If your club business is doing well despite these tough economic times — attracting new clients, keeping the old ones happy, and turning a profit — you might be thinking about expanding. Well, lucky for you we spoke to some industry experts and got their insights into the essential steps club owners should take as they start off on the journey of expansion. If your aim is to become one of the country's top 100 clubs or just grow to your full potential, these seven key considerations will get you started off on the right foot.
Number One: One of the most important first steps is to take the time to analyze your business. Determine your strengths and think of ways to capitalize on your core competencies. Determine your weaknesses and think of ways to shore them up.
A thorough understanding of the ins and outs of your business will help prevent potential problems that could worsen exponentially as you expand. Chances are you know where your weaknesses are, and now's the time to do something about them.
As for your strengths, focus on what makes your club different. As Rick Caro, president of Management Vision says, “Remember that clubs can't be all things to all people.” If your target market is the 30 and older crowd, don't worry about trying to attract college kids with loud music. Although it's never fun to turn people away, if you stay true to your function you're more likely to be successful. Don't jump onto every latest fad. Determining what unique services to offer — whether it's the latest equipment, expert trainers, or just a pleasant environment-will help you figure out how to attract the right market segment later on.
Number Two: Determine your long-range plan. Where do you want to be in two years? In five years? You might have financial goals, such as a certain profit percentage, or market share goals, or maybe you have a certain number of clubs in mind. Whatever it is, you should be able to make a list of goals in order of priority and within a context of time.
As you put together your long-range plan think about what sort of organic growth you foresee, such as general improvements, upgrades, or minor expansions. Think about what sort of external growth you might pursue. If you're thinking about purchasing or leasing a new building, be sure to do your homework. Research neighborhoods, find a dependable contractor, get estimates and get a sense of the size of your investment, and identify one or more targets for acquisition. Don't just compile a wish list-consider what is realistic and doable.
Number Three: Think about financing. There are many different alternatives to consider; you might start out by seeking funding or loans from family and friends. Your next step might be to go to local banks, then regional banks, which can often provide exponentially larger loans than local banks. Some equipment manufacturers will lease equipment to trusted club owners and some building owners will lease space. Think about how much debt you're willing to risk for how much return.
Before you start looking for funding, it's important to make and show that your health club is profitable and keep it that way. “An operator has to realize that if expansion is in the future, the profits are theirs to save, not spend,” says Caro. Be sensitive to cash flow and aware of the details of expenditure in the club. How much do you generally spend on maintenance and improvements? Lenders and investors want to see a steady track record of financial stability and recurring revenue streams.
A good tip is to establish your budget with an eye toward saving, and then monitor it every single day. You may have had the experience where you think you're staying more or less on track but then you reach the end of the month and realize that you've passed your budget. By the end of the year you're way off base and you have to reconsider your entire financial plan.
When you're looking for funding you can't let this happen — stay on top of spending by keeping a close eye on where the money comes from and where it ends up. Keep track of every monetary transaction with the larger budget in mind.
“Know your numbers and be able to present them,” says Steve Schwartz of Tennis Corp. of America (TCA). “Accounting is the language of business. If you can't speak it, you're going to have trouble.”
Number Four: Get your records in order. Review or audit your year-end statements. When you start looking for outside funding you are going to have to present the details of your club to many different people. Make sure that third parties such as lenders and investors, not just other members of the fitness industry, can understand your records. You are going to have to convince lenders and investors that you are capable of spending wisely and making a profit. And it helps if you can tell them in their own language.
While up until this point you may have been focusing on how to minimize your year-end tax expenditures, or other short-term considerations, that is probably not what an investor is going to be interested in. Think about the outsider's perspective and what they'll be looking for. Private equity firms, for example, might be interested in particular metrics like member satisfaction, your market share, penetration rates, staff retention, etc. Find out what metrics the lenders and investors will want to see and make sure you have them to show.
Number Five: Take the time to invest in your club's infrastructure. If you have just a single club or a handful of clubs you might be able to maintain the same central system that you've been using since the beginning, but if you get to eight or 10 or 12 clubs you might need to consider restructuring. You might, for example, have to hire a chief financial officer to deal with a larger cash flow, complex investments and debt management. You will probably have to hire a human resources manager to help manage your staffing needs. And to keep track of it all you should probably consider investing in in-house information technology even before you think you need it.
One systematic manner of expanding is to follow the “cluster” model, as Stephen P. Roma, president of WOW! Workout World has done. Roma has seven clubs within a 50-mile radius of Brick, NJ. The management infrastructure is centralized and directors can get to each club each week. The computer network connects them all to a central billing and service system. This way, when they add a new club there is minimal impact on the billing, management, human resources and computer service. Another bonus is that the managers are all familiar with the area, which allows them to expand strategically and successfully.
In general, you probably won't be able to pay daily or even weekly visits to all your clubs all the time, so you'll need a solid system that can keep track of the money coming in and going out.
“What drives the business is information,” says Roma. “You need a rock-solid method to collect the money that is owed to you.” TCA's Schwartz recommends that every club owner go out and buy the "Uniform System of Accounts for the Health, Racquet and Sports Club Industry" from IHRSA, whether a member club or not.
While building a whole new infrastructure might seem like an expensive drawback to expanding, just keep an eye on the bigger picture. If you have one or two clubs you have to do everything yourself. An employee out sick? You cover for him or her. Problems with a piece of equipment? You take care of it. But once you have six or seven clubs it becomes essential — and easier — to delegate responsibilities. And if you have a solid infrastructure there will be many fewer headaches along the way.
Soon you'll realize that when the nuts and bolts of running the clubs are being taken care of on a regular basis by your staff, you are free to think about the big picture. You'll have more time to think up creative marketing schemes or pursue whatever larger visions you have for what you want to do with your club.
Number Six: Determine, in detail, your personal management philosophy and style. Once you have a few clubs running you're not going to be able to micromanage anymore, but you'll want to make sure that each club maintains the quality and standards of the original. The key to doing this is to clarify your goals, your work philosophy, your management style, and your priorities.
Once you have your ideas and goals clear in your own head, spread the word. Spend a lot of time with your employees articulating your ideas. “Repeat, repeat, repeat,” Schwartz recommends when it comes to instilling the corporate philosophy in employees. When your staff has to make decisions for you, the more they understand your goals the better they'll be able to infer your preferences in a given situation.
Number Seven: Intimately tied with point five is this next step, which is to surround yourself with competent and energetic people. We all know that you can't build a top 100 club all by yourself, no matter how hard you work and how much you sacrifice. Your staff will need to understand your wishes well enough to carry them out without your constant supervision, so you'll want people you can trust. Choose to surround yourself with people who can at the very least understand the intricacies of your philosophy and at best anticipate your next decision.
It's practically a rule that no one specific strategy will pan out for every club. It's also true that no two clubs go about expanding the same way. As Steve Schwartz put it, “The only thing that can be guaranteed is that it will never go like you expected!” But if you've got a profitable club on your hands and are thinking about what to do next, keep these seven key steps in mind and you'll be on the right track to the fast track.
TO GROW OR NOT TO GROW?
Maybe you started your chain with the intention of staying small and providing fitness to a limited number of people. Maybe you started small with the hopes of being one of the big players in the industry someday. Today, though, your chain hasn't really grown. The key point to examine is whether you are staying small because you want to or because you are afraid to grow. Here are some steps that will help you make a rational decision.
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Ask yourself what goals you have for yourself and your company. Do you see your business mainly as a means to make a nice living and enjoy independence? Or do you have dreams of becoming a major competitor in your industry, enjoying phenomenal growth and perhaps going public and being acquired? If the latter is true, then you need to learn more about the capital markets. No business of any scale can be run out of the owner's pocketbook.
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Ask yourself if you are limiting the growth of your company because of unresolved personal issues. Experts have found that many people reach the first growth hurdle with great ambivalence. The idea or dream they had took hold-now what? Some of the unresolved issues you may be wrestling with:
- Commitment. You started your business with big dreams, but now worry about what it will do to your life if it grows any more.
- Fear of failure. Some people look at facing a challenge and failing as a learning experience, others look at it as losing. Which group are you in?
- Fear of success. While some worry about failing almost as many fear success. Being good is a lot to live up to. Remember it is harder work, in many cases, to stay at the top than get there in the first place. Are you ready for the challenge?
- Fear of losing control. The bigger you get the more you need to delegate. Is delegation or lack thereof — stopping you from growing?
- Fear of responsibility. Does the idea of being responsible for employees and their families, even when times are bad, give you a knot in your stomach?
- Losing everything. Does the thought of going “bust” keep you awake at night?
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Ask yourself what would happen if you took this move and what would happen if you didn't. Make sure you have thought of the possible gains and losses if you took the leap.
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Refine your decision-making techniques. Learn some basic techniques of decision making; trade-off analysis, cost benefit analysis, decision trees, and take decisions out of your gut and into your head.
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Learn about how other businesses have grown through leveraging. Talk to other owners, bankers and financial consultants and learn how financial deals are made. Remember, you're not the first health club to take these steps — sometimes following a trail is safer than blazing the way.
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Decisions come fast and furious in the fitness industry, especially in today's volatile climate. Make sure you have really weighed the pluses and minuses of growing your chain, and when ready go full speed and enjoy the ride.