Tim Bainton is the President of Blue Chip Sports Management based in Washington D.C. Tim is a published author and frequent industry contributor.
This month: Part 3
Alex Planes is the CEO of FoundEdge, a content marketing agency. He has worked with some of the world's largest brands and has published or syndicated thousands of articles in The Motley Fool, Business Insider, USA Today, the BBC, Fox Business, and elsewhere.
Alex leads all content strategy and development for Blue Chip Sports Management and has been integral in developing BCSM's market authority through content creation.
Club Management Mastery
A Full-Spectrum Guide to Building Better Fitness Facilities
7: Incorporating Your Business
This section is targeted at aspiring fitness facility owners, and it may also be useful for anyone else who wants to start their own business someday. In it, we’ll cover the basics of incorporating a business in the United States.
Other countries may have similar processes, but we can only speak to the experience of operating a business in the U.S., and we also don’t claim to offer legal advice. How you incorporate your business will ultimately be your decision, although your attorney and/or your accountant may be able to offer more tailored guidance.
It’s critical to establish a separate legal entity under which your health club can operate. Doing so will limit your personal liability in the event of any legal actions, judgements, or financial insolvency. There’s a reason why one of the most common forms of incorporation is as a “Limited Liability Corporation” or LLC.
Incorporation can also help you obtain more financing down the road, as a business is able to develop a business credit rating that’s separate from its owners’ personal credit rating. We’ll cover business credit, and its benefits, in more detail further into this series.
Incorporation in the United States typically takes two forms: the LLC and the C or S corporation. Most fitness businesses, as well as most other businesses that don’t plan on having investors, will incorporate as LLCs.
An LLC has fewer reporting requirements -- that is, it has to file less paperwork with local, state, and federal government agencies -- than a C or S corporation. An LLC is usually less of a burden from a tax perspective as well. However, ambitious businesses may find it harder to raise capital and bring on new shareholders with an LLC than they would with a corporation.
What’s the difference between C corporations and S corporations? Many businesses seeking outside investors set up as C corps, which allow for an unlimited number of shareholders and generally have the greatest flexibility for raising capital.
The downside to forming a C corp is the larger number of financial reporting and paperwork requirements than demanded of an LLC. A C corp can also subject your profits to double taxation, which means your business profits will be taxed once at the corporate level and again when they’re distributed to you and any other owners.
You can avoid double taxation with an S corp. However, these entities have a number of restrictions on ownership that can make it harder to bring on investors or to transfer ownership from some investors (or yourself) to others. we haven’t run into many fitness businesses that use the S corp structure in the United States.
Keep in mind that this is only a general guide. Certain states’ laws may make a C or S corporation a more appealing structure, while an LLC might be preferable in others.
If you’re serious about establishing a fitness facility, or really, any kind of business, we highly recommend discussing your options with legal and tax professionals.
In fact, you should probably retain a qualified tax professional, such as a CPA, and a good corporate attorney, if you’re at all serious about your entrepreneurial ambitions.
The right accountants and attorneys can not only keep your business compliant, they can also help you save significant time and expense, and will help you get the most out of whatever resources you already have, or might obtain in the future. Make sure these professionals are licensed in your state and are experienced with its laws and regulations.
You’ll also want a business bank account.
In fact, you may want multiple accounts, depending on the structure of your business and your potential revenue streams. Discuss your best options with your accountants and attorneys, and try to work with banks known for their friendliness to local small businesses.
Any serious fitness facility will also maintain compliance with any national, state, and local laws. You may need a certain type of business license to operate, and you’ll almost certainly need liability insurance to protect yourself from lawsuits brought by injured members.
There are different types of insurance for different fitness businesses, which can include individual liability insurance for fitness trainers and other coaching professionals. Both your facility and your credentialed staff should have the appropriate insurance to cover typical liability claims that arise in our industry.
Check with your secretary of state (most states have online portals for this) in the U.S., or any other relevant regulatory agency where your business operates, to ensure you’ve got all your compliance boxes checked off and are well-protected against potential liabilities.
Your attorney can also help you obtain and maintain any necessary compliance and licensing documents.
Remember, working with the public can be risky. Make sure you’ve covered your rear end!
So, you’ve covered incorporation and compliance. What’s next?
For many health clubs, particularly those seeking outside investment, the next step is to develop a detailed business plan.
8: Your Business Plan
A business plan is the fundamental entrepreneurial document.
A business plan may not be required for every funding round or financing option you seek.
However, sitting down to hammer out the operating details of your fitness business -- before you or anyone else will drop a huge chunk of cash into it -- can be critical in helping you reach and sustain profitable operations soon after you open your doors.
At BCSM, we always recommend developing a detailed business plan to every business owner we help. We also typically suggest revisiting that business plan on a regular basis, perhaps once a year or two.
A comprehensive business plan not only helps obtain any funding you may need, it also helps you better understand the business into which you may be investing -- once it’s established and successful -- a large part of your adult life.
Sitting down and critically analyzing your business, your market, and your industry in depth will simply make you better at running your facility.
There are a number of elements to an effective, accurate business plan, some of which we’ve already covered in this series:
Mission statement / objectives / values
Company summaries (products / services, history, ownership, etc.)
Company financial + performance history
SWOT (Strengths + Weaknesses + Opportunities + Threats) analysis
Sales + marketing strategies
Many of these elements involve the research and analysis of information you already have or should be able to easily find online. Some elements may need to be developed and fine-tuned through multiple iterations and/or extensive effort.
You can choose to create a business plan from scratch, use a high-quality template document, or use specialized business plan software. I’ve (Alex) used both LivePlan, a cloud-based service, and Business Plan Pro, a downloadable PC app, to create or fine-tune business plans for multiple companies in various industries. Both are made by the same company, so your choice may come down to whatever you feel most comfortable using.
If you’re not already a strong business plan writer with a mastery of structure and formatting, we’d strongly recommend paying the relatively modest fees to use an app or cloud service.
You can also hire a professional business plan writer. This can sometimes cost thousands of dollars and distance you from the important process of digging into the details of your own business and market.
On the other hand, a pro will know what to focus on, where to find data, and how to interpret it in a funding-friendly way.
You can split the difference by conducting the underlying writing and analysis on your own (generally in an app or with a template). You can then hire a business plan writer to review and edit the plan. Look for someone with a history of work with similar businesses, whether you’re offloading the entire thing or simply getting it polished after you’re done.
Let’s dive into some of the key elements of a business plan now:
Objectives and mission statements are just two different ways to frame the central focus of your business.
Your mission statement is the punchy elevator-pitch version of your company’s foundational focus. It’s an ambition you can never completely achieve -- the ultimate long-term goal. we explored mission statements at length in the sixth section in this guide.
Great mission statements are framed so they can always expand to cover a larger objective than the one(s) you have now. Objectives, then, are quantified and more readily-attainable ambitions than those conveyed by your mission statement.
Hopefully, you’ve chosen your objectives... objectively, after analyzing your data and determining what’s feasible, what’s possible, and what’s just simply not happening.
Values are the core characteristics of your organization, and they help you move closer to the objectives outlined in your mission statement.
Many companies reinforce their core values by rewarding employees who best represent those values in their workplace or to customers. Unfortunately, many companies choose values they don’t bother to practice.
Netflix made light of this practice in an extraordinarily popular internal culture deck presentation.
Released in 2009, this deck pointed out that Enron’s values of “integrity, communication, respect, and excellence” were prominently displayed in its headquarters lobby, right up to the point when it went bankrupt and its executives went to jail for financial fraud.
Instead of using “nice-sounding” values, Netflix chose nine actual values -- defined as the values a company shows in its hiring, promotion, and firing decisions. These actual values should reflect the behaviors and skills the people in the company have demonstrably rewarded and respected.
When choosing your club’s values, be a Netflix and not.
Your company history can be offered in the form of key business milestones from the past, or as past financial results. There’s no downside to including both in your business plan.
If you’re just starting out, you can work around a lack of financial history by creating projections and/or estimates based on accurate financial data for similarly-positioned health and fitness facilities, and/or through the professional history of your club’s leadership team.
This covers the first half of a typical business plan. In the next section, we’ll cover a more forward-looking aspect of the plan: your market and SWOT analyses.
9: Creating a Complete Business Plan
In my last section, we covered certain backwards-looking aspects of a business plan.
In this section, I’d like to talk about two present- and future-tense components of a good business plan: the market analysis and the Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis. we’ll also briefly cover another forward-looking aspect of the business plan, the section in which you’ll present your sales and marketing strategy.
A market analysis forces you to look at and understand your target market, whether that’s through demography, geography, or often, a combination of both.
Remember how we built buyer personae in an earlier section?
A market analysis can take the details from those buyer personae and use them to calculate an addressable market. This is typically done in combination with other known data, such as facility location and localized Census statistics.
Fitness facilities are ultimately local businesses, whether they’re independently branded or operating as a franchise or affiliate. People generally won’t travel much more than five miles to use a health club, although luxury clubs like Equinox can entice members to travel further than members of low-cost clubs like Planet Fitness.
A good market analysis for any fitness facility will take a good, detailed look at the population in the local area it serves, or plans to serve. If you’re setting up as a bare-bones bodybuilding gym in the downtown heart of a status-conscious city, you might wind up paying far too much in rent and other costs to build out a facility that doesn’t appeal to the people who actually live nearby.
On its own, a market analysis gives you half of the picture.
Deepening your understanding of product-market fit -- the potential for your particular brand and offer to succeed with its particular market -- can come from a SWOT analysis.
A SWOT analysis forces you to honestly evaluate your fitness business’ Strengths, Weaknesses, Opportunities, and Threats.
The insights you gain from a market analysis can be invaluable in filling out your SWOT analysis. However, you’ll also need to look at your branding, hiring strategies, pricing and options (classes, coaching, equipment, etc.), and a whole range of other traits that are hopefully unique to your business within its addressable market.
Every business has both positives and negatives, strengths and weaknesses, opportunities and threats. The worst thing you can do, as a business leader, is neglect to investigate the negatives at least as deeply as the positives. It’s only when you know your downsides that you can put plans and systems in place to overcome them.
After all this work, you should have a fairly strong understanding of how you’re going to grow your club. The detail in your market and SWOT analyses can help you develop accurate and efficient sales and marketing strategies.
Some fitness businesses grow primarily through word of mouth or referral programs. Others advertise heavily in direct mail. You might prefer Facebook ads or highway billboards to get people in the door, and you might use commissioned sales reps or no-pressure consultations from salaried employees, to get them to join your club.
Whatever strategies you pursue for marketing and sales, you’ll find it easier if you already know how to present your brand to your market, and what type of market you’re pursuing in the first place.
You can’t ignore sales and marketing! People won’t just show up at your front door after you open your health club. You need to make your market aware of your club’s existence. We’ll take a closer look at marketing and sales in a subsequent chapter, so stay tuned.
Don’t worry about creating a total-package sales and marketing plan inside your business plan. Mike Tyson once said “everyone has a plan until they get punched in the mouth,” and the same is true of sales and marketing, in a way. You and your team will continue to refine sales and marketing strategies day in and day out as you build your health club business, and you’ll know far more about what works and what doesn’t after things have been set in motion.
Focus on creating a clear and sensible sales and marketing strategy for your business plan based on the best information you have, but don’t feel like you’re obligated to continue following that strategy if better information changes your mind later on.
Now that you know all the ins and outs of your business, you should try to develop financial projections as well. When pursuing outside financing, you’ll discover it’s easier to get banks or private lenders to commit if you can provide detailed estimates on your fitness business’ future performance. We’ll be covering business plan financial projections in the next section.
Next month: Part 4