Christmas is the season to be jolly, according to the famous carol. But, in most cases, greed plays as much a part in the festivities as good cheer, and now many people will be thinking about hitting the gym to shed the extra pounds gained over the holiday season. For companies operating in the health and fitness sector January is their busiest time of year, as New Year’s resolutions about diet and fitness see gym numbers swell.
There’s no doubt that fighting flab and keeping in shape is big business. There are a growing number of fitness facilities in Britain, according to the State of the UK Fitness Industry Report – more than 6,000 in 2013 – and almost eight million people are registered members of a health or fitness club. But it will come as no surprise that only one in four gym members actually don their Lycra to exercise on a regular basis, and there is a seasonal element to the industry and its revenues, as old bad habits take hold of many after a few weeks of healthy living.
In many respects, the fitness industry is a small business success story. It’s fuelled by SMEs, with many small gyms in existence in the UK, lots of them operating as franchises. The top four players, including Virgin Active and Fitness First, account for just 20 per cent of industry revenue, according to market research from IBISWorld, which means a lot of space is taken up by independent operators, typically employing fewer than five people.
Experts foresee that improvements in the economy and higher levels of disposable income will see the gym industry grow significantly by 2020. For those already running fitness businesses, expansion may seem like a good idea to take advantage of this predicted boost in the year ahead. But there are some important points to consider:
How will you grow your business?
Ask yourself whether you should be expanding your current operation by offering new services to members, or whether you’re ready for faster and bigger expansion by buying up another fitness business. Because of the small nature of many fitness operators, mergers and acquisitions are quite common in this industry. If you run a franchise, expanding into new areas of operation will probably involve a further payment to your franchisor, while acquiring another gym will require funding to pay the existing owner. Perform due diligence on any business you may be thinking of buying, assessing its financial condition, growth potential, and how you might make improvements. Professional help from your accountant or a specialist acquisition consultant may be wise at this stage.
Where will you get the funding?
This is often the key issue, since finance is still hard to come by for SMEs. But the banks often look more favourably on franchises, especially if they are part of an established and reputable franchisor, so franchisees may have better luck laying their hands on capital from conventional sources. Alternative lenders are another increasingly popular option. But, don’t forget, in franchising a large part of the funding is likely to have to come from you – typically a third of start-up franchise costs come from the franchisee – so make sure all your finances are in order before deciding to proceed.
Is it really a good idea to grow at this time?
Do a SWOT analysis of your current operation – analysing its strengths, weaknesses, opportunities, and threats – and look at the local fitness market more broadly to get a better idea of what your competitors are doing. While a bigger operation may seem attractive and a good way to earn more money, it also brings the potential for greater financial stress. Again, if you’re a franchisee, there are further considerations, specifically whether there are restrictions in your franchise agreement on expanding. The British Franchise Association can put you in touch with an experienced specialist solicitor who can advise you.
No one should approach the idea of business growth lightly and the fitness industry has had its own particular challenges in recent years. During the lean times of the economic downturn, many people opted to cancel their gym membership and take up cheaper or free forms of exercise. Even those who regard their gym membership as an essential part of their lives have been more inclined to shop around. This has brought about a significant growth in budget gyms that offer very basic services at a bargain rate and don’t require members to sign up to long-term contracts. Chains including Fitness4Less, Pure Gym and The Gym Group are changing the face of the fitness market, offering new services such as 24-hour opening, junior membership for teenagers, and state-of-the-art social media and information technology to allow members to sign up for and manage their accounts online. These stripped-back fitness offerings accounted for about four per cent of the UK fitness industry in 2012, up from just one per cent in 2011, and they’re attracting more investment to finance expected strong expansion over the next five years. Larger fitness organisations are rightly concerned by this trend.
January is a time for entrepreneurial thinking, and the changes that are afoot in the fitness world bring with them great opportunities for the SMEs that can innovate and give customers what they really want. The quest for self-improvement never seems to go out of fashion, and, just as people want to be fitter and leaner, so can your business in 2014. Stick to your New Year business plans, whether to grow or to improve on what you already do, and your business will be in better shape for it.
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