Pre-Feasibility Study

Health & Fitness Club

Small and Medium Enterprise Development Authority

Government of Pakistan
www.smeda.org.pk
HEAD OFFICE 6 Floor LDA Plaza Egerton Road, Lahore Tel: 111-111-456, Fax:6304926-7 Website: www.smed.org.pk. Helpdesk@smeda.org.pk
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REGIONAL OFFICE PUNJAB 8th Floor LDA Plaza Egerton Road, Lahore Tel: 111-111-456, Fax:6304926-7 Website: www.smed.org.pk. Helpdesk@smeda.org.pk

REGIONAL OFFICE SINDH 5TH Floor, Bahria Complex II, M.T. Khan Road, Karachi. Tel: (021) 111-111-456 Fax: (021) 5610572 Helpdesk-khi@smeda.org.pk

REGIONAL OFFICE NWFP Ground Floor State Life Building The Mall, Peshawar. Tel: (091) 9213046-47 Fax: (091) 286908 Helpdesk-pew@smeda.org.pk

REGIONAL OFFICE BALOCHISTAN Bungalow No. 15-A Chaman Housing Scheme Airport Road, Quetta. Tel: (081) 831623, 831702 Fax: (081) 831922 helpdesk-qta@smeda.org.pk

March, 2009

Pre-Feasibility Study Health & Fitness Club

DISCLAIMER
The purpose and scope of this information memorandum is to introduce the subject matter and provide a general idea and information on the said area. All the material included in this document is based on data/information gathered from various sources and is based on certain assumptions. Although, due care and diligence has been taken to compile this document, the contained information may vary due to any change in any of the concerned factors, and the actual results may differ substantially from the presented information. SMEDA does not assume any liability for any financial or other loss resulting from this memorandum in consequence of undertaking this activity. The prospective user of this memorandum is encouraged to carry out additional diligence and gather any information he/she feels necessary for making an informed decision. For more information on services offered by SMEDA, please contact our website: www.smeda.org.pk

DOCUMENT CONTROL
Document No. Revision Prepared by Approved by Issue Date Issued by PREF-75 2 SMEDA Punjab Provincial Chief - Punjab March, 2009 Library

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TABLE OF CONTENTS
1 2 3 INTRODUCTION TO SMEDA............................................................................................ 5 PURPOSE OF THE DOCUMENT....................................................................................... 5 CRUCIAL FACTORS & STEPS IN DECISION MAKING FOR INVESTMENT ............ 6 3.1 SWOT ANALYSIS ........................................................................................................... 6 3.1.1 Strengths and opportunities ....................................................................................... 6 3.1.2 Weaknesses and threats ............................................................................................. 6 4 PROJECT PROFILE ........................................................................................................... 6 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.9.1 5 INTRODUCTION AND IMPORTANCE OF PHYSICAL FITNESS ................................................. 6 OPPORTUNITY RATIONALE .............................................................................................. 7 PROJECT BRIEF ............................................................................................................... 7 PROPOSED BUSINESS LEGAL STATUS ................................................................................ 8 PROJECT CAPACITY AND RATIONALE .............................................................................. 8 PRODUCT MIX ................................................................................................................. 8 PROPOSED LOCATION ..................................................................................................... 9 KEY SUCCESS FACTORS/PRACTICAL TIPS FOR SUCCESS .................................................... 9 STRATEGIC RECOMMENDATIONS ..................................................................................... 9 Marketing ................................................................................................................. 9

SECTOR AND INDUSTRY ANALYSIS ........................................................................... 10 5.1 5.2 NATIONAL ANALYSIS ................................................................................................... 10 LEGAL ISSUES REGARDING INDUSTRY ............................................................................ 11

MARKET INFORMATION............................................................................................... 12 6.1 6.2 MARKET POTENTIAL ..................................................................................................... 12 TARGET CUSTOMERS .................................................................................................... 12

EXERCISE EQUIPMENT REQUIREMENT ................................................................... 14 7.1 MACHINE MAINTENANCE .............................................................................................. 17

LAND AND BUILDING REQUIREMENT....................................................................... 17 8.1 8.2 8.3 8.4 8.5 LAND REQUIREMENT .................................................................................................... 17 COVERED AREA ............................................................................................................ 18 CONSTRUCTION COST ................................................................................................... 18 RENT COST ................................................................................................................... 18 UTILITIES REQUIREMENT .............................................................................................. 18

9 10

HUMAN RESOURCE REQUIREMENT .......................................................................... 19 FINANCIAL ANALYSIS ................................................................................................... 20 10.1 10.2 10.3 PROJECT COST .............................................................................................................. 20 FINANCING ARRANGEMENT .......................................................................................... 20 PROJECT ECONOMICS.................................................................................................... 21

11

FINANCIAL STATEMENTS............................................................................................... 1 11.1 11.2 11.3 11.4 INCOME STATEMENT ....................................................................................................... 1 BALANCE SHEET ............................................................................................................. 2 CASH FLOW .................................................................................................................... 3 FEE INCOME ................................................................................................................... 4

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OPERATING EXPENSES .................................................................................................... 5

KEY ASSUMPTIONS .......................................................................................................... 6 12.1 12.2 12.3 12.4 REVENUE ASSUMPTIONS:................................................................................................ 6 EXPENSE AND GROWTH RATES: ...................................................................................... 6 OPERATING ASSUMPTIONS:............................................................................................. 6 DEBT AND EQUITY: ........................................................................................................ 6

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INTRODUCTION TO SMEDA

Small and Medium Enterprise Development Authority (SMEDA) was established with the objective to provide fresh impetus to the economy through the launch of an aggressive SME support program. Since its inception in October 1998, SMEDA had adopted a sectoral SME development approach. A few priority sectors were selected on the criterion of SME presence. In depth research was conducted and comprehensive development plans were formulated after identification of impediments and retardants. The allencompassing sectoral development strategy involved recommending changes in the regulatory environment by taking into consideration other important aspects including finance, marketing, technology and human resource development. SMEDA has so far successfully formulated strategies for sectors including, fruits and vegetables, marble and granite, gems and jewelry, marine fisheries, leather and footwear, textiles, surgical instruments, transport and dairy. Whereas the task of SME development at a broader scale still requires more coverage and enhanced reach in terms of SMEDAs areas of operation. Along with the sectoral focus a broad spectrum of business development services is also offered to the SMEs by SMEDA. These services include identification of viable business opportunities for potential SME investors. In order to facilitate these investors, SMEDA provides business guidance through its help desk services as well as development of project specific documents. These documents consist of information required to make well-researched investment decisions. Pre-feasibility studies and business plan development are some of the services provided to enhance the capacity of individual SMEs to exploit viable business opportunities in a better way. This document is in the continuation of this effort to enable potential investors to make well-informed investment decisions.

PURPOSE OF THE DOCUMENT

This particular pre-feasibility is regarding Health and fitness club comes under service sector. The objective of the pre-feasibility is primarily to facilitate potential entrepreneurs in project identification for investment and in order to serve this objective; the document covers various aspects of the project concept development, startup, marketing, and finance and business management.

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CRUCIAL FACTORS & STEPS IN DECISION MAKING FOR INVESTMENT

SWOT Analysis

3.1

A SWOT Analysis is a strategic planning tool used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or business venture. Strengths and weaknesses are internal to the company whereas the opportunities and threats originate from the external environment. A SWOT analysis is usually performed early in the project development process, and helps organizations evaluate the environmental factors and internal situation facing a project. 3.1.1 Strengths and opportunities

Easy availibility of resources/equipment Easy availibility of instructors Growing population Expanding cities Growing health conciousness and awareness Weaknesses and threats

3.1.2

Heavy taxes in the form of sales tax and income tax High fees of the clubs make it difficult to afford by midlle and low income group Availibility of portable machines that one can easily use at home without an instructor Costly imported equipment

4
4.1

PROJECT PROFILE
Introduction and Importance of Physical Fitness

Pakistan is one of those countries where awareness about health and importance of regular exercise is minimal. Statistics show that inactivity combined with poor diet is second only to tobacco use in causing preventable deaths in the world. The answer to protect from the fatal diseases is not to have treatment, rather to adopt preventive measures through exercise and movement. The evidence in this case is indisputable; Lifelong participation in physical activity has a significant, positive impact on the health and well being of individuals. The sedentary lifestyle is a major underlying cause of death, disease and disability. About 2 million deaths every year are attributable to physical inactivity. A WHO study on risk factors suggested that sedentary life style was one of the 10 leading causes of death and disability in the world. The inactivity also increases the risk of colon and breast cancer, high blood pressure, lipid disorders, osteoporosis, depression and anxiety. 6
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Recent studies have shown that children around the world are also becoming increasingly sedentary especially in poor urban areas. Time and resources devoted to physical education are being cut and computer games and televisions are replacing physically active pastime ignoring the fact that the inadequate physical activity in children could have lifelong health consequence. Regular physical activity or exercise with good eating habits, avoiding smoking, monitoring a reasonable body weight and avoiding stress could improve one's health and help prevent from many diseases. Most of the newspapers have no regular columns on health, besides very few programs on physical activity are carried out by the radio and television. Moreover the health sector is also not involved in the promotion of physical exercise. So there is great need to promote activities regarding exercise and fitness. Good health habits are very important at any age and it is never too late to change habits in ways that will improve health. One of the key factors for increasing health is exercise. A regular program of exercise can: Aid in weight management Lower risk of heart disease and certain types of cancer Increase life span and quality of life Helps control hypertension and diabetes Increase and maintain flexibility Reduces muscles tension Promotes increased circulation Aids in relaxation, stress reduction Develops body awareness 4.2 Opportunity Rationale

The factor that leads to the development of this pre-feasibility study is the fact that currently limited people have access to health and fitness clubs under qualified instructors/trainers. Great scope for these types of clubs exist in Pakistan especially in urban areas where life is busy and people have less physical activity.
4.3

Project Brief

A health and fitness club provides services to its members to improve their physical condition or appearance through exercise. The proposed health and fitness club will provide indoor facilities of Gymnasium, Exercise halls, and a Gym shop & Cafe to male and female members and will offer services of personal training by qualified instructors. Project should be centrally located within a residential town to provide easy access to the inhabitants.

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4.4

Proposed business legal status

Legal status is recommended to be a sole proprietorship/partnership because it requires less legal requirements. Also the proposed club is a small-scale set-up and almost all such clubs in existing industry are sole proprietorships. Similarly a lower rate of tax is applicable to sole proprietorship than that of companies. 4.5 Project Capacity and Rationale

The proposed health club will have an area of 4500sq ft hall having indoor facilities. The club will operate in different sessions of the day like morning, afternoon, evening and night. The club will have a capacity to cater 450 members, spread over in the following different sessions of the day: Table 4-1: Operational sessions Time Slots Gym 6:00 am to 10:30 am (Males only) 11:00 am to 5:00 pm (Females only) 5:30 pm to 10:00 pm (Males only) Exercise (Females Only) 11:00 am 12:00 pm 3:30 pm 4:30 pm Duration 4.5 hours 6 hours 5 hours 1 hour (Pilates session) 1 hour (Yoga session)

The fee package will range from Rs. 1,500 for exercise session and Rs. 3,000 for gymnasium. The fee is higher due to the reason that proposed club is fully airconditioned having full range of imported equipment. In addition to these monthly fees each member will pay Rs. 2,000 a non-refundable registration fee and Rs. 5,000 as refundable security. Table 4-2: Project Investment Sr.# 1. 2. Description Capital cost Working capital Total Product mix Rupees 4,678,250 2,266,792 6,945,042

4.6

The proposed health club will provide the following services to its members: Gymnasia Slimming center Indoor games like table tennis, snooker Gym shop & Cafe 8
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Table 4-3: Recommended project parameters Capacity Human Resource Technology/machine 450 members 17 Local and foreign Project cost 6.94 Million 4.7 IRR 45.75% NPV 18.15 Million at 18% Locations New Residential Areas Payback period 3.58 Years

Proposed Location

Health club should be centrally located within a developed/developing residential society in any of the big cosmopolitan cities like Karachi Lahore Islamabad/Rawalpindi, Faisalabad etc. to provide easy access to inhabitants. In Lahore it should be in the following developing areas: Nespak Valencia Johar Town Wapda Town The rates should be set according to the affordability of people who live in these neighborhoods. 4.8 Key success factors/Practical Tips for success To obtain a good average of profits it is necessary to provide state of art facilities to members. The proprietor should himself has technical know how of all the services being offered. The services of qualified instructors and physician should be hired as supervised workouts improve results. Utmost priority should be to provide members a lifestyle that encourages fitness through the safest and latest means. Products like heart-rate monitors, calorie expenditure display units etc should be used to enhance client motivation. Strategic Recommendations Marketing

4.9 4.9.1

At the initial stage heavy marketing would be required to attract members. After establishing a clientele it is advisable to continue marketing the club services to ensure its sustainability. The important marketing channels in this case would be flyer distribution and Cable TV. People normally consider the following factors while selecting a health club: 9
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Convenience

For new fitness clubs to be a success, it has to be conveniently located. People are more likely to use a facility if it is close to home or work. Also the fitness facility should have hours and class times that work within clients busy schedule. Type of Facility There are many different types of fitness facilities, each being the perfect motivational tool for a specific type of person. Pricing Price levels should be set at affordable levels considering income brackets of people who live in the vicinity and also after considering the competitors price levels.

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5.1

SECTOR AND INDUSTRY ANALYSIS

National Analysis

Commercial Health club industry is emerging as one of the good business ventures in Pakistan. People are getting conscious and aware about their health and feel the importance of exercise in the busy life. Currently health club industry is segmented and unorganized excluding few health clubs. There is neither an association of these clubs which is working actively for the development of this industry nor government or health department/ministry has collected any data about the quantity and quality of these clubs. Neither have the authorities set any quality standards for such clubs like in developed countries. A lot of people are venturing into this trade, as it is a flourishing business. Competition is healthy but these gyms do not cater to health needs that can be a risk. A lot of people after discontinue the gyms after having complaints of joint pain and other related health issues. This industry has gone through many technological developments. Some clubs like SHAPES use products like heart-rate monitors, calorie expenditure display units etc, to enhance client motivation. They have a complete lifestyle evaluation, which includes blood pressure measurement, resting pulse rate measurement, and body fat assessment before they recruit the new member into the program. Their instructors are certified to give first aid and CPR (cardio pulmonary resuscitation), so members safety is ensured. Table 5-1: Information about SHAPES Name of Chief executive Started in Lahore in Branches Lahore Other cities Area of each branch Offering activities Nadeem Khawaja 1995 Gulberg, DHA, Model Town Karachi, Gujranwala 90,000 sq ft Covered swimming pool, gymnasia, squash, aerobics, 10
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Daily influx of members Employees nationwide Session Package prices Certification

tennis, karate, bowling alley 600 400 Morning, afternoon, evening Rs. 3500/month (normal gym) Rs. 125,000/year (executive gym) ISO 9000/2001

The major industry players in Lahore in the organized sector are as under. Table 5-2: Major Industry Players Name Shapes Body Talk Structure Gym Yahya Fitness Centre Decent Gym Model Town Sports Club International Gym Muscles & Fitness Gym 5.2 Location Gulberg, DHA, Model Town Kalma Chowk And Allama Iqbal Town Residency Hotel, Zafar Ali Road Ferozepur Road Near Gaddafi Stadium Gohar Centre Wahdat Road Model Town Allama Iqbal Town Saleem Plaza Q Block Model Town Lahore

Legal issues regarding industry

No approval from any provincial government or health department is required in Pakistan for operating a health and fitness club. In developed countries like USA there are specific laws called States Health Club Laws that governs the health clubs is USA. SHAPES club is the only club in Pakistan which is ISO 9001/2000 certified. Health Clubs like any other business activity must be registered with income tax department and sales tax department. Prevailing rate of income tax for sole proprietorship is in various slabs max 35%. Table 5-3: Income Tax Rates Sr. 1 2 3 4 5 Taxable income Where taxable income does not exceed Rs. 100,000 Where taxable income exceeds Rs. 100,000 but does not exceed Rs. 110,000 Where taxable income exceeds Rs. 110,000 but does not exceed Rs. 125,000 Where taxable income exceeds Rs. 125,000 but does not exceed Rs. 150,000 Where taxable income exceeds Rs. 150,000 but does not exceed 11
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Tax Rate 0% 0.50% 1.00% 2.00% 3.00%

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6 7 8 9 10 11 12 13 14

Rs. 175,000 Where taxable income exceeds Rs. 175,000 but does not exceed Rs. 200,000 Where taxable income exceeds Rs. 200,000 but does not exceed Rs. 300,000 Where taxable income exceeds Rs. 300,000 but does not exceed Rs. 400,000 Where taxable income exceeds Rs. 400,000 but does not exceed Rs. 500,000 Where taxable income exceeds Rs. 500,000 but does not exceed Rs. 600,000 Where taxable income exceeds Rs. 600,000 but does not exceed Rs. 800,000 Where taxable income exceeds Rs. 800,000 but does not exceed Rs. 10,00,000 Where taxable income exceeds Rs. 10,00,000 but does not exceed Rs. 13,00,000 Where taxable income exceeds Rs. 13,00,000

4.00% 5.00% 7.50% 10.00% 12.50% 15.00% 17.50% 21.00% 25.00%

Sales Tax is applicable on club services under Provincial Sales Tax Acts. The rate of General Sales Tax applicable on club services is 15 % on all services.

6
6.1

MARKET INFORMATION
Market potential

The market for health clubs in Pakistan has been developing steadily over the last decade and a mushroom growth of Gym and clubs is being observed in all the cities. But still a good potential exists for quality health clubs. Pakistan is emerging as a newly health conscious society. Location and amenities are some of the most vital factors in the success of a health club. Customers usually conduct research before choosing a fitness facility because choosing a fitness facility that is right for them is crucial to their success. Fitness facilities can vary greatly not only in price but also in size, amenities and programs offered, hours, convenience and most importantly, motivational atmosphere. Many join a fitness facility with the greatest of intentions but end up discouraged and unmotivated due to bad management by the clubs. 6.2 Target customers

The target customers for health clubs are the population of big cities having age group of 18 to 50 years. Population of urban areas of Pakistan is 33% of total population out of which 50% falls in the targeted customers age group. Total 12
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estimated current population of Pakistan is 160,970,000 1(161 million). It means clubs targeted customers living in urban areas are 26,560,050 (26 million). Following table gives the percentage of population of targeted customers (age group wise)2. Table 6-1: %age of population of targeted customers (age group wise) Age Group 15-19 20-24 25-29 30-35 35-39 40-45 46-49 Table 6-2: City Karachi Lahore Faisalabad Rawalpindi Peshawar Islamabad Total Population % age 10.37 8.97 7.37 6.22 4.77 4.44 3.53 Urban Population % age 11.48 9.75 7.98 6.88 5.44 4.86 3.65

Population of big cities of Pakistan3 1998 census Total No. (000) 9,339 5,443 2,009 1,410 983 529 Targeted customers 50% of total No (000) 4,670 2,722 1,005 705 492 265

Huge market is available for new health clubs to enter. It is only the matter of creating awareness for which media is playing a positive role.

1
2

Source: FBS Source: FBS 3 Source: FBS

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EXERCISE EQUIPMENT REQUIREMENT

The success of this project is depended on the quality of machines so selection of machinery is the most important aspect of this project. The exercise equipment is available in various varieties. Both local and imported equipment is available in the market. Existing clubs in the market are using a blend of imported (which is locally available) and local equipment. Following is the detail of machinery required for this project. Table 7-1: Exercise and sports machines required Description Slimming, Warm up & Waist Electric jogger power fit Exercise Bicycle Air Resistance Dual Action Heavy Duty Dual Action Stepper Mini Stepper With handles Twister Twister- Double with handles Twister- Single Belt Massager Crunch Vertical Knee Raise Roman Chair Hyper Extension (Adjustable) Sit-up Bench Abdominal Board with stand (Multi and Adjustable) Total Chest Exercise Bench Press (with plate holder) Incline Press (with plate holder) Cost per unit (Rs.) 80,000 Units Total Cost (Rs.) 320,000 320,000 20,000 30,000 50,000 28,000 28,000 30,000 8,000 38,000 16,000 12,000 13,000 12,000 12,000 9,000 50,000 5,60,000 Availability Imported

10,000 15,000

2 2

Local Local

14,000

Local

15,000 8000 16,000 12,000 13,000 12,000 12,000 4,500 25,000

2 1 1 1 1 1 1 2 2

Local Local Local Local Local Local Local Local Local

9,500 9,500 14

2 2

19,000 19,000

Local Local

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Decline Press (with plate holder) Butter fly Machine (with 60 Kg weight) Sitting Bench Press Machine (with 50 Kg weight) Multi Smith machine Bench Press Flying Machine (with 60 kg) Pull Over Machine Cable cross over Machine with chin-up bar (with 100 kg) Total Legs & Thigh Exercise Leg Extension(with 60 Kg weight) Hack Squarts Power line leg press Leg Curl Machine(with 50 Kg weight) Leg Stand Standing calves machine(with 100 Kg weight) Sitting calves machine Total Arm Exercise Preacher Curl Bench(manual) Preacher Curl Bench (machine) Bent Over Lever row: T-Bar Standing Curl Stand Triceps Dip Shoulder Press Machine (with 50 kg weight) Total

9,500 32,000 30,000 45,000 35,000 35,000 48,000

1 1 2 2 1 1 1

9,500 32,000 60,000 90,000 35,000 35,000 48,000 347,500

Local Local Local Local Local Local Local

35,000 50,000 50,000 45,000 15,000 50,000 20,000

1 1 1 1 1 1 1

35,000 50,000 50,000 45,000 15,000 50,000 20,000 265,000

Local Local Local Local Local Local Local

12,000 35,000 18,000 4,000 8,000 35,000

1 1 1 1 1 1

12,000 35,000 18,000 4,000 8,000 35,000 112,000

Local Local Local Local Local Local

Multi Gymnasium Multi four Station 65,000 (200 Kg weight) with Cable 15
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rowing, Lat pull, Twister & Tbar extension Total Multi Six Station 125,000 (350 Kg weight) with Cable rowing, Peck deck, Triceps extension, Lat pull, Chin up bar, Preacher cable machine Total Rods Dumbles and Weights Rods (Chrome Coated) Olympic rod(6 Ft) Curling rod(4 Ft) Rod 5-feet EZ Curl Bar Rod 7-feet Total 1

65,000 125,000 Local

125,000

3,500 2,500 3,000 4,000 4,000

3 2 2 2 1

10,500 5,000 6,000 8,000 4,000 33,500

Local Local Local Local Local

Dumbles Chrome Coated @ Rs. 250 per Kg: 6 kg 1,500 8 kg 2,000 10 kg 2,500 12 kg 3,000 14 kg 3,500 16 kg 4,000 18 kg 4,500 20 kg 5,000 24 kg 6,000 28 kg 7,000 32 kg 8,000 40 kg 10,000 Total Weights Chrome Coated @ Rs. 250 per Kg: 16
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10 10 6 6 6 4 4 6 4 2 2 2

15,000 20,000 15,000 18,000 21,000 16,000 18,000 30,000 24,000 14,000 16,000 20,000 227,000

Local Local Local Local Local Local Local Local Local Local Local Local

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2.5 kg 5 kg 10 kg 15 kg 20 kg Total Dumble and weight racks Multi Dumble Rack Multi Weight Rack Total Yoga & Pilates equipment Yoga mats Pilates Equipment Total TOTAL

625 1,250 2,500 3,750 5,000

10 12 12 12 12

6,250 15,000 30,000 45,000 60,000 156,250

Local Local Local Local Local

15,000 10,000

2 2

30,000 20,000 50,000

Local Local

5,000

15

75,000 100,000 175,000 2,116,250

Table 7-1: Major Equipment Suppliers Name S Nabi Buksh & Sons Decent Gym Star Sports Yehya Center Waleed Sports 7.1 Machine maintenance Address Opp High Court 23, Sharah-e-Quaid Azam, Lahore Gohar Center Wahdat Road, Lahore Anarkali Lahore Gujjar Pura Ghorey Shah Lahore Manawan Jalo more Lahore

Generally these machines require less maintenance except regular oiling and occasional replacement of broken wires and bent rods. All parts are easily available.

8
8.1

LAND AND BUILDING REQUIREMENT

Land Requirement

The proposed health and fitness club requires an area of approximate 4,050 sq ft. It is recommended to start the club in rented premises instead of owned premises to avoid huge investment.

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8.2

Covered area

Table 8-1: Area Utilization Description Owners Office Accounts & Admin. Office Changing/Locker Room Washrooms Showers Gymnasia Exercise Hall Refreshment center4 Total Area (Approx.) 8.3 Construction cost Sq. ft. 120 100 450
48

120 2150 735 110

Units 1 1 1 3 2 1 1 1

Area 120 100 450 144 240 2,150 735 110 4,049

Current construction cost of club is approx Rs. 1,200 per sq.ft. Total construction cost of 4050 sq.ft. Area will be Rs. 4,860,000. To minimize the cost of the project it has been assumed that the building for the health and fitness club will be taken on rental basis. 8.4 Rent cost

The building required for the project will be of commercial nature. The rent of the building will depend on not only the vicinity of the club as well as the floor on which it would be located. The club can also be established in an independent house unit that can be used for commercial purposes. If the required building is acquired on rent on 2nd or 3rd floor of any plaza the cost will be slightly lower, approximately in the range of Rs. 90,000 to Rs. 150,000 per month as per the rates applicable in different areas of Lahore. In some locations rents of the buildings are very high such as Gulberg, DHA etc where rents of the required area are between Rs. 200,000 to Rs. 350,000 per month. For this particular pre-feasibility the rent amount has been determined at Rs. 121, 500 per month (calculated at the nominal commercial rate of Rs. 30 per sq.ft.) 8.5 Utilities requirement

The necessary utilities are electricity, telephone and water. A three-phase commercial electricity connection is required. Current rate of electricity for these connections is Rs 11.00 per kilowatt-hour.

Gym shop & Cafe is rented out for Rs. 15,000 / month

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HUMAN RESOURCE REQUIREMENT

The total human resource requirement of the health and fitness club is 17. Skilled instructors are easily available at competitive salaries. Number of workers required for each department is as follows: Table 9-1: Human resource required Number 1 4 4 1 1 4
2

Department/Positions Manager Instructors (Male/Ffemale) Gym Helpers Admin/Accountant General physician Cleaners Security guard Total

Salary/month (Rs.) 25,000 15,000 6,500 10,000 15,000 6,500 7,000

17

Annual salary Rs. 300,000 720,000 312,000 120,000 180,000 312,000 168,000 2,112,000

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10 FINANCIAL ANALYSIS
10.1 Project Cost

Capital investment for purchase of equipment is the major component of total project cost of a Health and Fitness club. Following table shows the detail of the Project cost: Table 10-1: Capital Costs Capital Investment Equipment Air conditioners Computer with UPS Furniture & fixtures Printer Sound system Water dispenser Generator Refrigerator Pre-operating costs Total Capital Costs Units Cost per unit 35,000 35,000 12,000 30,000 15,000 925,000 35,000 Rs 2,116,250 350,000 70,000 300,000 12,000 60,000 15,000 925,000 70,000 710,000 4,678,250

10 2 1 2 1 1 2

In addition to capital investment, the project will also require working capital. Table 10-2: Working Capital Rs. Pre-paid building rent Building Security Cash Total Working Capital Total Investment 10.2 Financing Arrangement The project is based on following debt to equity ratio. Table 10-3: Financing Plan Debt (Rs) 50% Equity (Rs) 50% 3,472,521 3,472,521 6,945,042 20
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729,000 400,000 1,137,792 2,266,792 6,945,042

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10.3

Project Economics

A comprehensive financial analysis & projections of the project show that the project has a potential to bring healthy positive returns to the investors. All estimates are conservative with minimal number of members in the initial phase. Table 10-4: Financial Analysis IRR NPV Payback Period (yrs) 45.75% Rs. 18,145,000 3.58

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11 FINANCIAL STATEMENTS
11.1 Income statement
Income Statement
Year - I Revenue* Members fee Refreshment counter Year - II Year - III Year - IV Year - V Year - VI Year - VII Year - VIII Year - IX Rupees (000) Year - X

6,060 180 6,240 6,548 (308) 528 (836) (836) -

9,515 198 9,713 7,059 2,654 417 2,237 559 1,678 (836)

12,152 218 12,370 7,144 5,225 306 4,920 1,230 3,690 842 4,532

14,628 240 14,867 7,596 7,272 194 7,077 1,769 5,308 4,532 9,840

17,091 264 17,354 8,095 9,260 83 9,176 2,294 6,882 9,840 16,722

19,810 290 20,100 8,945 11,155 11,155 2,789 8,367 16,722 25,089

22,967 319 23,286 9,596 13,690 13,690 3,422 10,267 25,089 35,356

26,464 351 26,814 10,200 16,614 16,614 4,154 12,461 35,356 47,816

30,413 386 30,799 10,963 19,836 19,836 4,959 14,877 47,816 62,694

34,974 424 35,399 11,693 23,706 23,706 5,926 17,779 62,694 80,473

Operating Expenses: Operating Profit Financial Charges Profit before Taxation Taxation Profit after Taxation Acc. Profit b/f

Un-appropriated Profit c/f (836) 842 * NOTE The figure of revenue are exclusive of sales tax

1
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Health & Fitness Club

11.2 Balance sheet

Projected Balance Sheet
Year - 0 Tangible Fixed Assets Preoperational expenses Current Assets: Security deposit Advance rent Cash in Hand / Bank 3,968 710 Year - I 3,571 568 Year - II 3,214 426 Year - III 2,893 284 Year - IV 2,604 142 Year - V 2,343 Year - VI 2,109 Year - VII 1,898 Year - VIII 1,708 Rupees (000) Year - IX 1,537 Year - X 1,384 -

400 729 1,138 2,267 6,945

400 875 1,275 5,415

400 2,358 2,758 6,398

400 5,817 6,217 9,394

400 10,861 11,261 14,007

400 17,451 17,851 20,195

400 26,052 26,452 28,561

400 36,530 36,930 38,828

400 49,181 49,581 51,289

400 64,229 64,629 66,166

400 82,162 82,562 83,946

Owners Equity: Capital Accumulated Profit Long Term Loan Current Liabilities: Current Portion of Long Term Loan Accounts Payable

3,473 3,473

3,473 (836) 2,084

3,473 842 1,389

3,473 4,532 695

3,473 9,840 -

3,473 16,722 -

3,473 25,089 -

3,473 35,356 -

3,473 47,816 -

3,473 62,694 -

3,473 80,473 -

6,945

695 695 5,415

695 695 6,398

695 695 9,394

695 695 14,007

20,195

28,561

38,828

51,289

66,166

83,946

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11.3 Cash flow

Projected Cash Flow
Year 0 Profit before Financial Charges & Taxation Amortization Depreciation Working Capital Change Cash form other Sources Owners Bank Finance Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Rupees (000) Year 9 Year 10

3,473 3,473 6,945 6,945

(308) 142 397 231 729 960 960

2,654 142 357 3,153 3,153 3,153

5,225 142 321 5,689 5,689 5,689

7,272 142 289 7,703 7,703 7,703

9,260 11,155 13,690 16,614 142 260 234 211 190 9,662 11,390 13,901 16,804 9,662 11,390 13,901 16,804 9,662 11,390 13,901 16,804

19,836 171 20,007 20,007 20,007

23,706 154 23,859 23,859 23,859

Total Sources Applications: Fixed Assets Preoperational Expenses Working Capital Re -Payment of Loan Tax

3,968 710 2,267 6,945 1,138 1,138

1,222 1,222 (262) 1,138 875

1,111 559 1,671 1,483 875 2,358

1,000 1,230 2,230 3,459 2,358

889 1,769 2,658 5,045 5,817

778 2,294 3,072 6,590 10,861 17,451

2,789 2,789 8,601 17,451 26,052

3,422 3,422 10,478 26,052 36,530

4,154 4,154 12,650 36,530 49,181

4,959 4,959 15,048 49,181 64,229

5,926 5,926 17,933 64,229 82,162

Cash Increase/(Decrease) Opening Balance Closing Balance

5,817 10,861

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Health & Fitness Club

11.4 Fee income

Fee Structure
Y-I Per No. Member Number of Members New entrants 110% Old retainants 45% Non-Operating Revenue Registration Fee 2,000 300,000 300,000 Operating Revenue Monthly Fee Gym Yoga/Pilates Net Fee 3,000 150 1,500 20 170 5,400,000 360,000 5,760,000 6,060,000 3,150 1,575 233 20 253 8,807,400 378,000 9,185,400 9,515,400 3,308 1,654 287 20 307 11,391,030 396,900 11,787,930 12,151,930 3,473 1,736 329 20 349 13,710,911 416,745 14,127,656 14,627,656 3,647 1,823 368 20 388 16,103,027 437,582 16,540,609 17,090,609 2,000 330,000 330,000 2,000 364,000 364,000 2,500 500,000 500,000 2,500 550,000 550,000 150 150 165 68 233 182 105 287 200 129 329 220 148 368 Rupees Y - II Per No. Member Rupees Y - III Per No. Member Rupees Y - IV Per No. Member Rupees Y-V Per Membe No. Rupees r

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Health & Fitness Club

11.5 Operating expenses

Operating Expenses
Year - I Year - II Year - III Year - IV Year - V Year - VI Year - VII Year - VIII Year - IX Rupees Year - X

Administrative Salaries Rent Legal & Audit Fee Entertainment Telephone, Fax and Postage Electricity Generator Cost Advertisement Repair of equip Traveling conveyance Printing and stationery Depreciation Amortization

2,112,000 1,458,000 25,000 62,400 62,400 1,578,720 342,000 187,200 119,048 31,200 31,200 396,825 142,000 6,547,993

2,305,200 1,603,800 27,500 97,134 97,134 1,657,656 359,100 194,268 130,952 38,854 48,567 357,143 142,000 7,059,307

2,154,720 1,764,180 30,250 123,697 123,697 1,740,539 377,055 123,697 144,047 37,109 61,849 321,428 142,000 7,144,269

2,317,920 1,940,598 33,275 148,672 148,672 1,827,566 395,908 74,336 158,452 44,602 74,336 289,285 142,000 7,595,623

2,439,360 2,134,658 36,603 173,541 173,541 1,918,944 415,703 86,771 174,297 52,062 86,771 260,357 142,000 8,094,609

3,056,097 2,348,124 40,263 201,004 201,004 2,014,891 436,488 100,502 191,727 60,301 60,301 234,321 8,945,023

3,251,355 2,582,936 44,289 232,859 232,859 2,115,636 458,313 116,429 210,900 69,858 69,858 210,889 9,596,180

3,354,749 2,841,230 48,718 268,144 268,144 2,221,418 481,228 134,072 231,990 80,443 80,443 189,800 10,200,380

3,565,159 3,125,352 53,590 307,990 307,990 2,332,488 505,290 153,995 255,189 92,397 92,397 170,820 10,962,657

3,684,739 3,437,888 58,949 353,987 353,987 2,449,113 530,554 176,994 280,708 106,196 106,196 153,738 11,693,050

5 PREF-75/ Mar, 2009/Rev-2

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Health & Fitness Club

12

KEY ASSUMPTIONS

12.1 Revenue Assumptions: No. of members (First Year) Registration fee (One time) Monthly Fee Monthly fee (growth rate %) New members growth rate Old members retain rate Rent from refreshment center/month 12.2 Expense and Growth Rates: Salary growth rate Entertainment as % of revenue Telephone fax and postage % of revenue Amortization of pre-operational expenses Advertisement % of revenue Electricity growth rate Traveling and conveyance % of revenue Printing and stationery % of revenue Markup on long term loan Monthly rent Rent growth rate Repair and maintenance % of Equip cost 12.3 Operating Assumptions: No of operational days Hours operational per day 12.4 Debt and Equity: Debt equity ratio Debt Tenure Debts payments per year 50:50 5 Yrs 2 300 days 16 Hrs 10% 1.0% 1.0% 20% 3% 5% 0.5% 0.5% 16% Rs. 121,500 10% 3.0% 150 Rs. 2,000 Rs. 3,000 5% 10% 45% Rs. 15,000

6 PREF-75/Mar, 2009/Rev-2