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Feasibility Study
Executive Summary
This study set out to determine if net income from a
fencing club located in San Mateo County would be enough to justify actually
opening a club. I define “enough” as in the $50-$60,000 range.
Estimates are based on figures gleaned from the U.S.
Census Bureau, United States Fencing Association (USFA), American Fencers
Supply, Home Depot, current newspaper advertising of commercial rental space, a
conversation with one commercial space landlord, and other easily verifiable
sources.
Using conservative figures--the highest rent listed and a
modest membership estimate--net income came to $38, 520 per year. Using the lowest rent I found consistently,
and the smallest possible space, net income rose to $50,520. If I calculating
in a membership increase from 75 to 90 members, net income rises to $58,620.
The
next steps would involve checking costs by talking to fencing and other martial
club operators, looking at property, confirming the potential for a loan, and
contacting the Small Business Bureau and the USFA for information on starting a
business/fencing club. Should these sources confirm my figures are reasonably
accurate, a fencing club in San Mateo is a viable business enterprise under my
criteria.
Introduction and Background
As a long-time fencer, club manager and former division
official, I have given a fair amount of thought to opening a fencing club in
San Mateo. This study is intended to answer the question: is running a fencing
club in the Millbrae-through-San Carlos section of San Mateo County a viable
financial proposition? I define a
viable financial proposition as turning a net income of $50-$60,000 per year.
Three new fencing clubs have opened in the East Bay in
the last few months, but San Mateo County, one of the richest counties in the
state, has no central, well-publicized fencing club. Given the obvious wealth
and large population of the county, it seems as if a fencing club would do
well. The club envisioned would be a for-profit organization, a
sole-proprietorship, owned and operated by myself. The club would be the
primary tenant in a space located in an existing building in downtown San Mateo
or the surrounding metropolitan area, roughly Millbrae to San Carlos.
Opening a fencing club involves all the processes that
any small business would face. This study estimates the cost of converting an
empty space into a fencing club (build out), and yearly revenue and expenses
for the club. I have broken the study
in to four parts, marketing, venue, finance, and variables, followed by two
appendixes: a detailed breakdown of estimated expenses and revenue and a table
comparing the impact of recognized variables on net income.
Marketing
Marketing Assessment
According to U.S. Census
bureau year 2000 figures, there are 707,000 people living in San Mateo County,
of which 573,000 are between ages 5 and 65, the demographic most likely to take
up fencing. Half of 1 percent is equal to 287 people, approximately 3 times the
number needed for success. I consider this a sufficient population to draw on.
Promotional Activities
Promotional activities would include grand opening
events, introductory offers, advertising, chamber of commerce activities and
other promotional efforts to be determined. These could include affiliation with
local high schools, fitness clubs or other feeder organizations. Promotional
activities are the life-blood of any retail organization, and I bring a fair
degree of marketing acumen to the business. It is within my expertise to create
the club website and maintain it, create brochures, flyers and other forms of
advertising. A substantial dollar amount has been budgeted for these
activities.
Venue
Size
Facility size is critical. Too large and space and money
are wasted, too small and the club will not be able to hold enough fencers or
to host competitions, a potentially vital source of revenue. The estimate of
space required, based on five fencing strips, armory space, changing area,
lounge and office, is 2500 square feet. The size of the venue must be correlated
with the number of members needed to sustain the club profitably.
Location
Although a central business district location would
appear to be ideal, there may be advantages to locating the facility in either
a mall for greater foot traffic and available parking, or a less central area
for a substantial rent reduction. Industrial districts offer the lowest rents
for usable space, but are typically somewhat intimidating at night when most
training takes place. A survey of other martial arts facilities in the area
would be in order, and effort put into locating space with the right mix of
foot and auto visibility, parking, and easy access. Cost of space is generally
related to location. My research showed store-front space in heavy foot-traffic
areas costs about $1 per square foot. Warehouse-type space is about $0.75 per
square foot, but a newer building in a warehouse district could cost $1 per
square foot, as well.
Build Out (internal
construction of facilities)
The facility will require a raised wooden floor, which is
not typically available in commercial rental properties. It may be possible to
find a second-story space with a wooden floor, but that may bring up issues
with conforming to the Americans with Disabilities Act. Investigation into the
cost of building a floor has been made, and figures are included in the finance
section. Specific construction and cost information may be available from other
clubs, including Golden Gate Fencing Center, which built a similar floor, last
year.
In addition to the floor, scoring machines and
accompanying wires must be purchased and installed during construction.
American Fencers Supply of San Francisco has provided costs for this equipment.
Within the facility, space must be made for an office, armory, sword, and
equipment racks, clothing racks, changing space, lockers, and lounge area.
Although I think I can do most of the build out myself, I am acquainted with
two fencers who are professional carpenters and can provide advice, and
possibly help, at little or no cost.
Equipment
Virtually all needed fixtures except lights can be built
from raw lumber. A reasonable stock of foils, epees, sabres, masks, jackets and
gloves should be maintained. Something in the nature of twenty sets would be
ideal. A general cost per set is $100, and funds will be budgeted for
replacement and repair on a monthly basis. Repair and replacement estimates are
based on copious personal experience. Other equipment needed includes an office
chair, telephone, computer and armory tools, but I already own these items and
there is no reason to purchase them. Lounge furniture is typically a donated
couch and chairs, requiring no expenditure.
Finance
The financial components are key to determining the
feasibility of the club.
Initial Costs
Initial costs include first and last months’ rent,
deposit, build out, including scoring equipment and other fencing equipment,
business licenses and permits required by state and local laws.
On-Going Costs
Fixed costs such as rent, debt service, utilities,
garbage, insurance, USFA fees, weapons replacement, and scoring machine repairs
have been estimated as closely as possible and potential for increases taken
into consideration. It is vital to include advertising in this estimate,
including a website and associated costs. Negotiating a good lease, which in
this office space glut should not be difficult, will be critical to controlling
monthly costs.
Revenue
Fencing club revenues come from five sources:
1.
Club dues
2.
Private lessons
3.
Floor fees
4.
Facility rental fees for non-fencing events
5.
Tournament fees
Non-fencing rental fees could include renting the space
for yoga, aerobics, karate, and dance classes, and other activities requiring
an open floor. A careful breakdown of potential revenues should include where
the greatest revenue potential lies, based on information gathered from martial
art and other facility club managers wherever possible. Factors should include
liability in allowing outside groups to use the facility and an attendant’s
pay.
Credit
The initial costs will be such that a loan will be
required to open the business. Naturally, the loan should be as small as
possible. In addition, as with most small businesses, account should be made
for running the business at a loss for the first six months while attendance
climbs, so a rotating line of credit should be established.
Summary
There are enough people in the area to support a fencing
club, and San Mateo County is one of the wealthiest in the state. I have
experience in marketing, have had success teaching fencing, and feel confident
I can operate both sides of the business effectively. There is plenty of space available and most of the construction
needed is within my skill set. The three critical elements for my success are
the initial costs, revenue and expenses.
Here is a summary of my basic estimates. Please see Appendix A for a
complete breakdown of these items.
Initial
Costs
$16,426
Total initial start up costs
$3,574
Cash reserves
$20,000
Total cash required for start up
$83,700
Annual revenue
$45,180
Annual expenses, including cost of loan for start up
$38,520
Estimated net annual income
The initial costs are not excessive and there is room to
reduce them depending on the exact condition of the facility. Net income based
on these figures is close enough to my required range to warrant further
calculation of variables, as noted below.
Variables
Cost per Square Foot
I have used the figure of $1.00 per square foot for
estimating rental expense, the higher of two figures I saw consistently in
advertisements. If I use the lowest figure I saw published, $0.75 per square
foot, yearly expenses are reduced by $7,500, increasing net income to $46,020,
much closer to my goal. In addition, although the recession has no doubt
reduced how much people spend on non-essentials, I think I can capitalize on
the situation by locking in a lease at today‘s rates, then raising revenue as
the business matures over the years.
Facility Size
If the dimensions of the space are exactly what I need, a
rectangle 70 feet long by 30 feet wide, I will only require 2100 square feet,
instead of the estimated 2500 square feet. Further, if the bathrooms can be
used as changing rooms (not unusual in fencing clubs), that figure drops to
2000 square feet. The total reduction in rent, including the above reduction in
Rental Fees, would then be $12,000, resulting in a net income of $50,520.
Marketing
I have allowed a generous
advertising budget of $4800 per year but have not researched what return I can
expect on that money. It is entirely possible, given the demographics of the
area that I could increase membership to 90. Although an additional coach may
be required, coaches often work independently in assessing and collecting fees
from their students, so would not reduce dues income. The additional 15 members
would add $8,100 to top line revenue. That additional revenue, in conjunction
with the above rent reduction, would put net income at $58,620, approaching the
upper end of my acceptable range. Please see Appendix B for a table on rent
expense variables and associated net income.
Conclusion
Based on the best figures I could find, a fencing club in
San Mateo is a viable business enterprise.
The next steps, should I decide to pursue the matter, are:
Ÿ
Check costs by talking
to fencing and other martial art club operators. I am on good terms with both a
long-established fencing club and a relatively new club, so have access to data
from both businesses.
Ÿ
Look at property.
Finding the right property is critical for all the reasons listed above, size
configuration, cost, safety, etc..
Ÿ
Investigate bank
criteria for a business loan and a revolving line of credit.
Ÿ
Contact helpful
organizations. The Small Business Bureau and the United States Fencing
Association should have some helpful information on how to manage the process
and potential pitfalls.
With direct input on costs and revenue potential,
confirmation that appropriate space is available, plus some reassurance from
the SBA that I hadn’t missed some vital point, I would feel comfortable moving
ahead with the club.
APPENDIX A
