New and proven market disrupting gym business model

My name is Bill Friend and I would like to introduce you to a potentially very profitable business opportunity, which is a very different, proven, market disrupting, budget gym business model.

Investment & Potential Returns.

The following projections have been forecast from experience and knowledge of the set up costs and overheads of the original business, alongside its sales performance. Relatively easy to set up, only £350K used for cashflow, the remainder is property and capital equipment.

Initial Investment Circa. £2.75M

(An additional mortgage to purchase a property would also be required)

(Available premises could increase or decrease the capital required)

Annual Profit Before Tax & Any Repayments

Year 4/5 £866,000

My Background.

To provide you with some confidence in the validity of these proposals, I would like to offer a brief outline of my work and business experience, which will hopefully help you understand that the information following is not based on guessed estimates, but factual information and experience.

I initially trained in Work Study, Organisation and Methods working for the local water authority and then the NHS. Seeking a change of career, I owned and operated golf facilities, including commissioning in a new 18 hole pay as play golf course and then running it. These ventures also involved managing licensed, restaurant premises.

My involvement in golf diversified into golf range equipment and artificial surfacing, opening up sales in Europe and the USA for driving range mats and ball collection equipment. As a result of my involvement in the USA golf market, I became associated with and ultimately head hunted by the international company AstroTurf, to become the CEO of their new UK subsidiary, AstroTurf Surfaces UK Ltd.

I have subsequently worked in several sales and marketing positions, helping a bathroom supplier increase turnover from £450K to over £2M, moving on to become the national UK sales office manager for a German, international supplier of rubberized rollers to the print industry.

More recently I have worked as a freelance business consultant, in 2013 becoming involved in the graphene industry. During my time with that particular company, I was instrumental in setting up the business in terms of finding suitable premises, manufacturing logistics and layout, administrative processes and sales and profit forecasting.

The Gym Opportunity’s History.

The term “budget gym” may not sound particularly exciting or even profitable, it wasn’t to me initially, especially once I was made aware of the big name competition in that particular market sector. I did however listen, carried out my own research and ultimately became more and more convinced of the validity of this new gym model. I became involved in setting up the first version of this new concept in the UK in 2016 in Newport, South Wales.

The business model for the gym was conceived and developed in 2015, by my son, Stuart Friend an ex-Royal Marine who became interested in fitness due to his military training and background. After many years of using low cost commercial gyms, he developed a business model for a new style of gym, catering for those looking for advanced strength and conditioning, as well as facilities for beginners, regular gym users and serious athletes. A gym for every type of user.

Stuart identified the issues which annoy or irritate members of budget gyms in the UK and resolved these with what his research showed the budget gym has evolved to in the USA. Using this research, he developed a totally different UK gym experience at a budget price.

He opened his initial gym using the new business model in Newport, South Wales under the name Next Generation Fitness in December 2016, where he invested into the business £127,500 of his own money, a further £20,000 from a friend and leasing finance of £300,000 to purchase the gym equipment.

I had reservations with regards to the level of funding available at the time and pointed out that should anything in the set up and timing go wrong, the business could run out of money. Ultimately it did due to the unethical actions of a major supplier delaying the opening by 3 months, which caused additional outgoings to those originally projected under the agreed timeframe to opening.

The gym had to close in February 2017, however the level and rate of membership growth whilst open, reaching 1000 in 3 months and growing at about 85 new members per week, was exceptional by industry standards.

Proof Of Concept.

When the original gym was opened in December 2016, time and finances had prevented the Virtual Reality suite to be started and the classes for the elderly and association with local NHS bodies was due to be initiated in the new year of 2017, but the money ran out and this did not happen.

Even though not fully open, initial membership sales and member comments indicate very strongly that the model didn’t fail. On the contrary, although the major part of the model was in place with some aspects yet to be initiated, we believe a Gym Owner Monthly magazine article and members Facebook comments illustrates the success of the model, even though not fully implemented.

Andrew Wilkinson, owner of Core Gym, tells Gym Owner Monthly how he opened his first facility. One of the questions asked was:

Q. What is your biggest success story?

A. I would say my biggest achievement is building a successful gym and brand from scratch to over 2000 members within 2 years. See article in attached Picture 3.

When we opened in December 2016, Next Generation Fitness had pre-sold 379 memberships and by the time it closed on February 12th 2017, it had 1,000 members. In just over 3 months, the model generated 50% of what is recognised in the industry as an amazing achievement in 2 years.

In proof of our gym’s quality and appeal, many of our 1,000 members came from a local “The Gym” competitor. In fact, the manager and all his staff were members at Next Generation Fitness. Members comments on Facebook whilst open and then following closure, also confirm that the model worked and could upset the established market. See attached Picture 1 for just some.

We believe that from the unprecedented membership growth to 1,000 in 3 months and the member’s comments, which are only some from the Facebook page, it can be seen that far from being a failure, the model worked extremely well.

The closure was due to circumstances outside of the business model itself, exposing the lack of sufficient initial funding, which was the eventual cause of the subsequent closure of the gym.

The Gym Model.

With a number of large gym brands in every major city and town, you might ask the question “why would anybody invest in gyms now”? For a number of reasons, we believe a new type of gym, which will attract not only the diehard gym users, but also the after covid, stay at home former gym members.

All main stream low cost budget gyms are generally similar in the level and quality of equipment provided. With a bland style and all usually providing 24 hours a day, seven days a week opening times, whilst offering cheap, 'no contract' deals to entice customers. Twelve month contracts are also available from most chains, offering greater price reductions, but they have proven to be both welcome due to the reduced price and unpopular due to cancellation difficulties and legal enforcement by operators.

Apart from membership pricing, the business model for this gym is different. The attached Picture 2 illustrates its major differences to the mainstream budget chain gyms.

In addition to the detailed features in Picture 2, budget gyms in cities and towns around the UK that would be competition, are usually located in city centre, or retail/business park premises. All therefore rely on public car parks, or have limited, or shared parking facilities which can result in a long walk to the gym, or at peak times of day no access to the car park at all. Most are also located adjacent to busy city commuter routes, making entry and exit difficult at peak times.

For these reasons we believe the new gyms should be established in good quality industrial premises on the edge of towns, cities and population areas. They will be easy to find and have their own parking for at least 30, to 50 vehicles, not in a city centre or retail park unless dedicated parking is available.

In an online article in 2013 following fitness industry research, Marketing Magazine stated:

“What people want. Car parking is rated as the most important factor by users” See article in attached Picture 3.

The industry generally does not appear to be taking notice of this fact. If opened with dedicated parking, the new gyms will be leading the way. Driving in at peak times and straight to a parking space, will make this low cost gym unique in the budget gym market sector.

The Financial Model.

From our research and experience, pretty much every gym, including the large major national gym chains, have three major overheads, rent, rates and equipment leasing.

Our retrospective understanding of the pressures of the combination of these overheads, encouraged us to formulate a different financial model for our new business, which removes two of the three burdens currently encapsulating the whole industry’s financial structure. We propose the outright purchase of equipment and where possible the buildings, even if by deposit and mortgage, rather than renting.

Starting the new business by owning the equipment and property, rather than leasing and renting will provide the following benefits:

• Owning the amount of equipment required, would save many thousands of pounds in leasing costs, approximately £180,000 to £280,000 per year, keeping more generated income and profits within the company.

• Any rental payments could if a building were purchased, be kept within the business as profit and used to pay a mortgage, or as the directors deem necessary to expand the business. This would mean in properties looked at in recent months, that rent ranging from £112,000 to £353,000 per year would be kept and used for the benefit of the company, rather than paid to a landlord.

• Money spent on alterations and refurbishment would be on the company’s own property, enhancing its value and balance sheet, rather than that of a landlord.

• In the future, if a larger gym company wanted to purchase the business, the building could be retained, charging the new gym owners a commercial rent and retaining some income.

Set Up Costs And 5 Year Profitability.

The purchase and set up costs used to produce the 5 year projection at the start of this document do not use any specific property purchase price and do not include any provision for investment repayment, they are just the basic operational profitability of the facility based on utilising property values identified as potentially suitable at the time of the research.

Properties we have identified as suitable, range in price from £500,000 to £3,000,000 plus and would facilitate a good annual profit even if purchased with a commercial mortgage. This would provide scope for a good return for an investor and provision of capital for future investment in the business development.

To facilitate a project of this nature and profitability, the projections shown utilise a commercial mortgage of £2,250,000 to purchase a building with a value of £3M and a capital loan/investment of up to £2,750,000 to provide the building purchase deposit, equipment purchase, the gym fit out and initial cash flow. Only £350K of the capital loan/injection would be used for cashflow, the remainder is for property and capital equipment purchases.

There is a full business plan available with more detailed business model information, background and financial projections.