Gym franchise advice/finance

[domtylerlovett]

Dear all,

I would really appreciate some advice on setting up my own gym. Following are my current situation, and questions!

Commercial ambition

I want to set up a gym in the next 12 months or so in East Anglia. I've been looking in depth at a successful American franchise that's just started its offering in the UK, but not committed anything but time so far. I have registered for an open day in March 2011.

Experience and personal status

I have been a company director for over 5 years and I have good commercial and management experience; My skills include business planning, interpreting management accounts, marketing, project management and people management. I enjoy the business side of my job, but I have little interest in the industry (IT) and I'm finding it hard to accept that my future lies solely in something I can't get passionate about.

I believe I have most of the relevant skills needed to set up a business with some guidance and funding, and run a sustainable business thereafter. I am a fast learner, passionate, sociable, well-organised, proactive, dedicated and hard working. I am a good communicator, and I handle pressure and stress well.

I have been keeping fit since my early 20s (although until November 2010 I was out of action for a year with serious ankle problems!) so I have a great interest in the industry.

I am currently employed full-time but would be able to commit more and more time to this project as it takes off. Whether I go full-time or not in the new business would be dependant on income. My income needs to be around ?2,800 a month (current income after all deductions.) My current co-director knows of my plans and said he'll support any decision I take to go part time if required. He has also shown an interest in being involved which we are in the process of discussing.

I am married, and we have one daughter (with another child planned). We have a mortgage on a house.

Financial status

I have no finances to start me up and don't want to put my house on the line. I have no worthy saleable assets. I understand the bank will lend me a certain amount, but not without some personal funds. My wife and I don't have any family or friends that could afford any money to lend to us, but I'm determined not to give up!

Overview

I have been looking into types of funding, and getting one or more "Business Angels" seems like a good idea to me. I'm constantly reading up on relevant topics, but I am still unsure of the best way to approach this without accepting substantial personal risk that I couldn't justify to my wife. I have been through the business plan and proforma provided by the franchisor, but I don't want to put all my time into this if a different (i.e. non-franchise) route were probably more sensible.

I want to own the majority of my business, and expand to further sites once I've succeeded. My hunch is that I need to convince some investors that I am a good person to invest in.

Any and all constructive advice very much appreciated!

Dom

[Franchise Pundit]

The gym business is very, very hard.

If I were forced to get into this industry, I'd go the Planet Fitness (USA based) route and offer clean workout facilities with new equipment and minimal luxuries for $10/month with no contract.  It's way less than anyone on the market including Anytime Fitness ($30+/month).  No trainers, no towels.  You can run the whole place with two minimum wage employees.  People will drive a 15 minutes out of their way for a good deal on gyms from what I've seen.

I'm not familiar with the price and gym situation in East Anglia.  I'm a member at Virgin Active (?65/month with 12-month contract) and Reebok in Canary Wharf (?95/month with no contract) in London.  Both cater to higher end clients who will often pay for extra training and buy food/drinks.  I wouldn't want to compete against either of these companies.

As far as financing, you're on your own.  I highly doubt you'll find anyone or angel willing to put up ?100,000+ needed to start a gym, so don't waste your time.  Building a customer base for a gym is slow, could take years and you won't be pulling out the salary you require.  If you are set on doing it, you'll likely have to save the money and finance it yourself.  Otherwise, just keep working your current job and don't obsess over this and don't put your family under unnecessary stress!

[dchz]

I am new here, so please forgive any advice I give that may be out of line

I agree with the fact that the gym franchise is VERY VERY hard...

However, I live in the US, not the UK, so take my observations with a grain of salt. I am an avid gym goer (~5 days a week, ~1.5 hrs per day). I have been to my share of gyms. From what I could tell, the only thing that keeps Gyms afloat from a financial point of view are those "subscribers" that have committed to a contract, or at the least those people oblivious enough to not cancel their automatically renewal of billing every month. Consistent gym-goers alone are not enough to keep up even 1/10th of the gym's operational budget.

If you insist on opening your own Gym (which is a venture i have briefly considered, but quickly realized that it really is too risky/not worth the risk), I would recommend keeping your cost as low as possible. I might even suggest buying 2nd hand equipment (as long as they're clean, the older equipment really have no disadvantage over the newer equipments). You can really get a good deal sometimes, and the lower costs might save you in the end.

Offering a lot of group classes helps a lot too. It's something that's more psychological that keeps people committed to coming back and renewing their subscription.

Gym memberships also fluctuate a lot, the amount of people at the gym right after new-years is very high compared to the amount of people after feb/march.

My biggest problem in opening a Gym in a developed country is this. Where are you going to get all your new customers? I know there is a joke of "lazy americans", but i think this is universal. It feels like all the current gyms already satisfy the current demand for gyms, if not over-supplying. I don't know how dense the population is in your area. But unless you offer something really awesome to win over the other customers (as most gym members are pretty loyal to their own gym), I don't see how you're going to get enough revenue to run the business.

[domtylerlovett]

Many thanks both for the comments and advice, which I will take into serious consideration; to a prospective entrepreneur, warnings are more valuable than empty encouragement - I think I'm more interested with what made the failures than what made the successes.

I'm really keen on a specific franchise as opposed to "organic growth".  I don't want a get-rich-quick scheme, but I want something I can own and develop.  I haven't got the time to develop an entire business - and I think I'll have even less chance of getting money for something from scratch anyway.

A gym running the franchise system that interests me, apparently opened with over 600 members.  This is offset by it being the first in the country and therefore the owners inevitably getting a lot more help than normal, but less than a third of that as an opening means I'd be breaking even on recurring overheads from launch.  I'm planning on utilising social networking a lot and have for a while been researching how best to approach it.  I really think that the right referral scheme, in the right location, to the right targets could make this work well.

I guess what I'm trying to find out is: what could and would make this fail?  With a franchise being a "proven successful business model" - the "theory" is that the main variable is me.  The business planning, location, costing, marketing and software are (apparently) covered in the franchise system - and they're what would normally be the main variables in this industry.  If I'm the only real difference then I'm fairly confident I have a broad set of business skills and experience, and my only obstacle would be raising the start-up capital.

Any more feedback very much appreciated!

[dchz]

there is a lot that could be said about what could cause something to fail, I am going to assume you're well aware of that and spare you the long typing.

The bottom line to your plan is this... are you examining your assumptions? (in particular, i would like you to examine how much of that initial opening enrollment is sustained, and how likely you're going to do compared to that)

Also examine cost-benefit analysis (this is very basic, but it's crazy how people just over-look this). In particular, how much does franchising with another gym REALLY ADD? is it worth the COST? what legal agreements are necessary? What are you REALLY getting out of this?

I have been reading Mr. Webster's webpage and he has some very well-written stuff on there, you should give it a read, it really is a good pragmatic outline to how to approach things.

[jpcjohn]

There is never a guarantee when starting a business that your going to be successful. If that was the case everyone would buy into a franchise.

The only one's getting rich from the franchise is the Franchisor.. They get their 6-10% no matter what.. If business if bad they get it.. Good, they get it.. rock bottom, they get it.

Some of the biggest names stores close all the time.. High Rent, product costs or equipment rental. You could be the best manager in the world with a great marketing background and things could fail. Just the roll of the dice.

In the Gym field you have people like planet fitness charging 10 bucks a month gobbling up the customers. Its just like pizza, There are tons and tons of chains, franchises and mom and pops that close daily. You just never know.

[FuwaFuwaUsagi]

One of the things I absolutely love about the Pundit's forum (besides Ryan's brain cells) is that it is searchable.  I suggest you search on the word gym and find previous threads. 

Kindest regards

[michael webster]

"With a franchise being a "proven successful business model" - the "theory" is that the main variable is me.  The business planning, location, costing, marketing and software are (apparently) covered in the franchise system - and they're what would normally be the main variables in this industry."

There is no legal requirement in the US or Canada to have a "proven successful business model" in order to franchise.  Many franchisor's only skill is in selling their "proven business model".  My suggestion is to take 6 months off or go part time from your current employ, and work in a gym to understand the business model in your location.  This will be invaluable experience.

Right now, you are setting your self up for the first franchisor sales person that comes along and repeats your dream back to you: what a fine fellow he must be, he likes and understands me, I better buy his product before they sell to somebody else.

[FuwaFuwaUsagi]

One of the better ways to go into the fitness business is to go into the profitable side of the venture which is buying up gym equipment at bankruptcy auctions for 10-25 cents on the dollar and then reselling it to the next dreamer at 40-80 percent of new equipment.  Btw that is also the best way to enter the restaurant and vending business. 

[michael webster]

Fuwa is not talking about a business, but rather the business opportunity.

He does make a very good point - the equipment needed can often be picked up at bankruptcy sales.  Where do you think the franchisor is getting the stuff?

[domtylerlovett]

Fuwa - re reply # 6, I'm English and we invented sarcasm/irony - I'm fully aware that the forum is searchable (and if you weren't being sarcastic I apologise).  The reason there is more than one post on most topics here is due to individuals' combinations of circumstances which is what I conveyed in my first message.  Prior to my first post here I spent months reading a variety of useful articles (including on this forum), and wanted thoughts on how to leverage my personal situation toward my goals.  I appreciate however your more recent post regarding equipment trade, and while this is a great idea, I really want my own business.

I love keeping fit, and as one or two directors I've been successfully running a business for over 5 years.  I don't do it for glory - I just find running a business so satisfying.  I know the astute amongst us could at this point highlight differences between running a business and running a franchise, but I think I already know.  I am just doing my pre-due diligence, and my maxim is that a wise person knows the things they don't know.

I hear what's being said about it all being in the franchisor's interest.  Of course it is, why else would they do it?  I know that the "Franchise Sales Consultant" (what a transparently counter-productive job title...) is interested in nothing more than his cut of my hard earned (or raised) cash.

I'm looking for (1) advice on start-up capital, and (2) to find some genuine reasons this might not work; hunches and psychology are limited in their offering.  Statements about only the franchisor getting rich cannot be always correct, otherwise this system wouldn't have endured.

If someone has the time, please (3) can you read the following article and let me know what you think?

http://www.jobmonkey.com/franchise/anytime-fitness.html

Many thanks for all the feedback so far,

Dom

[FuwaFuwaUsagi]

I appreciate however your more recent post regarding equipment trade, and while this is a great idea, I really want my own business.

I fail to understand why this would not be your own business.

[FuwaFuwaUsagi]

http://www.jobmonkey.com/franchise/anytime-fitness.html


Have you read the FDD for this thing?

[jerichox]

I'm looking for (1) advice on start-up capital, and (2) to find some genuine reasons this might not work; hunches and psychology are limited in their offering.  Statements about only the franchisor getting rich cannot be always correct, otherwise this system wouldn't have endured.

Give me a reason other then "I like being fit" or "I know what I am doing" that proves it wont work..

#1 you have no money.. not only do you need the money to build out.. you also need working capital for the first three months..

#2 investing in the RENT and Electric alone will suck up a ton of your income.. If you throw Equipment rental and employee's (shouldnt need more then 2 at a time) There goes some more. On top of that if you are a part of a franchise you'll have to pay lets say 6% franchise fee and maybe a 2% Advertising fee. Ontop of that, you'll need to do your own local advertising, usually the franchise requires you to do 2% of your own advertising.
Then there are the unforeseen problems, Things break.. youll have to pay to fix them.

Whats going to separate you from the other guy? These days people want a great price.. I have an anytime Fitness in my shopping center and 6 months in they are talking about closing and asking for rent reduction.. its a great location, but wow 90 start up and 35 a month is really a lot compared to the planet fitness thats in the old closed down albertsons grocery store and only charges 10 bucks a month.

You seem like you want people here to tell you "THIS IS A GREAT IDEA, DO IT" but this is something you really need to do your due diligence on and ask yourself is it worth it.. meaning, are you investing 300,000 and just buying myself a 40,000 dollar a year job?

[jerichox]

Also, one last thing..

The web link you provided..

have you ever read about a franchise on their page or brokers page and read "This franchise sucks"?

Don't believe everything you read.. they might say they have 2000 stores.. But how many stores have closed in the last year? do not see anything like that on the page.. must mean there is none right? yeah right.