Programming Growth into Your Business Plan

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March 9, 2018
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Programming Growth into Your Business Plan

It started with a passion for training and helping others. You had been training private clients off to the side at a globo gym. You convinced the owner of an MMA studio to sub-lease a few hundred square feet of space, but quickly out-grew it. With enough paying clients to generate stable cash flow, you decide to move into a space of your own. You find a 1,250 square foot space on the outskirts of town; an old auto shop that hasn’t been occupied in years. It needs a little paint and some minor improvements, but it’s got character, and it’s all yours. You devote countless hours to perfecting the space, raising awareness in the local community, developing a team of trainers, and growing your membership base. Everything is going great. Everything is going so great that before you know it, you’ve outgrown that space and need a new one.

This may sound familiar. About 15 years ago, Coach Glassman, founder of CrossFit, laid the foundation of the CrossFit affiliate community under a very similar set of circumstances. In the decade and a half since, this growth pattern has been widely prevalent amongst CrossFit affiliates: Start small; grow a little. Move; grow a little more. Expand; grow again. Repeat.

But why have so many boxes followed this same pattern of growth?

The short answer: money. It takes money to start a business and it takes money to grow a business, and often, an entrepreneur’s ability to access capital for their business can dictate their ability to grow. The CrossFit affiliate model has a beautifully simple means for addressing this issue initially: minimize the up-front capital requirement and barriers to entry for a new affiliate. This creates an unprecedented opportunity for someone to own their own gym who might never have the chance to otherwise. Did you know that the total investment to open a Planet Fitness franchise generally ranges from $1-4 million, and owners are required to have a $1.5 million net worth with $500,000 of cash available? That’s a pretty big difference from the $4,000 minimum investment required to open a CrossFit affiliate. Of course, the total cost of opening a new box will certainly exceed $4,000, but the nature of the affiliate model allows for a much lower up-front investment than a traditional gym business.

As membership grows, however, so too does your need for additional equipment, additional coaches, and additional space. All else equal, the less equipment you purchase up-front, the more you need to keep up with growing class sizes, and similarly, the less space you start with, the quicker the need to find a new one (and relocating does not come without cost). In many cases, membership may reach capacity long before the owner is able to afford the cost of relocating or expanding their equipment using savings alone. The prudent use of financing, however, can help you reach your goals faster while allowing you to maintain a cash reserve for unforeseen circumstances.

As a funding solution for small businesses, lease financing offers a number of benefits to box owners. In fact, 80% of businesses in the U.S. lease some or all of their equipment. At a minimum, it is a concept that every business owner should understand – let’s take a closer look at the advantages of lease financing:

Conserve Working Capital and Manage Cash Flow. It can take months or years to save enough excess capital to cover the cost of a significant equipment purchase. Instead, convert large capital investments into a manageable stream of payments over time. Typically, a lease offers 100% financing for the cost of the equipment. Particularly for a small business, the ability to conserve cash to cover operating expenses is hugely valuable.

Improve the Quality of Your Facility. Ever-increasing competition in the marketplace may require you to invest more in the appearance of your facility, the quality of your equipment, and the amenities you offer (yes, showers!). We agree whole-heartedly that quality coaching and programming are the precursors for success in this industry, but someone walking into a box for the first time probably doesn’t appreciate that nuance like you and I.

Maintain Ownership of Your Business. In raising capital to undergo an expansion or open a new facility, it’s common to see founders give up a percentage of their ownership in the business to investors in exchange for funding. This is often viewed as a ‘cheaper’ source of money, since you are not necessarily required to pay interest on the invested capital. Of course, this doesn’t mean you aren’t paying for it elsewhere – giving up ownership means giving up a share of the profits, and that can add up quick.

Establish Business Credit. It’s never too early to start establishing a credit history for your business. Just like your personal credit, your business credit profile can impact your future borrowing ability and terms.

But be careful – as with anything, financing is not without risk. Generally speaking, it is beneficial to work with someone who understands your industry and particular market, regardless of the service you are seeking. However, when that service involves providing capital for your business, selecting the right financial partner carries even greater importance. Spend time evaluating your options to find a partner that understands your vision and can offer guidance and transparency throughout the financing process. Despite the many benefits that financing can offer, reckless borrowing and/or egregious funding terms can quickly erase them.

Interested in financing for your fitness business? Contact Rigquipment Finance today at info@rigquipment.com or 571-933-8339!

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