Spenga Franchise Costs: Estimated Initial Investment (Item 7, 2022 FDD)

1.  Initial Franchise Fee:  $49,500

2.  Site Selection Assistance:  $2,000 to $4,000

3.  Lease – Security Deposit:  $5,425 to $19,966

4.  Lease Expenses – 3 Months:  $0 to $59,898

• Spenga’s estimate for initial expense for real estate and improvements is based on the assumption that you will lease the space from which you operate your Studio. Generally, Studios are located in strip centers.

• Spenga’s standard franchise offering, and corresponding Item 7 estimate for your occupancy costs, assumes that the Premises of your Studio will be around 3,500 to 4,500 square feet, with an appropriate design and layout that allows the space to accommodate 24 training stations.

• This estimate further assumes that you will use Spenga’s required Approved Supplier for these services.

• With regards to the lease for your Premises, please note that: (i) landlords may vary the base rental rate and charge rent based on a percentage of gross sales; and (ii) your lease may require you to pay your pro rata share of (a) common area maintenance charges (“CAM Charges”), (b) the real estate taxes and insurance, and (c) certain other charges.

• If you choose to purchase real property on which to build your Studio, your initial investment will be higher than what Spenga estimates above. If you purchase real property, Spenga cannot estimate how this purchase will affect your total initial investment.

5.  Leasehold Improvements:  $92,000 to $495,913

• The amount of tenant improvement allowance will vary from deal to deal. This leasehold improvement estimate is based on construction costs less any tenant improvement allowance franchisees have received to date.

• This leasehold improvement estimate includes architectural, engineering, and bid assistance fees.

• The low end of this estimate assumes that you will receive “free rent” during your first 3 months of operation. The high end of this estimate assumes that you will not receive any tenant improvement allowance.

• The low end of this estimate represents a franchisee that received $100 per square foot in tenant improvement allowance while the high end represents a franchisee that received $0 per square foot in tenant improvement allowance. Franchisees typically receive on average $30 per square foot in tenant improvement allowance.

• You must use Spenga’s Required Supplier for all architectural/design services for your Studio. Architectural services include all architectural/design documents, all mechanical, electrical, and plumbing plans. This service also includes coordination with the architect teams, coordinating with permit expediters, and working with the general contractor to obtain required building permits. The costs for Architectural Engineering services vary state by state.

6.  Fitness Equipment – Initial Payment (lease or financing agreement):  $17,000 to $35,000

7.  Fitness Equipment – Ongoing Payments (3 months under relevant agreement):  $8,948 to $10,342

• You must purchase or lease fitness equipment for your location through Spenga’s Required Supplier(s). Spenga’s standard franchise offering assumes that you will lease or, if purchasing, finance this fitness equipment over time via an arrangement with the supplier.

• If you choose to purchase rather than lease the fitness-related equipment for your location, the cost to purchase such equipment may be between $176,000 and $181,000.

• The three-month estimate assumes that you make a 10%-20% down payment at 8.99% interest and pay off the loan over the course of 60 months. This estimate is based on you having 24 training stations at your Studio.

• Spenga reserves the right to receive rebates from the equipment company.

• The equipment that you purchase or finance includes bikes, functional equipment and storage, yoga equipment, fitness flooring, lockers, body composition scale, and installation and freight fees.

8.  Other Furniture, Fixtures, and Equipment:  $7,832 to $12,669

• This estimate covers other furniture, fixtures, and equipment such as decor, retail display, bathroom stands/racks, storage shelving, and similar items.

9.  Grand Opening Marketing Expense and Pre-Opening Activity Expenses:  $20,000 to $30,000

• You must expend between $20,000 and $30,000 (not including labor) in connection with the opening and initial launch of your Studio, and Spenga may require that all or some portion of these funds be expended on designated advertising materials and/or paid to Spenga’s Required Supplier(s) for these materials, consistent with a marketing plan you develop in coordination with Spenga and that Spenga does approve.

• Your Grand Opening Marketing expenses are also designed to cover the pre-opening marketing and sales activity you must conduct at least 90 days prior to the contemplated opening of your Studio designed to generate clientele that will commence attending classes when you open.

• If you are not able to conduct such activities from your Studio because it is still being built out or has not been secured, Spenga may permit you to conduct your pre-opening sales and marketing activities from a temporary location/studio that is at or near the site of your future franchised Studio at Spenga’s discretion and in accordance with any approval procedures described in the Operations Manual or otherwise in writing by Spenga. Spenga must approve any such temporary site.

• Possible temporary facilities include small retail space or a trailer that is used solely for presale marketing efforts and satisfies the above criteria. You may not conduct your pre-opening sales and marketing activities from a home office, unless Spenga agrees otherwise in a separate writing.

• This estimate does not include expenses you will incur in connection with payroll for your employees.

10.  Signage:  $13,500 to $24,000

• This estimate is based on the assumption you will purchase one illuminated exterior sign and all interior signage for your Franchised Business from Spenga’s Required Supplier(s).

11.  Computer Hardware and Software:  $4,000 to $6,000

• You must purchase or lease your computer system from Spenga’s Required Supplier(s). You will receive basic training on certain computer system software and other components from the Required Supplier(s) or, if and as it deems appropriate, Spenga. Certain instruction may be provided to you remotely.

12.  Opening Supplies:  $1,700 to $2,100

13.  Insurance:  $1,200 to $4,000

• You must obtain the insurance coverages that Spenga requires. If you elect to lease space for your franchise, your landlord may require additional types of insurance or higher minimum levels of coverage, which may increase your costs for insurance.

• The estimate provided contemplates insurance costs for a 1-year period.

14.  Other Deposits:  $1,000 to $2,000

15.  Professional Fees:  $2,500 to $5,000

16.  Initial Training Expenses:  $1,000 to $4,000

• You must pay for any costs and expenses incurred in connection with you, your Designated Manager (if applicable), Instructors, and other Studio personnel attending and completing the appropriate initial training and initial on-site assistance, including the costs you and your management incur in connection with traveling to Spenga’s headquarters or designated training Studio in Illinois to attend the “Corporate Initial Training” component of Spenga’s initial training program.

17.  Additional Permits, Approvals, and Qualifications (if and as applicable):  $250 to $1,000

• The state or local regulations where your Studio is located may require you to obtain certain permits or approvals necessary to operate the Studio and provide the Approved Services.

• By way of example, in the experience of the System, Spenga understands that the Illinois Physical Fitness Facility Medical Emergency Preparedness Act requires “Physical Fitness Facilities” to have Automated External Defibrillators on hand in case of a medical emergency within the gym. The Act also requires that at least one member of the on-duty staff be trained in Cardio Pulmonary Resuscitation.

• Other states may have similar requirements, and you are required to determine whether there are any similar laws or regulations that apply in the state where you operate your Studio.

18.  Initial Inventory of Retail Items:  $4,000 to $6,500

• This item estimates the cost of your initial inventory of retail items to be sold from your Studio, including branded clothing and accessories (hats, water bottles, etc.), and optional non-branded items such as yoga mats, towels, and bags.

19.  Additional Funds – 3 Months:  $10,000 to $25,000

• This item estimates your other initial start-up expenses for your Studio’s first 3 months of operation, including miscellaneous supplies and equipment, payroll costs (but not any draw or salary for you), and other miscellaneous costs.

• Spenga cannot assure you that you will not have additional expenses in starting your Studio or need additional working capital.

20.  Audio Video Package:  $44,750 to $50,750

• You must purchase the Audio Video Package from Spenga’s Required Supplier(s).

21.  Employee Recruiting:  $2,000

• This item estimates the cost of recruiting employees for your Studio. You must use Spenga’s Required Supplier(s) for all employee recruiting efforts.

22.  Construction Design and Review Compliance:  $0 to $5,000

• You must use Spenga’s Required Supplier(s) for Construction Design and Review Compliance.

23.  Sound Engineer Consulting:  $0 to $3,500

24.  Total:  $288,605 to $858,138

• Some states have laws that impose staffing or operational requirements that will significantly increase the amounts you will have to spend to open and operate your Studio.

• Spenga does not offer financing for any part of the initial investment. The availability and terms of financing with third-party lenders will likely depend on the availability of financing generally, your creditworthiness, policies of lending institutions concerning the type of business to be operated, and other similar factors.