Loading presentation...

Present Remotely

Send the link below via email or IM

Copy

Present to your audience

Start remote presentation

  • Invited audience members will follow you as you navigate and present
  • People invited to a presentation do not need a Prezi account
  • This link expires 10 minutes after you close the presentation
  • A maximum of 30 users can follow your presentation
  • Learn more about this feature in our knowledge base article

Do you really want to delete this prezi?

Neither you, nor the coeditors you shared it with will be able to recover it again.

DeleteCancel

Module 5- Financial Training

The World's Leading Low Priced, High Value Franchise Opportunity!
by

Presentation Geeks

on 28 November 2017

Comments (0)

Please log in to add your comment.

Report abuse

Transcript of Module 5- Financial Training

To obtain formal lender approval, you will need to provide a complete financial package.
Pulling it all together
Lessee receives only a “right to use the property”, which transfers back to the lender at the end of the lease term (No ownership transfer)
No balance sheet impact
Financing term similar to capital lease and build-out typically not financeable
Interest is expensed in the operating section of the Income Statement, and reduces EBITDA
Option to purchase the property at end of lease for Fair Market Value
Choose the right program for you
CGS /
Payroll items
Securing financing in the Fitness Industry is sometimes difficult, but there are several options …
Financing Alternatives
Individual decision depending upon your personal financial situation

Return on investment (ROI) typically higher when investing equity
However, fitness is a financed industry and the vast majority finance their investment

When deciding, make sure you have sufficient working capital for the start-up period
Minimum $200k should be available during “ramp-up” period to cover marketing / advertising, payroll etc
Variable / operating expense items
Cost of Sales (“CGS”) & Payroll Expense Section
Club Income Statement cont.
It’s your business so use what works best for you
There is no right answer

Choose accounting software and NOT club management software
This is a simple business and you won’t need all the “bells and whistle’s” associated with a big club

If you plan on opening multiple clubs, make sure you have the ability to consolidate activity
Accounting Software
Do you want to do your own accounting?
Do you have the time to do your own accounting?
If doing it on your own, are you planning to employ accounting staff / controller?

Clubs that follow Generally Accepted Accounting Principles (“GAAP”) in their book keeping generally sell for higher multiples at a sale

GAAP accounting for a fitness club is complicated
Revenue recognition
Enrollment / franchise fee’s
Prepaid memberships
Annual fee’s
Should I use an accounting firm?
It really depends …
Which option is right for me?
Should I finance?
Fixed Operating Cost Section
Club Income Statement cont.
Revenue items
Your Success is our Success!
On your experience
Have you run a business before?

What you’re trying to get out of your investment
What is your exit strategy?
Are you looking to develop and sell or develop and hold?

How hands on you want to be
Are you going to be in the club day-day?
Who will be overseeing the operations?

What you have for administrative support
Will you be able to do your own book-keeping?
Do you have any experience doing it?
Where do I start?
Getting Started
Financing
Operators that have been successful have kept their expenses within the following percentages of net revenue
A few other benchmarks
Average 9 full-time equivalents ranging between $8-$11/hr (paying more is not necessary)
Only 1 full-time employee (Club Manager)
Minimizes workers comp, insurance and benefits expense
Keep an eye on costs
CRUNCH
Financial Support
Investment
Your
How much do I need?
Average investment size varies and depends upon
Size of the Club
Conditions of the Space
Landlord Contributions

Average investment range: $800k - $1.5m
Cardio & Strength Equipment: $550,000
“Soft Fitness” Equipment (lockers, tanning, flooring etc): $250,000
Build-out / Tenant Improvements (“TI’s”): $0 - $600,000

To minimize your investment, identify space where the landlord will contribute to build-out or provide a period of rent deferral
If possible, keep build-out cost under $35 / sq. ft

Lessee assumes risk of ownership with legal ownership of asset transferred to the lessee at end of lease (usually for $1 - $100 buyout)
Recognized as both an asset & liability on the balance sheet
Creates “tax shield” by allowing both depreciation and interest expense deduction
Financing term tied to life of asset, typically 4-7 years
Build-out typically NOT financeable
By far, the most common method of financing fitness activity
Choose the right program for you
SBA Financing (Small Business Administration Association)
Traditional Bank Financing
Friends & Family
Always a good alternative but may be expensive if required to give-up equity
Good choice for individuals lacking liquidity or just short of qualifying for a franchise
Good alternative for “high net worth” individuals
If available to the “average” borrower, most likely for hard equipment only
Financing sponsored and partially guaranteed by the US Gov’t
Small number of participating lenders; lengthy process
Traditionally 10 years
Typically require lower equity or down-payments
Provides ability to finance start-up, build-out and working capital needs
Somewhat “risky” for the fitness industry since the useful life of fitness assets is less than 10 years and may require replacement before the SBA term is complete
Begin developing your business plan
1
2
3
Complete and sign the Crunch Franchisee Candidate Profile
Include separate information for each member of your group
Determine which financing option best meets the needs of your group
Completed and signed Candidate Profile and Application
Complete copies of last 2 years personal tax returns / business tax returns if appropriate
Complete copies of last 2 months bank statements, supporting information on PFS
Complete copies of last 2 months investment statements, supporting information on PFS
Short bio / background information on each individual investor / partner
Copy of the business / financial plan for the investment
Copy of the signed Franchise Application
Copy of an executed location lease (can be provided later in the process)
Managing
Club's Finances
Your
It depends ….
Again, It depends ….
Microsoft Dynamics (formerly Great Plains)
Quickbooks
Sage Peachtree
***Check with your accountant for other recommendations
A few suggestions
Club Income Statement
Variable Operating Expense Section

Club Income Statement cont.
Fixed operating cost items
Remaining items on the income statement
Advertising
Real Estate
Employees
Your biggest expenses will relate to:
Advertising:
Real Estate:
$150k - $200k Year 1
$120k - $150k Year 2 and beyond
Negotiate hard up front. Try and keep your rental cost per square foot below $20
Employees:
Managing this is expense is absolutely CRITICAL to your success!

It may seem hard to keep within these limits, but it can be done!
Front Desk Payroll
Q&A
Capital Lease
Operating Lease
Crunch Sponsored Program
Small Business Association Financing (SBA)
Traditional Bank Financing
Friends & Family
Leveraging our existing relationships should save you time and money and help get your club open quicker
On your personal financial position
Other investment activity
What you’re trying to get out of your investment
… so it may make sense to check with your accountant
CAPITAL LEASE
OPERATING LEASE
mike.blouin@crunch.com

(978) 500-5824
Start the process now… don’t wait
This can be a time consuming and aggravating process

Developing a solution around your personal financial position (and goals) will involve negotiations with a number of lenders and can take months to complete

Leverage our experience and relationships to shorten the process. Contact me when you’re ready to start

Mike Blouin
Senior VP of Development, Crunch Franchise
mike@crunchfranchise.com
978-500-5824
Professional fees:
Outside service expenses incurred in operations of the club. Will include items such as legat audit, tax, account in& cleaning services and any other business outsourcing expense.

Travel:
Travel and entertainment expense incurred while traveling on club business

Non-travel:
Non travel related expenses for things such as refreshments, employee luncheons, training, gifts etc.

Credit Card Processing Fee's:
Bank fee's associated with monthly electronic billing of the clubs membership base. This is a major expense of the club and will average roughly 2-4% of revenue depending upon the life cycle of the business.
Variable Operating Expense
Club Expenses
Sales & Marketing Expense:
Direct and promotional advertising and marketing expense for the club. Will include items such as direct mail, promotional flyers, door hangers, radio I tv advertising, billboard promotions, t-shirt giveaways etc. One of the largest expenses of the club.
Supplies:
Supplies expense for the club including but not limited to office and cleaning supplies, paper products and towels, soap etc

Technology:
Information technology expense associated with the club's computer, internet and communications systems

Repairs & Maintenance:
Repair & maintenance expense associated with the physical plant of the club, its equipment and indoor / outdoor facilities

Utilities:
Monthly operating expense related to gas, electric, water, sewer, telephone, cable and / or internet

Other:
Misc. club expenses for things such as uniforms, training etc
Food / Beverage: Revenue derived from over the counter sales of food and beverage. Most likely related to the sale of cooler drinks

Apparel: Revenue associated with the sale of club apparel such as T-shirts etc.

Supplements: Revenue associated with the sale of DotFit products

Other Retail Revenue: Income related to the sale of items such as tanning products & services (goggles, cream etc)
Retail Revenue
Refunds / Cash Over / Short
Refunds: Represents returns of membership fee's negotiated with the member

Cash Over / Short: Differences, if any, between physical cash in the register and point-of-sale (POS) activity entered into club management software
Enrollment Fee's:
Upfront fee charged to member joining the club. Fee can be as low as $0 per month but typically averages $29

Paid-in-Full / Pre-paid Dues:
Membership activity that is paid, upfront, at the time of enrollment. Typically discounted and used to drive cash into the club

First Months Dues:
Member's first month payment collected at the time of enrollment

New Membership Revenue

Dues Monthly Tap:
Member's monthly fee that is set up for automatic billing and which is electronica lly "tapped" from either the members credit card or checking / savings account

Dues Annual Fee:
$29 annual fee charged to the member during the year
Membership Revenue
Personal Training Revenue
Personal Training ("PT"):
Income derived from the sale of personal training services offered to the member base

Personal Training- POS:
Income derived from the sale of personal training services sold to the member at the point of sale
Cost of Goods Sold
Retail Cost of Goods Sold:
Represents the actual cost you paid for retail items for sale in the club (water, t -sh irts etc)

Royalty:
Represents the monthly royalty charge that you pay to Crunch on evenue generated in your c lub (2.5% fee)

On line Enrollment:
Represents the $5 per member fee that you pay to Crunch for members enro lling in your club on-line
Operating Payroll Expense
Salary (Management):
The compensation expense associated with full-time employees; typically only the club manager

Hourly:
Compensation expense associated with part-time employees

Session Pay (PT/ GF):
Hourly compensation paid to personal trainers and group fitness instructors for hours they were employed, on the floor, by Crunch

Commission:
Commission payments paid on sales of personal training activity

Bonus:
Bonus payments typica lly paid to the club manager and t ied to club performance

Taxes & Benefits:
State, federal and local tax and benefits loadings associated with the employees compensation

Other Employment Expense:
Unanticipated employment expenses
Fixed Operating Expenses
Rent & Occupancy:
Monthly base rent and occupancy charges negotiated with the landlord and agreed to in your real estate lease

Common Area Maintenance:
Pro-rate fee's assessed by the landlord for the upkeep of common areas and amenities such as the parking lot, external lighting, cooling, trash removal, security and street cleaning

Landlord Utilities:
Utilities expense required to be paid to the landlord (typically included in CAM charges)

Landlord Insurance:
Insurance expense required to be paid to the landlord (typically included in CAM charges)

Other Rent Expense:
Mise expense related to rent not included above, perhaps related to rent improvements, cost to sub - let the property etc.

Business Insurance:
The cost associated with workers compensation and disability insurance, property & casualty, theft etc

Real Estate Taxes:
Real estate or property taxes associated with your club that you are required to pay
Total Operating Expense:
The cumulative total of all expenses required to operate your club

CASH OPERATING PROFIT/ (LOSS):
Otherwise known as CASH EBITDA, this is the cash profit derived from your club which is represented by Total Net Revenue Operating Expenses. What your club is worth or what someone from the outside market would be willing to pay for your club is typically derived from this number.
It is important/ so pay attention to it!

Deferred Revenue:
If you are accounting for your club under GAAP, this is the amount of revenue that is deferred or recognized in a different period. It is typically related to enrollment fees, franchise fees, annual billing fees and in some case real estate rent.
Review this with your accountant

Normal Operating Profit:
The difference between cash operating profit and deferred revenue

Other Income & Expense:
This will include expenses associated with unusual occurrences in the business. Items you may encounter, but unlikely, could include gains or losses on the sale of club assets or minority interest in other operations
EBITDA:
Represents the GAAP definition of Earnings Before Interest, Tax, Depreciation and Amortization expense. This is different from Cash EBITDA since it takes into account the deferred revenue activity of the club

Depreciation & Amortization Expense:
A tax deduction associated with the clubs fixed assets that is recognized as expenses over a period of years

Net Income / (Loss):
Residual income from the club after deduction all income and expenses. Not to be confused with cash flow since non cash items such as depreciation and amortization are deducted in the calculation
Pulling this information together now, will save time down the road!
Do Not 'Skimp' on this expense. It will make or break your business!
Use these as a benchmark in your own business
What are you waiting for? … Let’s Go! We’re here to help
Some states require surety or health club bonds … does your area?
-Required by some states to collect fee’s up front
If required, we should begin the process of speaking with a bonding agent … this can take time
Getting started
Have your been “pre-approved” with any lenders? If not, let’s discuss.
Have you started your business plan?
Do you have an area in mind? Have you found a site?
Have we had an opportunity to speak personally about financing?
Have you started pulling your documents together?

Page Langley
Operations & Development
page@crunchfranchise.com
603-501-0860
Quick & Easy
Allows for up to 300k in buildout financing
Requires a Primary Vendor (Star Trac or Precor)
Crunch Sponsored Program
Driving Club
Performance
($22/sq ft)
$44/sq ft
$38/sq ft
$59/sq ft
Average Square Feet
21,532
Club Investment
Average Equipment Order
($477,258)
Net Investment
$1,280,444
Average LL Contribution
Average Buildout
$810,854
$946,848
Average Buildout Details
Flooring
Electrical
Mechanical
Telecom/AV
Signage
Plumbing
Design
Permitting
on Delivered Condition of HVAC, Plumbing & Electrical
VARIES
Financing for Growth
Int Only
Pool Amount
Term
Rate
$25M
Buildout
$25M
$25M
3 Mo
9 Mo
6 Mo
4-6 Year
Open
7 Yr
(7 or 10 maturity)
4.9-7.9%
5.9-6.9%
7.9-8.5%
~30%
~30%
Open
(plus Placement Fee)
Other
N/A
Project Financing
Franchise Fees &
Debt Service Financing
Presale Lengths (in months)
?
What does this say to the
CONSUMER
2.5
2.6
3.0
5.0
5.0
5.0
3.5
2010
2011
2012
2013
2014
2015
2016
2,153
1,896
Unit Sales (LTM)
420K+
Memberships Sold
$228
$246
Avg. Revenue per Member
2013
2014
2015
$205
2016
$257
over prior year
5%
Average Dues
2014
2015
2016
2017 YTD
$15.98
$13.82
$16.55
$17.86
$18.53
$18.53
Membership Breakdown
37%
Base
Peak
Base+
Other
over prior year
55%
Peak+
17%
31%
12%
3%
37%
Member Demographics
38%
39%
23%
?
17 & Under
18-24
25-30
31-40
41-50
51-60
61 and Over
4%
17%
16%
17%
15%
13%
16%
All Ages Love
Average Enrollment Fees
$1 Enrollment Fee
54% Network did
2017
2016
2015
2014
$8.30
AVERAGE
$6.76
$4.67
$2.98
$117,357
$92,798
$107,928
Average Monthly Cost to Operate
2011
2012
2013
2014
2015
$120,748
$107,355
$90K
Target
Critical Expense Management
38%
Payroll
Rent
24%
8%
Sales & Marketing
is your only fixed expense
RENT
Should be
~70%
Club Op Expenses
Average Rent per Square Foot
$19.92
$17.74
$17.17
$18.71
Rent/Sq Foot is historically stable across the network but should begin to decrease as more retail inventory becomes available
STABILITY
Club Square Footage
2014
2015
2013
1,599,440
TOTAL SQ FT OCCUPIED
20,772
1,003,531
20,071
CLUB AVERAGE
3,891,979
22,760
2016
2,543,787
21,929
year over year
BOX SIZE
AVG.
You Can Do It...
REALLY!!
Payroll Model
Payroll Target
28-34%
of revenue
Payroll Model
$20,000/mo
Front Desk
Group Fit
Manager
PT
Cleaning
142hrs/week
55 classes/wk
30 hrs at front desk
30 floor hours
$7,000
$4,500
$5,000
$1,500
$2,000
$23,800
Monthly Total:
Excludes payroll taxes, loadings, etc
Advertising
$120,000
Recommended Marketing Spend
$96,000
Avg Network Marketing Spend
$8000
per month
NOT trending
year over year
8%
in the right
direction
$120,000
69%
31%
Spending less than recommended
Spending more than recommended
10%
Spending $<50K
How Are We Doing?
2013
2014
2015
2016
$98K
$114K
$110K
$96K
PT Manager
$3,800
Lowest it's ever been
Managing the Initial Investment
Avg. Equipment Cost
Avg. Buildout
FInancing programs
Key Performance Indicators
Presale Period
Unit Sales
Avg Revenue per Member
Avg. Dues per Member
Membership Options
Membership Breakdown
Membership Demographics
Check-ins by Day
Avg. Enrollment Fees
Avg cost to operate
Managing the "Big 3"
Rent
Cost per sq ft
Avg sq footage

Sales & Marketing
Avg spending per year
Avty spending per month

Payroll Model
OVERVIEW
Full transcript