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ACC/561 NO-FRILLS WORKOUT CENTER OPPORTUNITY

The assignment evaluates the potential financial statement implications for No-Frills Workout Center and its business opportunities.

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    Running head: NO - FRILLS WORKOUT CENTER OPPORTUNITY No - Frills Workout Center Opportunity Patricia Duncan, Sean Duncan, Heidi Oppegard, and Michelle Rodriguez Accounting ACC/561 January 28, 2012 Jared Jones In your paper, you analyzed the Snap Fitness franchise opportunity, discussing factors such as the company’s background, cost - volume - profit (CVP) analysis, projected sales volume, and breakeven analysis. How do these financial elements (CVP analysis, breakeven point, and sales projections) help in determining the viability of the Snap Fitness franchise as a business opportunity? Provide specific examples from your analysis to support your response. Word count requirement: 500 - 600 words

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    No - Frills Workout Center Opportunity Fulfilling the entrepreneurial spirit by starting a new business is a challenging experience, especially achieving brand recognition becoming successful and profitable. Nevertheless, entrepreneurs have an option to enter into a franchise agreement that allows them to have established company branding and resources to support business goals. Entrepreneurs, who entel franchise agreements, must contribute business startup costs and comply with company policies and procedures. Regardless of the compliance requirements, franchises offer an established opportunity for individuals looking to own their own business. Discussed below is a franchise opportunity at Snap Fimess, including a) company background, b) Cost Volume Profit (CVP) analysis, c) projected sales volume, and d) franchise recommendation or declination based on Snap Fitness company research (Kimmel, Weygandt, & Kieso, 2009). Snap - Fitness Franchising Background Information Peter Taunton founded Snap Fitness Inc., which opened for business in 2003 in Minnesota (Periroth, 2009). Peter was a professional racquetball player who wanted to offer a convenient and affordable place for people to work out 24 hours a day, seven days a week. Therefore, Snap Fitness Inc. began franchise operations in 2004 so people across the country and around the globe can have the opportunity to enjoy the novelties Snap Fitness Inc. had to offer. Snap Fitness Inc. provides convenience for both members and franchise owners. Each location operates with a key - card system and surveillance cameras (Bonderud, 2010). This way members can use the equipment any time of day, and one owner can single handedly operate up to three locations without additional staff. Most Snap Fitness locations have a staff member on basic equipment without the frills of high - cost workout centers, they can offer members a very reasonable monthly membership fee. Furthermore, a Snap Fitness location can set up for business in 10 days. This allows franchise owners to start generating revenue quickly upon completion of a franchise agreement. CVP and Breakeven Analysis It is important for any business owner to know the business volume they must produce to be successful. By using CVP, Snap Fitness locations can determine the contribution of each product in comparison to cost and profit, and provide a breakeven analysis for the business (“Business decisions and ...,“ 2012). CVP analysis is important for companies to assess because it helps to track how the change in volume sold affects the cost and therefore the profit of the business.

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    Breakeven analysis is beneficial to determine the number of monthly membership fees required to meet monthly fixed and variable obligations for each location (see Appendix A, Table 1 & Figure 1). Breakeven analysis demonstrates the financial outcome when the membership numbers fluctuate. Managers find this information particularly useful because it defines the volume necessary to ensure profitability. Snap Fitness locations offer a $26 per month membership and the business does not sell add on products for the membership. To breakeven, Snap Fitness franchisees must have 300 monthly members and $7800 in sales. As a perspective franchisee this data, along with information regarding the average time to generate 300 customers is vital. This information will help with forecasting profitability timelines for a new franchisee. Upon assessment of Snap Fitness’ current fixed expenses, there is a total of $6,000 in fixed bills every month. Furthermore, Snap Fitness locations only need 300 members at $26 per month to breakeven, which contributes to estimated variable costs of $1,800 per month (Kimmel, Weygandt, & Kieso, 2009). These costs will change from month to month, depending on the number of members enrolled and number of members using the facility. Discussed below, are variable costs that a Snap Fitness franchise must account for, assuming that standard salary is part of the fixed costs. Marketing Expenses Although many businesses have budgeted marketing expenses, these expenses can vary. If business is profitable, marketing expenses can rise. Furthermore, if the business is struggling and membership enrollment is low, it may be necessary to increase marketing efforts to generate additional membership enrollments. However, if business is at a prime level, reducing marketing efforts, and therefore variable marketing costs, is possible. Maintenance and Cleaning Expenses Maintenance and cleanliness of equipment for Snap Fitness franchises is essential. Uncontrollable expenses resulting from damaged equipment can cause additional variable maintenance expenses to the franchisee. Furthermore, equipment cleanliness is essential. After each use, members clean the equipment with cleaning supplies provided by the franchisee. As the number of members’ increases, the equipment maintenance and cleaning supply fees will increase incrementally as well. Electricity Expenses At Snap Fitness locations, use of electricity 24 hours a day, seven days a week is

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