Feasibility Study for a Mid-Peninsula Fencing Club
(Written for a technical writing class in 2001)
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.
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 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.
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.
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.
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.
The financial components are key to determining the feasibility of the club.
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.
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.
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.
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.
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.
$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.
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.
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.
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.
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:
• 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.
• Look at property. Finding the right property is critical for all the reasons listed above, size configuration, cost, safety, etc..
• Investigate bank criteria for a business loan and a revolving line of credit.
• 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.
Table of rent expense variables and associated net income including marketing variable of +15 members.
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