FDD Talk Daily: Explanatory Notes on Cash Operating Profit (or Loss) for Crunch Health Clubs

Highlights of Crunch’s Item 19 Financial Performance Representations (2012 FDD) – Part 4

Club Expense

• Club expenses represent the variable expenses necessary to run the day-to-day operations of the club. They include expenses such as outside professional fees (e.g. legal, accounting, etc.), travel and non-travel expenses, technology expense related to computer services and the club software, supplies expense for the office and club, repair and maintenance (equipment and building), utilities, credit card processing, and other miscellaneous expenses.

• Of these, utilities expense and credit card processing are generally the largest, with travel and non-travel expenses historically representing an insignificant percentage.

• Supplies expense includes the paper and cleaning products necessary to operate and service the club, as well as general office supplies for the front desk and staff.

• Repairs and maintenance expense represents expenses necessary to maintain the physical plant and fitness equipment in the club. As both the property and equipment age, this expense is likely to increase and will represent a more significant percentage of the club’s expenses.

Rent and Occupancy

• Determining the location of your club and managing the cost of your real estate lease are critical to the success of your club. The cost of rent can vary significantly depending upon the size and location of the club and the amount of tenant improvement contributions provided by the landlord.

• Real estate space located closer to the center of major metropolitan markets is likely to be significantly more expensive than locations located on the periphery of those markets or in more suburban locations.

• Controlling this expense and keeping the square footage within ranges suggested by the franchisor will help improve the likelihood of your success.