ACC/561 NO-FRILLS WORKOUT CENTER OPPORTUNITY

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Running head: NO-FRILLS WORKOUT CENTER OPPORTUNITYNo-Frills Workout Center OpportunityPatricia Duncan, Sean Duncan,Heidi Oppegard, and Michelle RodriguezAccounting ACC/561January 28, 2012Jared JonesIn your paper, you analyzed the Snap Fitness franchise opportunity, discussing factorssuch as the company’s background, cost-volume-profit (CVP) analysis, projected salesvolume, and breakeven analysis. How do these financial elements (CVP analysis,breakeven point, and sales projections) help in determining the viability of the SnapFitness franchise as a business opportunity? Provide specific examples from youranalysis to support your response.Word count requirement: 500-600 words

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No-Frills Workout Center OpportunityFulfilling the entrepreneurial spirit by starting a new business is a challenging experience,especially achieving brand recognition becoming successful and profitable. Nevertheless,entrepreneurs have an option to enter into a franchise agreement that allows them to haveestablished company branding and resources to support business goals. Entrepreneurs,who entel franchise agreements, must contribute business startup costs and comply withcompany policies and procedures. Regardless of the compliance requirements, franchisesoffer an established opportunity for individuals looking to own their own business.Discussed below is a franchise opportunity at Snap Fimess, including a) companybackground, b) Cost Volume Profit (CVP) analysis, c) projected sales volume, and d)franchise recommendation or declination based on Snap Fitness company research(Kimmel, Weygandt, & Kieso, 2009).Snap-Fitness FranchisingBackground InformationPeter Taunton founded Snap Fitness Inc., which opened for business in 2003 inMinnesota (Periroth, 2009). Peter was a professional racquetball player who wanted tooffer a convenient and affordable place for people to work out 24 hours a day, seven daysa week. Therefore, Snap Fitness Inc. began franchise operations in 2004 so people acrossthe country and around the globe can have the opportunity to enjoy the novelties SnapFitness Inc. had to offer.Snap Fitness Inc. provides convenience for both members and franchise owners. Eachlocation operates with a key-card system and surveillance cameras (Bonderud, 2010).This way members can use the equipment any time of day, and one owner can singlehandedly operate up to three locations without additional staff. Most Snap Fitnesslocations have a staff member onbasic equipment without the frills of high-cost workoutcenters, they can offer members a very reasonable monthly membership fee.Furthermore, a Snap Fitness location can set up for business in 10 days. This allowsfranchise owners to start generating revenue quickly upon completion of a franchiseagreement.CVPand Breakeven AnalysisIt is important for any business owner to know the business volume they must produce tobe successful. By using CVP, Snap Fitness locations can determine the contribution ofeach product in comparison to cost and profit, and provide a breakeven analysis for thebusiness (“Business decisions and...,“2012). CVP analysis is important for companies toassess because it helps to track how the change in volume sold affects the cost andtherefore the profit of the business.

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Breakeven analysis is beneficial to determine the number of monthly membership feesrequired to meet monthly fixed and variable obligations for each location (see AppendixA, Table 1 & Figure 1). Breakeven analysis demonstrates the financial outcome when themembership numbers fluctuate. Managers find this information particularly usefulbecause it defines the volume necessary to ensure profitability.Snap Fitness locations offer a $26 per month membership and the business does not selladd on products for the membership. To breakeven, Snap Fitness franchisees must have300 monthly members and $7800 in sales. As a perspective franchisee this data, alongwith information regarding the average time to generate 300 customers is vital. Thisinformation will help with forecasting profitability timelines for a new franchisee.Upon assessment of Snap Fitness’ current fixed expenses, there is a total of $6,000 infixed bills every month. Furthermore, Snap Fitness locations only need 300 members at$26 per month to breakeven, which contributes to estimated variable costs of $1,800 permonth (Kimmel, Weygandt, & Kieso, 2009). These costs will change from month tomonth, depending on the number of members enrolled and number of members using thefacility. Discussed below, are variable costs that a Snap Fitness franchise must accountfor, assuming that standard salary is part of the fixed costs.Marketing ExpensesAlthough many businesses have budgeted marketing expenses, these expenses can vary.If business is profitable, marketing expenses can rise. Furthermore, if the business isstruggling and membership enrollment is low, it may be necessary to increase marketingefforts to generate additional membership enrollments. However, if business is at a primelevel, reducing marketing efforts, and therefore variable marketing costs, is possible.Maintenance and Cleaning ExpensesMaintenance and cleanliness of equipment for Snap Fitness franchises is essential.Uncontrollable expenses resulting from damaged equipment can cause additional variablemaintenance expenses to the franchisee. Furthermore, equipment cleanliness is essential.After each use, members clean the equipment with cleaning supplies provided by thefranchisee. As the number of members’ increases, the equipment maintenance andcleaning supply fees will increase incrementally as well.Electricity ExpensesAt Snap Fitness locations, use of electricity 24 hours a day, seven days a week is

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