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The 'Issue' Is Finance

The 'solution' is to invest your facility's budget in activities that will grow your business to bring in more profits, and, more importantly, that will increase the value of your business.

"Most managers focus on what hurts the most," says Will Phillips, founder and CEO of Rex Roundtables for Executives. "This will cause trouble, because you will manage what's in trouble and not what's important." This couldn't be a more crucial piece to the fitness business operations puzzle. It's a matter of preventive maintenance, rather than sick care. Focusing on activities versus results, says Phillips, is what will take facility managers past just looking at growth and profit to actually increasing the value of their business - better known as the equity side of the business.

Why is this important? Because, as the industry continues to grow in number of facilities, the competition gets stiffer, and the need to outshine that competition is what will determine the value of your facility versus theirs.

The financial state of the industry

The economy is stable and slightly up since 2005, according to Rick Caro, president of Management Vision, New York, N.Y., in his 11th Annual Financial Panel held at the IHRSA Convention and Trade show in March. There is continuing industry growth in the U.S., with close to 29,400 facilities and almost 43,000 members in what is now a $17.6 billion industry. The types of facilities seeing the most growth include franchise clubs and small regional club companies, says Caro.

Yet, despite the industry's favorable economic outlook, there are many hurdles it still has to overcome. The main hurdle is the majority of consumers' unwillingness to exercise. Dieting, rather then exercise, still plays a major role in the way consumers seek to lose weight and become healthy. The good news for fitness centers is that diets aren't working by themselves; consumers need the exercise component to achieve their diet goals and to keep the weight off. And, yet, while the FDA recently approved an over-the-counter diet pill, alli, another hurdle is the lack of positive change in government's, HMO's and insurance companies' involvement in financially incentivizing consumers for healthy behavior through fitness center dues rebates and reimbursements, says Caro.

How to create and increase your facility's value

So, if consumers are exercise-resistant, and the government, HMOs and insurance companies aren't coming to our industry's aid, it's up to fitness facility owners and operators to ensure that their businesses prosper. In his IHRSA convention seminar, Improve Your Focus and Your Club's Financial Growth, Phillips explained that, in the beginning stages of a fitness business, most facility operators focus on growth. Once the business starts to mature, the focus becomes profit. But, then, around years four to six, the business plateaus. To move beyond profit and growth, "you have to start over again," he says. "You have to take a risk."

What kind of risk? The top 100 growth companies had a 36-percent increase in revenues, and a 46-percent increase in earnings, says Phillips. Yet, while most growth comes from acquisitions and price increases, he says that most facility owners looking to increase the value of their fitness centers will want to achieve organic growth (growth without acquiring or rising prices). Organic growth is achieved by making changes to the current business model. Here are some examples:

1. Catching a wave. Take advantage of something that hasn't been fully exploited, such as appealing to a specific market like baby boomers or obese children.

2. Finding a wave. Partner with other people and organizations, such as parents and schools.

3. Creating a new model in an old industry. Curves is a shining example of creating a new model in our industry.

4. Eliminating the competition. Cooper Wellness Center eliminated its competition this back in the '90s with its medically based facility model.

5. Creating a niche. Do something different than the competition in your area, such as managing corporate wellness centers or providing onsite training to corporate employees.

6. Increasing non-dues revenue. All sorts of program opportunities exist for non-dues revenue, such as sports training, niche clubs, signature products, concessions, etc.

To drive organic growth, says Phillips, you have to get an idea, design actions to make that idea happen and then manage those actions for results. It's up to you, as a manager, to achieve the desired result.

Increasing value on a budget

Risks aside, there are day-to-day decisions that also need to occur. Following in the pages of this Special Report are ideas to help you manage your budget, from using software to saving money by purchasing used equipment to increasing non-dues revenue with concessions. Read on to keep your budget and your finances in check.
NOTE: Will Phillips will be presenting the seminar, How to Improve Your Fitness Facility's Financial Growth, at the new Fitness Center Management seminar track at the Athletic Business Conference & Expo, Nov. 29 to Dec. 1, 2007, in Orlando, Fla. The seminar track is designed to provide hands-on solutions for owners and managers of fitness centers. For more information, visit www.athleticbusinessconference.com.
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