ecogym business plan

EcoGym Business Plan 2014

Executive SummaryOur mission is to create a global chain of fitness centres that use eco-friendly product innovation, while maximising the fitness experience. We will be recognised for our unique ability to provide an incomparable service and respected for our passion to make the world a greener, fitter place.

The EcoGym ServiceWe are looking to expand our current business which offers a full gym service which is environmentally friendly. Our unique EcoGym in the City of London offers several additional services which help make the lives of busy individuals easier, whilst maintaining a healthy lifestyle. We are a 24 hour gym with green credentials, which offers on-site laundry service, and our own café and bar. Our machines are adapted to be able to produce electricity, when they are in use by customers. We are looking to bringing this service to the US market, and have identified New York as a great location.

The MarketNew York is one of the most prosperous cities in the world. Wages are over double the national average and growing. The number of people employed is increasing as is the local economy. With over 70,000 people per square mile living in Manhattan, and significantly more commute during the working week, there is large demand for services such as gyms. In today’s evolving lifestyle and environment trends within society, our Gym concept is ready to push forward.

The Management TeamWe believe that the team that has been assembled to complete and oversee this expansion of EcoGym has the right variation of skills to bring the expertise needed for the transition to be a success. With the combination of academic and real world experience in managing businesses of this size, being involved in the health industry and having worked with green energy in the past the team cover all bases as far as having the knowledge required to succeed in this sector. A key attribute to the opening of the new gym will be the relocation of an experienced member of the team that started the gym in London, providing experience to the team in New York on the general process of starting a new gym. A day to day manager will follow shortly after to monitor the competition, initial opening and general running of the gym from then on. Having two relocating members of staff mean the company does not have to rely on training new, inexperienced staff.

Business OperationsGym memberships will be the main revenue for our business. There is a large initial outlay at the start of the project but once the gym is up and running the largest costs are for staff and maintenance. The time scale set on this project seeks to have financing completed by June

1 | P a g e


2014 with the gym set to open in January 2015, with an advertising campaign to kick off in late November 2014. Included in our projections for operations are subsidies and tax breaks from the government due to nature of the gym being environmentally efficient. EcoGym New York will feature as a separate business to the UK gym, but together will come under EcoGym LTD, to maintain a business structure where they are considered part of the same brand but have completely separate day to day running.

Financial ProjectionsUsing our London accounts, we have created projections for 5 years of operation of the New York business. Using a Discount Cashflow (DCF) model for 5 years, we project future value of US business at $2.6 million. We expect to generate an accumulated net profit of $4.1 million by the end of year 5 including, a net profit of $1.1 million in year 5. Simultaneously our EcoGym London will be operating, and combining both businesses, we value EcoGym LTD at $8.1 million, running a 5 year DCF for the future business of London.

Finance Required and UseWe require an investment of $600,000 and in return we will be giving 30% of our whole business EcoGym LTD which will include EcoGym London and EcoGym New York. This gives the VC firm over 30% IRR on investment over 5 years, as we calculate 27.55% equity to give 30% IRR. We require this investment to help fund the initial costs to get our new flagship New York gym to market. We have a great track record, but as a projection below shows, we are expecting slower sales growth due to a capacity limit, and feel this is the perfect time to expand.

2 | P a g e

Year t-4

Year t-3

Year t-2

Year t-1

Year To Date

Year t+1

Year t+2

Year t+3

Year t+4

Year t+5

£0

£200,000

£400,000

£600,000

£800,000

£1,000,000

£1,200,000

£1,400,000

£1,600,000

EcoGym Annual Sales


ContentsExecutive Summary..................................................................................................................1

The EcoGym Ideology...............................................................................................................4

The Market...............................................................................................................................6

Market Analysis.....................................................................................................................6

Marketing Plan.........................................................................................................................8

Pricing................................................................................................................................... 8

Distribution Channels............................................................................................................9

Promotion.............................................................................................................................9

Competition........................................................................................................................ 10

SWOT Analysis........................................................................................................................11

Risks and Sensitivity Analysis..................................................................................................13

The Management Team.........................................................................................................14

Business Operations...............................................................................................................15

Financial Projections.............................................................................................................. 16

Equipment and Premise costs and revenues......................................................................16

Café Bar, Laundry Room and Clothing Store costs and Revenues.......................................17

Salaries, Utility Bills and other costs...................................................................................17

Amount and use of finance required and exit opportunities.................................................19

Appendix 1- Profit and Loss account for New York................................................................21

Appendix 2- Monthly Costs New York....................................................................................22

Appendix 3- New York monthly revenues..............................................................................23

Appendix 4- Estimation of electricity generation, cost and CO2 reductions..........................24

Appendix 5- UK profit and loss account.................................................................................25

Appendix 6- E-Mail correspondence with New York advertising firm....................................26

Appendix 7- E-Mail correspondence with New York property firm........................................28

Bibliography........................................................................................................................... 30

3 | P a g e


The EcoGym IdeologyOur mission is to create a global chain of fitness centres that use eco-friendly product innovation, while maximising the fitness experience. We will be recognised for our unique ability to provide an incomparable service and respected for our passion to make the world a greener, fitter place.

EcoGym is a successful gym business based in London. We operate our gym with two main thoughts, our customers and the environment. This led us to creating the most environmentally friendly gym, while maintaining a superior level of customer service over our competitors. This combination have proved to be disruptive to the London gym market as we have seen gyms in a close radius to ours close down, and others further afield copying elements of our ideology.

One of our Unique Selling Points (USP) is that where possible our gym equipment is fitted with electricity generators, meaning as our customers are working out they are generating electricity. Our projections as seen in appendix show that we estimate a CO2 reduction of over 13,000KGs per year due to the use of our equipment, which is equivalent to burning almost 6,000 litres of petrol.

Financially this leads to a decrease in our electricity bills of over $4,000 per annum, while improving our corporate image. It is not just the electricity generation that gives us green credentials, we always endeavour to make the right choice when choosing our products and suppliers right across the gym.

As a company we aim to be completely carbon neutral. We do this firstly by ensuring we use the minimum energy possible, from using low energy light bulbs, efficient boilers etc. As it is not possible to use no electricity we aim to offset our carbon footprint. We do this by carefully monitoring our energy usage on a quarterly basis. We are in contact with energy providers as to the proportion green energy as supposed to fossil fuels. We then calculate the total amount of carbon we had used over the last quarter and then offset it. We found this to be very cost effective and goes hand in hand with our brand image.

Unfortunately as we are in rented properties we are unable to carry out extensive work to make our building greener, such as solar panels. However we feel that the offsetting goes far enough in terms of both reducing our impact on the environment and increasing public perfection of our company.

By using electricity generating equipment we can reduce over $4,000 from our annual electricity bill and as a result are able to finance our carbon offsetting. These further ties in with the idea of being a green environmentally efficient business increase the self-sustainability. We aim to publish

4 | P a g e


We also pride ourselves on the services we offer to our customers. A café selling food, drinks and sports nutrition and a launderette are two key features that set us apart from our competitors. Membership in our London gym costs from £80 a month, and in New York from $70. These rates ensure we are heavily competitive in our areas.

The success of our gym in London has lead us to expand further afield. For reasons addressed in this business plan we are seeking investment to expand to New York. We have outlined the costs and reasoning of expanding to lower Manhattan, New York. In the long term we are envisioning opening a third gym in the United States, however we believe expanding one gym at time is the best method.

Investors in our gym will be financing, amongst other sources, our initial expansion to New York and in return will hold equity in our holding company.

5 | P a g e

EcoGym LTD

EcoGym London

EcoGym New York


The MarketIn this section we have analysed the market for our EcoGym in New York. Assessing as many factors as we see applicable.

Market AnalysisHealth clubs and gyms are a mature industry with a steady revenue increase of 3.6% in 2012(Walsh 2013). Environmentalism, however, is a growing trend. It is this fact that ensures our business will experience abnormal growth when compared to the more generic gyms.

A study by the Carbon Trust found that over 65% of consumers believe it is important to buy from environmentally responsible companies (Carbon Trust 2012). Furthermore 92% of business leaders believe that green growth presents an opportunity for their business, a market worth over £3.2 trillion worldwide (Carbon Trust 2012).

These statistics focus on Manhattan Island rather than New York City, as NYC also includes Staten Island, Brooklyn, Queens and the Bronx which are areas perceived too far away to be strictly relevant.

The population of Manhattan Island is 1,585,873(United States Census Bureau 2010) of which 38% are in our target age range of 20-39. The population of Manhattan increases to almost 4 million during the working day(Moss & Qing 2012). Manhattan Island is also the most dense city in the US in terms of population, with almost 70,000 people per square mile (U.S. Census Bureau 2010). With the population also drastically increasing during the working day, so too would the density. These figures mean that our gym can appeal to both those who live and work nearby. Features such as our laundry service make us ideal for workers as they remove the need to carry dirty smelly gym clothes around. We also allow our members to hold personal lockers to further reduce the need for them to carry around gym attire.

The average weekly wage in Manhattan stood at $2,448 per week in 2012(Bureau of Labour Statistics 2013) more than 2.5 times the national average. Employment grew 1.7% (Bureau

6 | P a g e

Average weekly wages first quarter 2013(Bureau of Labour Statistics 2013)


of Labour Statistics 2013) from March 2012 to March 2013 indicating an ever increasing demand for our service in Manhattan.

By researching key terms on Google Trends we were able to find geographical data on relevant internet searches.

New York

New Jerse

y

Distric

t of C

olumbia

Massach

usetts

Utah

Maryland

Rhode Island

Texas

Florida

Pennsylva

nia6065707580859095

100

United States Cities by searchs for 'Gym'

SOURCE: GOOGLE TRENDS

The above chart shows that in the United States, New York is the city which most frequently searches ‘Gym’ in the Google search engine. This would indicate to us that there is a strong demand for gyms in New York.

20042004

20042005

20052006

20062006

20072007

20082008

20092009

20092010

20102011

20112012

20122012

20132013

20140

20

40

60

80

100

120

Search Term 'Gym' in New York

SOURCE: GOOGLE TRENDS

7 | P a g e


The above shows that the term ‘Gym’ has an annual cycle, peaking in January. The black trend line also shows how there is a steady positive increase in the number of searches for ‘Gym’ in New York.

We also believe that recent metrological events in NY have the potential to increase the environmental awareness with the population, therefore increasing their aim to reduce damage to the environment. The main two events that have caused this are hurricane Sandy which offered in 2012, flooding many areas in New York. Also the winter of 2013/2014this was the coldest winter on records.

Marketing PlanDue to the nature of our business, our fixed costs are constant, regardless of the number of memberships. We have allocated a large amount of funds for aggressive advertising, as we require a sustainable level of custom on day one.

PricingOur prices for EcoGym New York are:

$20 daily $90 monthly $70 monthly (1 year contract)

Our pricing strategy is to set our prices slightly below existing competitors in the market because we are aware that we are entering a largely competitive market with lots of experience and favourable reputations. Market research showed that many of the competing gyms in the New York City area charge large joining fees. We believe that joining fees can cause hesitancy when signing up to a gym, which is why we believe that the absence of a joining fee will lure more potential members into choosing our gym over competitors, giving us a competitive advantage in the market. Additionally, we also have a buy-out option for members signing up to our 1 year contract, which involves paying a $20 excess for each month since signing the contract. We are extremely confident in our ability to provide an excellent service to all our members, which is why we feel that we do not need to tie them in to lengthy contracts and force excessive joining fees to secure our revenue.

Eco-gym’s primary customer base is set to be working professionals in the city and/or the financial district. As an incentive for these professionals to join our gym, we are offering a corporate membership discount (10% discount for all employees of firms with 50+ members), which should encourage a sizeable flow of new memberships. Conjointly, we hope that firms can include the use of our gym in their corporate social responsibility report

8 | P a g e


to express their intent to be environmentally friendly, benefitting the image of their company and public awareness of our company.

As an incentive to spend time in our gym, decreasing our costs by using the equipment more, we offer a free meal for every 25 hours a member spends in the gym. This also has the added benefit of encouraging our clients to spend longer in our gym, meaning they will be more likely to make use of our additional facilities and services. Offering a free meal gives our members a taster of our café facilities, which we hope will encourage them to make more use of it in the future.

Distribution ChannelsOur management team has been in contact with property letting agencies in New York City and we have found an ideal location on the corner of Broadway and Canal Street, a very busy area bordering Soho/Tribeca and within a mile radius of the Financial District. Our main customer segment is working professionals in New York City, especially with our convenient laundry service and restaurant facilities, allowing employees in the local area to easily use our gym during lunch breaks and after the working day. The location that has been selected we fell is perfect for attracting our potential members. Therefore, it is important to be located in a busy area to ensure that we attractive these potential customers and the location we have chosen will do that.

As we are expanding our business into a new market, it is difficult to use our customer base in London to help sell our product in New York. However, our gym in London has attracted many working professionals that do business in the US. Therefore, we will offer our current members in the UK a discount for recommending our gym to colleagues or clients in the US and also allow them to use our facilities in New York if they are in the area. We also feel that our corporate membership discounts can benefit this. We are confident that because of our success in directly selling Eco-Gym in London and the increasing awareness of pollution in urban regions, launching Eco-Gym in New York City will hit the ground running.

PromotionDespite the success of Eco-Gym in London, we are still new to the industry and expanding to a new and very competitive market in the US. There is a large number of gyms in New York, many of which are part of global chains and have a huge clientele list. Therefore, our advertising campaign in New York City is essential to the success of our business if we are going to compete in this hugely competitive market. We have an advertising budget of $300,000 for the early stages of our advertising campaign, where we wish to invest heavily in local public transport, including the financial district. Advertising in buses, taxis, rail networks and airports will ensure that the densely populated area that we are targeting is aware of our gym and the unique selling point of our eco-friendly approach. We will also

9 | P a g e


place advertisements in business newspapers, such as the Wall Street Journal to help us target the working professionals similar to those we attained in our gym in London. Within this, our focus will be on our corporate membership discount offer.

Below is a break-down on how the advertising budget would be spent. The prices we have used are based on quotes we have received from advertising companies in the area (www.bluelinemedia.com) and have been scaled down to incorporate our 3 month time period. A large portion of our budget will be spent on advertising on public transport, mainly taxis. We feel this is the best approach to reach working professionals in the city as the area has a heavy dependence on these methods of public transport. We also believe that users of public transport tend to share similar beliefs to the eco-gym when it comes to Eco friendliness and can relate to the goal we are trying to achieve as a business.

The remainder of the budget will be invested in numerous methods of online advertising, including the creation of the new Facebook page targeting residents of New York City, and the extension of our current website to include a new section dedicated to the New York branch. Additionally, we would like to include the use of Google AdWords. Our team is fully aware of the importance of online advertising and we want to take the same approach as we did with our London gym to ensure that public awareness of our gym is maximised in New York City. Although most of our advertising is set up for the first 3 months, our website, our Facebook page and our use of Google AdWords are much longer term forms of advertising. As this 3 month period draws to a close, the advertising budget will be discussed and redistributed to reflect the effectiveness that each type of advertising has had on gym membership numbers, perhaps through a questionnaire to our members asking them to outline how they originally heard about the gym.

CompetitionThe gym market in New York is a very competitive one, Yellow Pages indicates over 1,000 Gyms in and around New York(Yellow Pages n.d.). We feel our competitive edge, our USP, is capable of taking custom away from other gyms to provide us with profitability, as it did in London. As we are new to the location we currently have a blank sheet on which we can

10 | P a g e

Method Industry Size/Type of Advert Price per unit/totalTaxi Transport Banner on top of

taxi$108,500 (100)

Subway Transport Interior adverts $23,700 (50 + 50)Buses Transport Tail exterior $43,600 (40)Wall Street Journal Media 1/7 page (189,000) $24,000Airport Transport 2 Terminal banners $87,000 (2)

$286,800


successfully build a positive brand image. Furthermore as New York has been dubbed ‘The City that never sleeps’ we feel it is only suiting that our gym is open 24 hours a day, something many of our competitors do not offer.

SWOT AnalysisStrengths

We have a successful and profitable business currently running in the City of London, and come to the stage.

Built up and gained expertise in the Eco-friendly aspect of the Gym industry over the last 5 years.

We have several unique selling points over our competitors, and have found there are no fully functional Gyms in New York which offer the same concept of an Eco-Gym as us.

We have a committed management, which want to expand our business into other cities, and New York aligned well with our current model.

Projections can be made using our current London business, as a proxy for the start-up and subsequent growth, as we identified New York as the closest business culture to London.

Our implementation will be more efficient and cost effective, as we have done it once before.

We currently have cash reserves of £300,000

Weaknesses None of the current management, live or have experience with the US market,

however we are looking at relocating two members of our board. The company will need to pay a relocation fee.

New management will need to be recruited, who are equally excited about Eco-Gym as us.

We are only looking to open up one flagship gym in New York, where the competitors are all chains.

Opportunities America and especially New York is going through a change in attitudes regarding

over pollution and therefore, we see it as a good opportunity, with all the publicity currently surrounding the concerns on climate change etc.

The Eco-Gym concept has been used in a couple US states already and they look strong, so we envisage New York to be a sound location choice.

New York is a trend driven society, and looking at Google trends, we can see keywords such as fitness and health is continually increasing, and at the same time so is environmentally friendly and going green.

There are tax reliefs for green companies, which we will look to make use of.

11 | P a g e


If we manage to generate enough electricity to feed back into the grid, the US has a 22.5¢/kWh feed in tariff.

Look to use a carbon neutral model for our New York gym, which is relatively cheap to be able to promote we are actively helping the environment.

Threats The US culture may not be as keen as the UK for our unique selling points, such as

laundry service, and our carbon neutral status. We may find there is not enough market demand for Eco-Gym over normal gyms. If we are successful, it is possible that competitors may install the same technology,

or also turn to carbon neutrality. The kinetic energy conversion into power can be replicated and therefore we may lose our key USP, if other gyms adapt.

12 | P a g e


Risks and Sensitivity AnalysisExchange rate and transaction cost risk As our targeted venue for expansion is situated in New York City, currency converting operations will have to take place in order to initially set-up funds in America, and any subsequent repatriation of profit will also be subject to exchange rate risk. Initially chosen exchange rate of GPB/USD, with 5-year weekly volatility of 1.3%(Global View n.d.), may fluctuate according to UK and US economic developments, which could influence the cash flow management of our business.

Membership rate riskHaving conducted a poll, in which approximately 1000 people participated, we found that 1 in 4 people would consider switching their current membership for our eco-friendly fitness club. However, despite the attractiveness of environmental friendly system, the main observed risk of our business is failing to achieve the projected number of members within the first months of existence. Current projection stands at four times the UK number, which might look rather optimistic, however substantial success at our initial venue does give us the confidence of proposed target.

Renting CostsAccording to S&P Dow Jones Case-Shiller Index, home prices in US have risen 13.6%(S&P Dow Jones Indices 2013) in a year from 2012 to 2013. Moreover, US Federal Reserve has begun unwinding monetary stimulus, which would result in higher borrowing cost, as interest rates might be raised soon. This adds a significant portion of risk to running costs of our business, as an increase both in property prices and renting cost would partly diminish our income statement. To counter this, we would be looking to sign a long lease contract, however, not too long, as we do not want to be tied into a contract which may not be as beneficial in several years’ time.

Reputational RiskWe have acknowledged the importance of health and safety issues and how we would deal with any accidents and injuries, which may occur in our day-to-day business activity. We will do everything in order to protect our members and not expose our venue under reputational risk, however to be fully protected and offset possible medical and compensation costs, we will have public and employers liability insurance. (Brown n.d.)

13 | P a g e


The Management TeamALEKSANDR JATSENKO - R&DAleksandr mastered in mechanical engineering and since has worked in creating eco-friendly machinery used in many corporate entities, including an advisor for Tesla electric car company. He joined our company in 2010, to advise on the most effective utilisation of our gym equipment.

HASAN GARADAGHI - CFOHasan has worked in the City of London for a top private equity firm investing in different business across the world. He has been ICAEW accredited since 2007. Furthermore he has always had a strong passion for wellbeing and fitness and founded the business along with Nitesh in 2009.

LEWIS FREEMAN - COOLewis began being a personal trainer manager in our London gym in 2010 and has since become a member of the board. His knowledge of the fitness sector means he is a key element in ensuring that our gym remains up to date with the latest trends in fitness. Lewis is to relocate to New York with Nitesh to oversee the development of the new gym, to the best possible specification.

LUKE BAILEY - ENVIRONMENTAL MANAGER

Luke worked alongside EDF to develop green energies. His passions for this lead him to work elsewhere in the Green sector. He came to us in 2012 after being a keen member of our London gym while working in the City of London.

MIKE ATTOE - MARKETING DIRECTOR

Mike has experience in advertising in a top London firm and worked with us on the launch of our London Gym as a temporary member of staff. He has worked with us since part time developing new advertising campaigns and will work full time during the launch of our New York venture.

NITESH PATEL - CEONitesh played a key role in the start-up of the gym in London and holds a BSc in Real Estate from Henley Business School. He has therefore been in charge of property related research and investments, and as our CEO he will be relocated to New York, as part of our expansion project.

While we have a large and varied skill set in our team, we have a knowledge gap on running a business in the US. We feel however that this is a gap that can easily be filled and would

14 | P a g e


welcome a new member on the board to ensure the transition runs smoothly. We would welcome a member from the financing venture capital firm.

Business OperationsEcoGym operates by running an environmentally friendly gym. Our main revenue comes from Gym memberships, with others coming from our Café and shop.

The setup of our gym is capital intensive as property and equipment costs provide a large initial outlay. After the gym is established our main costs are staff and maintenance.

This time line assumes that the opening of the Gym occurs in January 2015 and finance is received in June 2014. We are targeting an opening of January, due to our previous observation, that more New Yorkers are searching the keyword Gym around this time of year, giving us a maximum benefit from our cost of advertising.

Year Operating TargetMarch 2014 First contact with venture capital firmApril/May 2014 Contract negations and due diligenceJune 2014 Financing agreed by VC firm

Tenancy agreed at property.July 2014 Begin renovation of property – including fitting of kitchen, café,

laundry and changing rooms.October 2014 Returning of staff begins – subsequent training. November 2014

Advertising campaign finalised and launched towards the end of the month.

December 2014 Being taking preliminary membershipsJanuary 2015 Gym opens

We anticipate that the changing rooms and café will require maintenance on an annual basis; this has been accounted for in financial projections.

We aim to ensure that our classes and equipment follow the latest trend; this is the responsibility of Lewis, our head personal trainer. We understand in New York there is a large number of self-employed personal trainers, and so in the event of one of our trainers becomes unable to work, we can resort to using self-employed.

As a green, environmentally efficient company there are tax reliefs from the US Government we will be entitled to. These are hard to project as the legislation frequently changes. Inland Revenue Service published ‘Notice 2012-26’ which outlines potential benefits from using green commercial fittings (IRS 2012). However this area will require external assistance to be able to claim our subsidies.

15 | P a g e


16 | P a g e


Financial Projections

1 2 3 4 5$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

0%

5%

10%

15%

20%

25%

30%

35%

40%

EcoGym New york Projections

Net Profit Net Profit Margin %

Our financial projections are divided in several sections:

Gym Equipment and premise costs and revenues Café Bar, Laundry Room and Clothing Store costs and revenues Salaries, Utility Bills and other costs

Equipment and Premise costs and revenuesGym Source equipment store will be our official provider of gym equipment in New York City. Total initial outlay of roughly $603,000 is required however we managed to split the payments into 36 monthly instalments of $18,000 over 3 years’ time. Detailed breakdown of all the costs is provided in an appendix; however $603,000 figure includes treadmills, weights, dumbbells and etc. Total number of each item in the spreadsheet is estimated based on projections for target amount of members and previous experience with UK GYM. Having thoroughly researched the market, our CEO Nitesh Patel found a roughly 13,000 square feet space in central New York close to Wall Street. The place used to be a gym for mixed martial arts, so it does have some gym equipment and more importantly has bathroom and locker room which excludes our need to incorporate those costs separately. After initial talks, Nitesh managed to arrive at $54,166 monthly rent figure plus $390,000 initial outlay for all previous equipment and refurbishment (which cost us £200,000 in UK). The $390,000 figure includes some of the legal, licensing and plumbing fees as well, this key money figure, is yet to be negotiated down, but for our business we have assumed this sum is fixed.

17 | P a g e


Café Bar, Laundry Room and Clothing Store costs and RevenuesTo diversify ourselves from other Gyms, we decided to included such services as Café bar which will serve different type of protein shakes, snacks, fruits, energy drinks and etc.; Laundry Room that will ease the life of members especially for those who travel long way to the Gym and/or work and will not want to carry the clothing back and forth all the time; Clothing Store which mainly aims to provide clothing for those who forgot their garments at home and want to refresh their stock. Total monthly profit from clothing store which sells 5 different sizes 200 in stock for both genders adds up to roughly $3,700 using City Sports prices assuming 30% mark-up. Considering success of £3 price per wash in London GYM, we decided to stick to the same price level and account for exchange rate only, having set final price per wash at $4. Having our projections set at 800 members in the first month, which are expected to steadily increase to 1500 by the end of first year, we approximated total 200 washes during the week, using washes per customer rate attained in UK and came up with monthly profit figure of roughly $2100. Using Wall mart as a supplier of goods for our kitchen, we came up with initial outlay of about $8000 for setup, including chairs, drains, cutlery and etc. and monthly profit of $3500 assuming 40% mark-up on products and services sold.

Salaries, Utility Bills and other costsSalaries are estimated based on industry averages with personal trainers getting the biggest paycheque and are to sum up to $34,500. We have also worked out an efficient payment scheme with our personal trainers who have over 10 years of experience in the industry and large client base and in order to incentivize them to attract more customers we decided to pay them a portion ($5) for each private session once we get 1250 members. Utility bills which are based mainly on competitors’ prices are sum up to $2000 a month however since we are eco-friendly we managed to work out a Utility Cost Reduction Scheme which is based on number of machines, hours in use, average watts consumed and other variables which is going to save us around $5000 a year.

Having contacted number of Gyms in New York and conducted comprehensive polls near the Wall Street we confirmed that 1 in 4 people are would be interested in switching to our gym. After gathering the data for number of people working and travelling to central New York, we estimated to have 800 members by the end of first month and 1500 by the end of first year. We have devised a various membership fees structure depending on the length of a contract. Naturally, we encourage a long-term contract of one year length charging $70 per month, monthly contracts cost slightly higher ($90) and are devised for temporary residents or those who want to just trial our gym and $20 price tag is set on a daily pass.

18 | P a g e


Moreover, as a part of customer attraction, we are in talks with companies in city of New York to offer a 10% discount for employees of the same company if we get more than 50 people working from the same business. Our financial projections also include $300,000 advertisement fee that majority of is spent over the first three months (the details of fees breakdown is included in advertisement section). Considering the fact that population is getting more environmentally educated with time, we expect steady net marginal growth of 10 members per month after first year of operations. Corresponding changes to financial projection of café bar, laundry room and clothing store are expected to be made as well. Assuming 10 members a year increase in number of members in our gym, we are expected to generate an accumulated net profit before of $4.1 million by the end of year 5. With, a net profit of $1.1 million in year 5.

19 | P a g e


Amount and use of finance required and exit opportunitiesWe are seeking an investment of $600,000 to finance our expansion to New York.The expansion will cost a total of $1.2 million of which £300,000 ($500,000) will come from our cash reserves, $100,000 from a bank loan, and $600,000 from a Venture Capital firm. We have also accounted for a 20% contingency to ensure that any unforeseen costs can be absorbed and do not hinder our expansion. The investment is required, as the nature of our business, requires purchasing a multitude of machines, from the very beginning.

Upon receiving financing from a Venture Capital firm we will begin a more direct search of properties in New York. The two members of our team who will move to New York will do so to enable us to have the most accurate information on rental spaces in this process. Whilst this is going on, our team will being designing and implementing our advertising campaign to ensure that we have a large customer base even before our doors have opened. We will endeavour to receive members in this period to ensure we generate revenue from opening. We will also begin to employ new staff in this interim period between signing on the property and opening. We can efficiently use this time to ensure the staff are trained to our standards to be confident they have the customer service levels we require.

Once the renovation is completed on our property and our gym opens we will begin to generate income, our projected incomes show how we believe this to occur.

The main source of revenues is income from memberships, personal trainings and additional services as café and others. Yearly cost of sales includes outlay of money needed to purchase the products to run café, laundry and clothing store. We increase our projections for payroll check with increasing number of members since we will need additional personal trainers to sustain provision of services for all customers. Industry standard of 10% a year depreciation on equipment is assumed in our calculations. Utility bills are to increase at 10% rate a year since increase in members means increase in usage of machines plus inflation costs. Other expenses cover 5 year $100,000 bank loan at 3.25% rate and $20,000 general refurbishment costs. We have a steadily growing EBIT, EBITDA, Net profit and Net profit margin which are certainly positive signs and shows the sustainability of our model. To estimate Net present value of our US business, we make use of DCF model which discounts future Free Cash Flows by 1 plus weighted average cost of capital. To arrive to free cash flows figure we incorporate tax to EBIT, add back depreciation and subtract capital expenditures which are fixed on $20,000 for refurbishment. We also have to subtract our initial start-up costs from discounted FCF in NPV model.

20 | P a g e


Our start-up costs include:

$390,000 upfront fee for the premises we are renting $60,000 deposit for the equipment $50,000 legal fees $300,000 advertisement fees $200,000 relocation costs for our management team $200,000 contingency buffer that we would like to have

So our total initial start-up costs sum up to $1.2 million. Having obtained our figure for start-up cost we are now able to run the DCF model and project future value of US business at $2.6 million. IRR value for US business is around 49% which is quite attractive for expansion stage of a business.

To work out the amount we want from our investors and how much equity holding we want to give up, we need to value UK and US businesses combined. As of today, our business is valued at about £770,000 using same DCF model (the detailed spreadsheets are included in appendix). As managers who invested their personal savings into business and who have never withdrawn any money, we decided to pay ourselves £150K, £200K, £250K, £350K over the course of four years and this brings our cash reserve figure to just shy of £400,000 or $640,000. We have also projected our future revenues and costs, assuming both increasing inflation, costs of staff, increased utility bills etc. and valued future value (by the end of next 5 years) of our UK business at £3.3 million using DCF model. Bringing three bits together, current value of our UK business, projected value of UK business in 5 years and projected value of US business in 5 years we estimate our enterprise value to add up to $8.1 million. Considering the fact that we require $600,000 from the venture capital firm, using a model which achieves the VC firm an IRR of 30% over 5 years, we calculate 27.55% equity stake of the whole business, to be adequate. However, considering the expertise of our investors which is certainly going to bring value to our company we are ready to relinquish 30% of equity in our holding company.

We acknowledge the VC firm, will require an exit strategy, and we have considered this also. We as management, see ourselves as committed to this company, in 5 years’ time, just as much as we are right now. We would consider the company, to eventually go public or the equity stake the VC firm holds, to be sold onto another investor. We are not at this time considering a trade sale, as we would like to retain management of the company. Alternatively, if the management team, were to be able to table a suitable bid in the future, we would be willing to buy out the investor.

(Arundale 2010)

21 | P a g e


Appendix 1- Profit and Loss account for New York

22 | P a g e


Appendix 2- Monthly Costs New York

23 | P a g e


Appendix 3- New York monthly revenues

24 | P a g e


Appendix 4- Estimation of electricity generation, cost and CO2 reductions.

25 | P a g e


Appendix 5- UK profit and loss account

26 | P a g e


Appendix 6- E-Mail correspondence with New York advertising firm

27 | P a g e


Appendix 7- E-Mail correspondence with New York property firm

28 | P a g e


29 | P a g e


Bibliography

Arundale, K., 2010. A Guide to Private Equity BVCA,

Brown, D., Risks of Opening a Gym. Houston Chronicle. Available at: http://smallbusiness.chron.com/risks-opening-gym-13899.html [Accessed March 5, 2014].

Bureau of Labour Statistics, 2013. Employment and Wages in New York City - First Quarter 2013, Available at: http://www.bls.gov/ro2/qcew9310.htm.

Carbon Trust, 2012. Green your business for growth, London. Available at: http://www.carbontrust.com/media/31671/ctg039__green_your_business_for_growth.pdf.

Global View, GVI Forex Database. Available at: http://www.global-view.com/forex-trading-tools/forex-history/ [Accessed February 24, 2014].

IRS, 2012. Deduction for Energy Efficient Commercial Buildings, Available at: http://www.irs.gov/irb/2012-17_IRB/ar08.html.

Moss, M.L. & Qing, C., 2012. The Dynamic Population of Manhattan. Available at: http://wagner.nyu.edu/faculty/publications/dynamic-population-manhattan.

S&P Dow Jones Indices, 2013. Press release, Available at: https://www.spice-indices.com/idpfiles/spice-assets/resources/public/documents/71337_cshomeprice-release-1231.pdf.

U.S. Census Bureau, 2010. Population, Housing Units, Area, and Density: 2010 - State -- County / County Equivalent more information 2010 Census Summary File 1. Available at: http://factfinder2.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=DEC_10_SF1_GCTPH1.ST05&prodType=table [Accessed March 10, 2014].

United States Census Bureau, 2010. 2010 Demographic Profile Data. Available at: http://factfinder2.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=DEC_10_DP_DPDP1 [Accessed March 4, 2014].

Walsh, K., 2013. Global Health Club Industry.

Yellow Pages, New York Directory. Available at: http://www.yellowpages.com/new-york/gym?g=New+York&q=Gym [Accessed March 10, 2014].

30 | P a g e

ecogym business plan

Documents