Pretend you are a Shark Tank advisor. Two business partners have come to you for advice for a business they own and operate. This assignment requires you to create a one-page executive summary (not including backup tables of your analysis) of your advice for this business.
Topic/Question – Read the following scenario then address the recommendation/advice section of this assignment. (This scenario is a real-life situation where a neighborhood industry requested advice from a College Economics professor.)
A Boutique Fitness Facility aka affectionately self-referred to as ‘Two Idiots with Bikes’
Tired of hiring themselves out and abiding by corporate rules and various personality issues with management of fitness facilities, two fully certified personal trainers opened a fitness facility. Each trainer was certified in indoor cycle (aka Spinning), personal training, strength, high-intensity training, and TRX. The facility was housed in the finished basement of one owner’s personal residence. They invested $3000 that covers startup equipment costs. Startup equipment included spin bikes, fans, weights, step benches, and mats. Over time they upgraded the spin bikes and added more features such as resistance bands, ropes, TRX equipment, kettlebells and other items for approximately $1000. Based on periodic feedback from clientele, they added some yoga classes and another instructor to teach additional spin classes. The owners taught 90% of the classes themselves and did not take a salary from the business. The yoga classes fully funded the yoga instructor. The additional spin instructor cost approximately $150/month. Costs included $500 monthly for insurance, $200 monthly for utilities, $80 for music licensing. Clientele paid $10 per class unless they purchased a package of 20 classes for $85 or 10 classes for $65. They ran approximately 26 classes a week. Unless there were 2 clients in a class, the class was cancelled. The business averaged 4 clients per class and averaged cancelling 3 classes per week. They also had personal training clients who paid 20 per session. The business averaged 8 personal training sessions per week. Tax rate is 20%. Depreciation on the equipment is 20% a year. Efficiency of the business is compromised from time to time based on clientele – since this is a boutique business that runs classes of 5-6 individuals, personalities and drama sometimes require the business owner’s significant management time in the form of communications with clientele.
Between the two of them, they could earn $800/month by contracting themselves out to other facilities. Additionally, without the business, the trainers could conduct personal training sessions in the basement facility using the equipment they already have and would incur insurance costs of $60/month, no music licensing fees and $100 utilities.
Recommendation/Advice – What do you advise these owners to do? Give a special focus on production and costs in this scenario. You are also encouraged to include academic and business research as well as data to reinforce your advice.