$$FitZone$$

ACCT $621-$ Group Case

Spring $2024$

In early June $2024,$ Terry Bodin has recently hired you as a financial analyst for her company, "FitZone" which was established in $2010.$ Terry's daughter Sarah joined as a general manager in $2015,$ becoming equal shareholders with Terry and jointly running the business. "FitZone" operates a chain of four upscale fitness clubs offering a variety of classes including yoga, pilates, weightlifting, personal training, and strength training in suburban areas of Victoria, BC$.$ Despite a strong initial launch and enthusiastic community reception, FitZone is facing challenges across various areas, prompting the need for your expert advice.

Terry defines the vision of "FitZone" as: $"$To be the leading catalyst for healthier lifestyles, empowering individuals of all backgrounds to achieve their fitness goals with unparalleled experiences and community support."

FitZone typically experiences significant fluctuations in cash flow due to seasonal trends in gym memberships. While there is a surge in sign$-$ups during the New Year's resolution period and in the months leading up to summer, there's a noticeable drop$-$off in attendance during the holiday season and summer vacations. This fluctuation makes it difficult to predict and manage cash flow effectively.

FitZone offers various membership packages, including monthly, quarterly, and annual subscriptions, as well as drop$-$in rates for individual classes. However, most of members opt for monthly subscriptions, resulting in uneven cash flow as payments are spread out over the course of the month. This creates challenges in meeting fixed expenses such as rent, utilities, and payroll, which are due monthly.

Some members delay or default on their membership payments, either due to financial difficulties or administrative oversights. Chasing overdue payments consumes time and resources, impacting cash flow and hindering the company's ability to cover its expenses promptly.

FitZone incurs various operating expenses to maintain its facility and provide quality services to its members, including rent, utilities, equipment maintenance, instructor salaries, and marketing costs. However, unexpected expenses, such as equipment repairs, renovations, or marketing campaigns, can strain cash flow and disrupt budget planning.

FitZone may have limited cash reserves against unexpected expenses or revenue shortfalls. Without adequate reserves, the company may be forced to rely on external financing or short$-$term borrowing to cover its cash flow gaps, leading to increased debt and interest expenses over time.

FitZone relies on suppliers for various goods and services, such as fitness equipment, cleaning supplies, and marketing materials. Maintaining positive relationships with suppliers and negotiating favorable payment terms, such as extended payment deadlines or discounts for early payment, can help improve cash flow management and preserve working capital.

Despite these cash flow challenges, FitZone remains committed to its mission of promoting health and wellness in the community. The company explores strategies to improve cash flow forecasting, optimize membership payment structures, control operating processes and expenses, and strengthen customer relationships to achieve long$-$term financial sustainability. Through proactive cash flow management and prudent financial decision$-$making, FitZone navigates the cash flow challenges and emerges stronger, ensuring its continued success in the competitive fitness industry.

Exhibit I; Lunching HIIT classes

Terry is driven by her vision to launch a boutique fitness studio specializing in high$-$intensity interval training $($HIIT$)$ classes in a trendy area, believing in the demand for their unique approach to group workouts. However, securing the necessary startup capital for this new venture proves more challenging than anticipated.

To establish the boutique studio, "FitZone" must lease a suitable space in a Victoria downtown location to attract the target demographic. Yet, commercial rents in the area are high, and landlords demand hefty security deposits and upfront lease payments. Additionally, the HIIT classes require treadmills, rowing machines, weights, and other exercise equipment. Acquiring high$-$quality equipment is crucial to deliver a premium experience to clients, but the cost strains the budget significantly.

Despite Terry's enthusiasm and a solid business plan, she encounters difficulties securing financing from traditional sources such as banks or investors. Lenders may perceive the fitness industry as high$-$risk, especially for a new venture lacking a proven track record. Nevertheless, Terry remains determined to bring her vision to life and tasks Sarah with exploring creative solutions. Sarah is tasked with negotiating with landlords for more favorable lease terms, seeking partnerships with equipment suppliers for discounts, and leveraging marketing tactics.