitness Alliance of Independent Club Owners. You can contact her at csabsolute@hotmail.com.
Popularity: 6% [?]
