Today we continue The Business Plan series of How to Open a Gym by taking a look at the potential start-up costs you will need to plan for and fund.
The great thing about opening a affiliate gym, compared with a traditional gym or some other franchise model, is the relatively low financial barriers to entry. Thanks to the fact that there are few pieced of equipment, and even fewer heavy cost items, combined with the expectations that affiliate gyms be a simple “box,” opening a affiliate gym is a realistic business plan. To help in your planning, we have broken down a list of costs that will help you get a better feel for how much the opening will cost.
- Entity Formation: Depending on whether you elected to open as a sole proprietorship, an S-Corp, or LLC, the costs for forming your business will generally run $150 to $1,000, if you do things yourself or through a website like legalzoom.com. If you’ve got multiple partners and investors, you’ll also need a partnership agreement, which means you’ll need an attorney. Depending on how complex you want to make things, this could run as little as $2,000 and the sky is the limit if you get too fancy.
- Security Deposit & First Months’ Rent: The amount of security deposit you may need to pay can vary widely based on your business history, personal financials and creditworthiness, and how eager the landlord is to get the space rented. The standard for a security deposit can be as little as an amount equivalent to one months’ rent (this will likely mean that you’ll have to personally guarantee the lease payments), up to six months’ rent (if you want no personal liability).
- Tenant Improvements: Tenant Improvement, or TIs, are amount of money you’ll need to construct the facility. This is for things like flooring, air conditioning, construction or remodel of bathrooms and showers, and anything that is building related. We’ve seen affiliates who have taken a simple industrial warehouse and just slapped a coat of paint on the walls, installed rubber flooring, and put some logos around the place. We’ve also seen other that have gone crazy, installing juice bars, steam rooms, and $10,000 ceiling fans. Ultimately, you’re opening a business and you have to determine for yourself if you think can make this money back or if spending this extra cash will actually help you establish your business.
- Flooring: Resilient Rubber Flooring is the most common and cost effective for affiliate gyms. Some choose to use puzzle mats vs. rolled out flooring. In our experience, we have been happy with Regupol brand rubber flooring. They offer a discount to affiliates for their 5/8” rolls, and we usually use a 3/8” underlay as well – this helps to maintain equipment, and reduce noise and bounce. Depending on your budget and your skill level, the option of having a professional flooring company lay the rubber is available, and recommended if you’re doing the roll-out rubber.
- Equipment: This will vary based on the size of your gym. If you are new to the business and need some assistance in determine how much equipment you need, we are will gladly help you with this. If you provide a layout of your space, we can help you plan out your box and make maximum use of your space. Financing is also an option that is available, but very few people know about. This option can help reduce initial start-up costs and allows you to get the equipment you need and want.
- Permits/City Fees/Architect Fees: Some cities are very strict about where gyms can be located and the number of parking spaces required. This is generally true in large densely populated urban zones where parking is tough to come by. Ideally, you can find a space that was previously occupied by another training facility, as a change in zoning can take up to six months. Also, depending on how closely your city monitors construction, you may need to obtain building permits for your TIs. The fees for these permits are generally calculated as a percentage of the constrction you’ll be doing, and will require either an architect or contractor to obtain.
- Furniture/Decor/Front Desk: You should have some sort of check-in area and lounge to foster a community and give you space to work. Factor in costs for couches, a small pro-shop or retail racks, office furniture, office chairs, front desk chairs, a front desk, TVs and other décor.
- Office Supplies/Cleaning Supplies: These items always seem to add up fast, especially since you are purchasing all new items for the first time. We’ve been very happy with Costco Business Delivery, which provides online ordering and next day delivery. Their service is good and their prices are lower than anyplace else we’ve found.
- Pro-Shop/Retail: This includes the T-shirts, shorts, tank tops or sweatshirts you may wish to sell. Also consider the cost of a drink refrigerator and the cost to fill it!
- Front Desk: Once you buy and install your front desk you will need at least one computer, a printer/scanner, a thermal receipt printer and a barcode scanner.
Two areas that everyone seems to forget when doing business planning are working capital and advertising. Don’t just assume you’ll be making money Day 1, and plan to have enough money on hand to operate at least six to eight months at either a loss or very small profit.
- Working Capital: Working Capital is money that is set aside to cover expenses until the business becomes profitable. When opening a business, it is prudent to put aside up to 6 months’ worth of expenses. Keep in mind that when you open there is no income and it will take you some time to break-even. Lack of sufficient working capital is the main reason startup businesses fail. Remember to factor your own salary or living expenses into the equation.
- Advertising Budget: Some may preach that word of mouth from your members is the only way to get new bodies into your box. This is not true. We will discuss this in future blogs. Put some money away to advertise your new gym.