What is the relationship between the Fly Fitness franchisee's initial investment (Item 7) and their ability to generate sufficient revenue to cover their operating expenses and royalty fees (Item 6)?
Fly_Fitness Franchise · 2024 FDDAnswer from 2024 FDD Document
d in the Franchise Agreement.
17 This is an estimate of the amount of additional operating capital that you may need to operate your Franchised Business during the first three (3) months after commencing operations. We cannot guarantee that you will not incur additional expenses in starting the business that may exceed this estimate. This estimate includes such items as rent, utilities, internet service, initial payroll and payroll taxes, Royalties (as described in this disclosure document), Brand Fund Contributions, repairs and maintenance, bank charges, miscellaneous supplies and equipment, initial staff recruiting expenses, and other miscellaneous items. These estimates do not include any compensation to you, nor do they include debt service. These items are by no means all-inclusive of the extent of possible expenses.
We relied upon the experience of our affiliate-owned Fly Fitness outlets to compile these estimates. You should review these figures carefully with a business advisor before making any decision to invest in the franchise. These figures are estimates and we cannot guarantee that you will not have additional expenses starting your Franchised Business. Your additional costs will depend on factors such as how closely you follow our methods and procedures; your management skill, experience, and business acumen; local economic conditions; the local market for our service; competition; and the sales level reached during your initial period. We estimate that a franchisee can expect to put additional cash into the business during at least the first three to six months, and sometimes longer.
We do not offer direct or indirect financing to franchisees for any items included in this section.
All fees and payments are non-refundable, unless otherwise stated or permitted by payee.
ITEM 8: RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES
We have identified various suppliers, distributors and manufacturers of equipment, fixtures, inventory, and services that your Franchised Business must use or provide which meets our standards and requirements. You must purchase all inventory, equipment, computer systems and certain software from our designated suppliers and contractors or in accordance with our specifications. We maintain written lists of approved items of equipment, fixtures, inventory, and supplies (by brand name and/or by standards and specifications) and a list of designated suppliers and contractors for those items. We will update these lists periodically and issue the updated lists to all franchisees.
We approve suppliers after careful review of the quality of the products they provide to us and our franchisees. If you would like us to consider another item or supplier, you must make such request in writing to us and have the supplier give us samples of its product or service and such other information that we may require. If the item and/or supplier meets our specifications, as we determine in our sole discretion, we will approve it as an additional item or supplier.
What This Means (2024 FDD)
According to Fly Fitness's 2024 Franchise Disclosure Document, the initial investment a franchisee makes is directly related to their ability to cover operating expenses and royalty fees. Item 7 outlines the estimated initial investment, which includes expenses like rent, utilities, initial payroll, and royalty fees during the first three months of operation. Fly Fitness indicates that franchisees should anticipate needing additional capital during the first three to six months, or possibly longer, to sustain the business.
Item 19 provides insight into potential revenue streams, noting that the primary source of revenue for a Fly Fitness studio is membership fees, supplemented by class packages, boutique sales, and other fees. However, Item 19 also stipulates that as a franchisee, you will face royalty fees of 7% of Gross Revenue and a Brand Fund Contribution Fee of up to 2% of Gross Revenue. These fees directly impact the profitability and the amount of revenue needed to cover expenses.
The FDD emphasizes that the financial performance representations are based on affiliate-owned outlets and that individual results may vary. Factors such as management skill, local economic conditions, and competition can influence a franchisee's ability to generate sufficient revenue. Therefore, while the initial investment covers some initial operating costs and fees, a franchisee's ongoing success depends on effectively managing the business to generate enough revenue to cover these expenses and sustain profitability. Prospective franchisees should carefully consider these factors and review the financial performance representations with a business advisor.