Franchise Buying Guide

Will I Make Money As a Franchisee?

Presented by Guidant Financial
Guidant Financial specializes in helping entrepreneurs purchase new franchises using their retirement funds.

Feeling the Burn
Richard Ryan describes himself as a former couch potato. But his wife, Se'a, has always been athletic and a fitness buff. She even tried out for the Olympic high jump team once. When the couple moved from Virginia to Apollo Beach, Fla., in 2004, Se'a went looking for a gym. She found her options limited. "Then an Anytime Fitness opened and we both joined," Richard recalls.

Richard, whose career had been in high-tech, and Se'a, who was interested in health and healing, wanted to open a business, and they soon started thinking about owning a gym themselves. Richard researched the industry by reading relevant books "and extracting information on what the authors had written about making money in fitness," he says.

The couple explored two options: Anytime Fitness, based in Hastings, Minn., which has about 1,300 franchisees operating coed fitness centers open 24/7, and Snap Fitness, a competing franchise, with headquarters in Chanhassen, Minn. The Ryans asked for FDDs from both companies.

"I'm used to building budgets, and had already put together a pro forma budget concept," Richard says, "and I used the FDD materials to see what their numbers looked like, compared to what I had projected. I analyzed everything from utilities to marketing costs. Then I did a reality check by talking to franchisees of both concepts, including some from both systems who were struggling, and tried to delve into why they were having problems."

Snap Fitness allows its franchisees to open smaller gyms, which means their overhead is lower and franchisees break even with a lower member count. "But that concept doesn't have an annual subscription program," Richard says, "and from my reading, I knew we'd do better with an ongoing membership." He compared what he'd read in the FDDs with what he'd learned from the franchisees and concluded: "You can't use an Item 19 alone to determine if you'll make a profit. It gives a miles per gallon perspective, but your miles may vary, depending on where you live and what things cost there."

So the Ryans signed on to open an Anytime Fitness franchise in Plant City, Fla., about 45 minutes from their home. Despite Richard's careful budgeting, their build-out costs, which included windows, restrooms, showers, a classroom, rubberized gym flooring and specialized lighting, were higher than he'd estimated; they spent about $150,000 to get started.

They opened in April 2010 and broke even in September, after they'd signed on 430 members. Their membership now is up to about 500 and Richard is considering a second unit. "When you buy a franchise," he says, "you're betting on yourself and you better do it right."

Richard has found it advantageous moving from the couch into gym ownership. As at any gym, a certain percentage of people who join never return. "Since that was me," Richard says, "I know how to encourage those people and get them to come back." --J.B.

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Julie Bennett is a freelance writer.

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This article was originally published in the January 2011 print edition of Entrepreneur with the headline: But Will I Make Money?.

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