The initial business plan for the new sports center managed by John and Sophia, two graduates of Sports Science at the University of Kent, revealed some issues that could put at risk the survival of the company in the short term. For this reason and considering the recent economic situation in the UK, John and Sophia decided to change some of their initial assumptions. They have requested your help to prepare a new business plan and evaluate the profitability, liquidity, and sustainability of the business in the first year of operation based on their revised assumptions.
The business will start on the 1st of January 2024. On that day, John and Sophia will deposit savings of £10,000 in the company bank account as initial capital.
The sports center will be in Canterbury, near the new Canterbury Riverside centre. The building will be modern, and it will have 1 studio, 1 fitness room including machinery, 2 changing rooms and a coffee corner. John and Sophia will rent the building with all the facilities installed. The centre will open on weekdays (7:00 a.m. – 10:00 p.m.) and on weekends (8 a.m. – 2 p.m.). It will be closed only on public holidays. The studio will be used for sports classes. Classes are planned Mondays to Fridays in the evenings. The fitness room will always be accessible when the centre is open.
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Considering the space available in the centre, the two graduates estimate to have a maximum capacity of 80 entrance tickets available per working day (use the calendar of 2024 to estimate the number of working days per each month). Every time a customer enters the centre will use an entrance ticket. A recent survey of gym customers in Kent reveals that on average the same customer goes to the gym 8 times per month.
The centre will offer three payment options to customers:
an annual contract with a monthly subscription of £35 per month payable by direct debit at the beginning of each month.
a three-month contract with a monthly subscription of £40, renewable, and payable by credit card. These receipts will be collected one month later.
a single entrance ticket of £5 paid in cash or by debit card at the time of entry.
There will be no joining fee.
John and Sophia estimate that of all the different customers entering the centre every month, 40% will choose payment option 1, 30% option 2, and 30% option 3. They also assume that the customers choosing option 2 will keep renewing their contract during the year and those choosing option 3 will come on average 8 times per month per year.
Sophia will start managing the reception and the café and John will take care of the supervision in the fitness room. They will exchange their role every month and have a salary as instructors.
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John and Sophia plan to incur the following costs for the business:
Full-time instructor salary for John and Sophia will be £12,000 per year each and social security costs will add 10% to the salary cost. They also plan to hire 2 other instructors that will work part-time and deliver the classes on a weekly basis. Their salary will be £6,000 per year each, plus 10% social security costs. All labour costs will be paid in the fourth week of each month.
John and Sophia will buy a computer for the reception. The expected cost is £2,000 that will be paid in February as 30 days credit is expected from the supplier. The computer will have 4 years useful life and will be depreciated accordingly (straight line method).
Rent of the building including the fitness machinery, and council tax charges will be £28,000 and £7,000 per year respectively, both of which will be paid the first week of each quarter.
Utilities (water, gas, and electricity) are estimated to be 15% of revenues each month. They will be paid monthly by direct debit starting from February.
Maintenance costs are estimated in £9,000 per year. They will be paid quarterly, in the first week of each quarter, starting from April.
Cleaning costs are estimated to be 5% of revenues each month. They will be paid the fourth week of each month.
The costs of the ingredients for the coffee corner (i.e., coffee and milk) are estimated to be 5% of revenues each month. 30 days’ credit has been agreed with the suppliers of the ingredients. No inventory of ingredients has been planned.
To bring the business to the attention of the public, John and Sophia have agreed to spend a total of £4,000 for the year on advertising. They will print and distribute leaflets, create the company website, and advertise on social media and two local magazines. They plan to make a payment of £1,600 in January, to cover the first three months’ worth of promotion, and then to pay £800 per quarter thereafter.
At the end of the first year of business, John and Sophia plan to expand the center by renting extra space next door and converting it into a second studio. They estimate the additional cost of this investment to be £20,000 per year (plus additional local property tax £5,000 per year) which they would pay in the same way as the initial building rent.
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