Chapter 7: Understanding and Managing Start-up, Variable, and Fixed Costs

Chapter 7 covers one of the most important topics in starting a new and running an existing business: Costs. There are people that come up with great ideas every day. Rather it be an invention, service, or something completely new, there are many times when a new idea is simply not feasible. If you come up with an idea that is going to incur astronomical costs, you need to ask yourself: "Will investors see the value in my idea and be willing to take on the risk of a new venture?" If you don't foresee investors agreeing in your vision, then the idea is either a bad idea that you think is great, or the idea is ahead of its time and maybe, at some point in the future, your idea will be more feasible.

I know this is a common example of small business owners and the costs they face, but Anytime Fitness is a perfect example to look at. If you think about the initial investment of an anytime fitness, there are some steep costs associated with starting the franchise. First, you have franchise fees. Some franchisers are more reasonable then others; Anytime happens to be one of those franchises. Next, you have to lease, buy, or rent a space to house your gym. In the case of Anytime Fitness in Germantown, the gym is located in a prime area. There are many high end salons and stores around the gym, so, on average, the lease is more expensive then most gyms of comparable size. Finally, you have equipment financing. The equipment is typically bought as a package deal that is arranged through partnerships of Anytime Fitness corporate. The equipment packages vary depending on the size of the store, but, on average, you can look to spend around $200,000 easily on a good equipment package. Now, take all of those costs and take into the account that when you start a gym, you essentially have ZERO members which equals ZERO income. Every gym has a break even point in terms of the number of members needed to cover the costs for the month.