Some things to ponder if you are planning on opening a gym of your own. There is no rhyme or reason to this list... just a stream of conscience of ideas based on my 20 years as a trainer and 14 years as a business owner.
Location is far more important than people realize. If you are going to spend a significant amount of money, do some analysis based on each location and its proximity to the customers.
Insurance companies will nail you to the floor! There are several that only charge a flat fee based on your size, number of employees, etc. Many commercial insurance plans are based on revenues (NOT profit), and they don't specialize in this industry. There are several to choose from that are really reasonable and actually even cheap that cater specifically to our industry.
Get a solid, well-trained sales staff in advance, perhaps even hire a company (like salesmakers, call Eddy Tock) that specializes in our industry, they will send down a training person to help you hire and train your staff, then get them selling BEFORE your construction is done. A well-run pre-sales campaign can have you breaking even on monthly expenses before you even open the doors.
Whatever you are quoted by a contractor, multiply that by 2 for your business plan, and they will only go a little over that.
If you can, build your own place from the ground up rather than leasing from an existing building. Better for your equity in the business to own the real estate... Adds a lot of value and makes it easier to get investors. Not feasible for many start-ups though if you don't have a lot of capital.
Whatever amount of capital you think you need is probably about a third of what you actually need. I have always made the mistake of starting projects under-capitalized. Do that and you will spend your next 10 years chasing money and always scrounging to keep your head above water. Raise as much as you can, well over what you think you need. Just make sure that you set up your corp where you retain majority ownership in the company.
However much you spend in building costs, your biggest percentage is going to be plumbing. Do it right the first time. Also, locker rooms are a bigger selling point than you realize... Don't do a plastic shower stall in an oversized closet. Lighting is also important.
Incorporate! Don't do sole proprietorship. The IRS will reem you with no lube and not even the courtesy of a reach-around! Actually, they will do this to you anyway so be prepared, but you will actually be sheltered from a lot of that if you set up a corp of some sort. S or C are okay. I'm an LLC, which worked well for me, but you need to have a corp attorney help you set that up, and take their advice based on your situation.
DON'T FUCK WITH THE IRS! They have the power to make your life agonizing and painful. They have the ultimate power over your business, and they can take money out of your account without your approval and without warning.
As you can see, the IRS is a serious matter, better to learn from others' mistakes rather than make your own. Keep up with your 941's, ESD, State taxes, sales taxes, etc. Hire a good acct to keep all that straight for you if you aren't a strong numbers person.
Lease your equipment rather than buying. It's more per month, but you get 100% write-off, whereas purchased equipment is depreciated over 3-7 years (depending on what it is). Especially cardio! Cardio wears out fast, and you want to get all of your stuff covered bumper to bumper for a three-year period because maintenance is a bitch, and it is very expensive. Plus, when the lease is up, you can either pay off the equipment for a buck and keep it, and add more equipment, or replace the old stuff with brand-new equipment. Just plan on spending that monthly expense for the entire time that you own a gym.
Automate as many processes as you can. There are several automated check-in systems and financial companies that will draft your customers and collect for you for a small percentage. It is worth it to do those because of the headaches you will prevent. You will actually make more money than you would if you tried to save the money by doing it in-house.
Outsource whatever you can. Use PayChex to do your payroll and file your 941's and 1099's. Buy employee manuals (so that all employee roles are clearly defined) that you can modify from health club consultants. Systemize every aspect of your business.
Even if you plan to keep this business from now till the day you die, build it as if you plan to sell it at some point. Keep your balance sheet up to date, remember that a health club is only worth their receivables (annual profit X 2-6), and real estate if you go that route.
Things many people don't consider before signing a lease are
parking--make sure it is ample! In the right location it will be free (built in to the cost of your lease, like in a strip mall). If you are in a metro area, it can kill you.
annual escalators -- Property managers slide this into your lease usually at a rate of 3%, but you can get around that or even avoid it if you are in a buyer's market scenario. It's based on inflation, but the actual rate for the last 10 years is 1.8, so they base it on the last 30 years, which is a little sleazy in my book. Depending on how desperate the owner is for tenants, you can sometimes negotiate those out of the lease.
Does price per sq foot include a buildout?
What is the buildout allowance?
You want at least a 5 year lease. 3 is pretty standard for a commercial lease. It will take you till then usually to pay off your initial investment, so you want a couple of years of solid profit before shipping out to a new location or re-signing a new lease.
I'm sure that I will come up with more... I've had a long time to come up with all of this. But this will certainly get the discussion going.
JP, that is some excellent advice for those thinking of opening a business of any type.
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Working "hard," or the perception of working hard, doesn't really mean anything. Sweating, vomiting, and breathing hard could be a good workout or a tropical disease kicking in.-Dan John
Awesome advice, JP, and much of it applies to running any other type of business as well.
And as someone who has dealt with the IRS on a daily basis, you are NOT KIDDING!! The power they have is way beyond any government agency, and banks are required to comply with their directives even if they are obviously in error. If you experience a problem, you have the right to contact an IRS field office and request your case be referred to a "Problem Resolution Officer." The other agents may try to dissuade you from that, but once you make that request, they are supposed to put you in touch with that Problem Resolution staff member ASAP. (That information is not publicized by the IRS).
But by far, the best way to avoid problems is, as stated, have a top-notch accountant and don't try to play games with your taxes.
__________________ The trick is in what one emphasizes. We either make ourselves miserable, or we make ourselves happy. The amount of work is the same. -- Carlos Castaneda
I am considering purchasing an existing facility and moving it to another location and replacing the equipment. I live in a town of about 12,000. We have a brand new YMCA and also 2 fitness centers--the one I am considering buying, and a 24 hour center. Both centers are relatively small, and there is not another facility closer than 45 minutes.
If I bought this center, I would own the building. Is it better to stay at this building even though the location is not good, or move to another location where I would have to remodel and lease?
I like the idea of owning a 24 hour center with keycard entry. What are the pros and cons? I don't think it would conflict with the existing 24 hour center, because I know a lot of people are unhappy that this place is not well maintained. In addition, I would add my services as a personal trainer, something that is not currently offered. I'm just wondering what the current clientele would think if I switched the center to 24 hours, or if it is going to cause me headaches.
I would approach this very cautiously. Does the existing facility have good books? A solid profit? What is the membership?
My usual advice if someone is considering buying a struggling fitness center is to ask if they couldn't just open one in the same market at a different location and just attract all their members.
I like the 24 hour thing. It allows you to save a lot of money on staffing, and it is a good sales point too.
There are a few things you have to have set up in order to prevent "piggy-backing", but I have worked all that stuff out.
If you have enough capital to purchase another facility you should have enough to open your own place. I have an idea though. Tell me what city you live in (via PM if you prefer) and let me do a little checking on the market there. I am curious about demographics, particularly mean income, among other things. You're in an awfully small market for all those fitness centers, but it may still be underserved.
What JP means by piggy-backing is since you're opening a 24-hour gym with key-card access, you could simply swipe the door open and have 2-3 peope walk in.
Exactly... Sorry I didn't clarify that. People who come in late at night and bring "friends" with them who are not paying members.
I have 24 hr surveillance of the facility, and if someone checks in and brings someone (a non-member) with them, they face a $50 fee drafted from their account for the offense (wording was in the fine print on their contracts). When I see that take place, I record the event to a disc and present it to them when they come in to complain about the extra fine that was taken from their accounts.
The proper procedure is to bring that person to my attention, let me properly guide them through the trial period and sales process, and allow them to become legitimate members. Otherwise they are stealing from me and I have no patience for that.
At the gym I work at (BIG corporate gym) there are a couple of referal plans based on your membership I believe. We have a spa in our gym so one incetive is a free 1/2 hour massage. Another incentive I've heard offered is a free month for every 2 members referred.
Every member receives in the mail (after they join) with some coupons for discounts on supplements, and 2 VIP passes for their friends with their info coded in the bar code, so all we have to do is scan the card and we know who referred them. Also the referrer gets a free month.
Every member receives in the mail (after they join) with some coupons for discounts on supplements, and 2 VIP passes for their friends with their info coded in the bar code, so all we have to do is scan the card and we know who referred them. Also the referrer gets a free month.
I like the free month idea.....
I was thinking in terms of those pyramid schemes......For every referral, the member gets $25 toward their membership renewal. So if you're membership is $300 and you refer 6 people, your renewal is only $150. And if each of those 6 people also refer 6 people......you get the idea. Are there flaws in that idea? Obviously, you would have to be in a bigger market than where I'm located....
Don't over price your joining fees. I wouldn't let them be much more than your monthly rate. And customers won't let you forget, your competition is almost always willing to scrap it there's to get their business.
I'm pretty strict about charging one, unless a company has paid a corporate joining fee, which is usually between $1500 to $3000, to allow their employees to not have to pay a joining fee, which is one way that companies can partially subsidize their employees' wellness.
Our local gym, which seems to be doing well, has no joining fee, but they do require a 60 day notice to cancel. Seems fair to me. I asked, what if I kick off? no charge, they say!
Does anyone know of any books or other resources that can provide info for someone starting their own fitness center business? JP has provided excellent info, but I'm looking for more in-depth details. Not so much from the fitness standpoint, but more from the business standpoint. Things such as accounting, finances, taxes, insurance, marketing, LLC/proprietorship, etc......
No, I did not--I ended up just training athletes on my own and eventually got a job at a university which was my ultimate goal anyway. The risk/reward ratio was just not in my favor. I would still like to do it at some point, but only if I have disposable income. And with the way the econmy has gone in my area, I'm probably pretty lucky that I didn't attempt it.
LA Fitness went in down the street. My friend who owns the gym I go to is considering closing. Business is bad for the mom and pop weightlifters gyms out there. If they close, I'm just going to buy a Body Solid Series 7 Smith and just workout at home. I refuse to join one of those mega gyms.
Some random advice about opening a gym
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