EFM associate Neil Outram shares his story of founding a business, an experience that enables him to deliver the most practical and commercial support to entrepreneurs as their finance director.
In this first article, Neil explains the process he followed in acquiring The Little Gym franchise and growing the business during its first 12 months of operation.
On leaving global engineering and construction group, Alstom Thailand in June 2010, I began evaluating business opportunities that would keep me in the region, but would enable me to apply my business development strategies to new sectors.
I identified The Little Gym (TLG) franchise as a tried-and-tested model, offering a well-developed operation with scope for enhancement. The franchise package included comprehensive proprietary lesson plans (a key differentiator), excellent training and development resources, plus professional marketing collateral.
The product offering of a gymnastics and motor skills development programme is aimed at young, affluent, middle-class families with disposable incomes. Various locations within Malaysia’s Klang Valley matched this demographic and my assessment was that TLG would fill a gap in the Malaysian child development market.
Five Year Business Plan
I developed a five year business plan using a discounted cashflow valuation model. Adopting this approach, I was able to demonstrate good ROI over several customer volume scenarios; I could evidence the business model required only small stepped cost increases, compared to revenue increases. A break-even point of approximately 200-250 customers could be attained depending on the staffing strategy for the gym. My model was underpinned by a market-based pricing strategy. This pricing strategy delivers the right balance between attracting customers or in the case of TLG, members, and producing healthy margins (and it is still used by the business today).
I presented my business plan to potential investors, and selected an investor/business partner with whom I have jointly run and grown the business over the past ten years. We then secured a unit franchise agreement covering my prime location, and negotiated excellent rental rates for a shopping mall gym site.
Building the Team
In parallel, I was identifying qualified individuals to teach the TLG programme. The quality of our staff remains a key differentiator, and it was important to launch the business with the right skills and experience in place. We recruited and tied-in for 12 months a US expatriate with extensive experience of the TLG programme. On opening, the business began with only five team members, including myself and my business partner, and like any fledgling business, we were all required to get involved where needed, and that included teaching classes.
Our plan was to develop a local team to deliver quality classes on a sustainable basis. Salary levels were set to attract quality candidates able to deliver excellent classes and customer service, thus differentiating the programme against our competitors. The salary rates offered were as stated in the business plan, and remain attractive for recruitment purposes and the basis for the current remuneration scheme.
We planned an initial marketing strategy that promoted both the gym opening and the TLG educational concept, including the development of website and Facebook campaigns, print periodical advertising, appearances on local radio and TV shows, promotions to school audiences, tie-ins with a local mother and child group, and attendance at trade shows. The result was a healthy number of enquiries and positive conversions, and a fast transition to a profit position for the business. The pre-sales campaign resulted in 99 customers being signed-on before our actual opening date. The first gym opened in February 2012 and was an immediate success, securing over 400 members in the first year of operation.
I selected the companies accounting software package (Moneyworks) based on its flexibility to accommodate growth, customisation features and reporting options. It also offered Goods and Services Tax functionality, with this levy expected in Malaysia after our business launch.
To enable the effective running of the company based on informed business decision-making, starting-out I implemented monthly management reports, cash flow forecasts and a budgeting process, plus reporting on non-financial KPIs. In addition, we conducted bi-annual strategic reviews to determine the future direction of the company and to present to minority shareholders, who became involved later.
Reporting has evolved as the business has grown. As main board directors, my business partner and I have moved away from daily operations and require timely and transparent management information to enable prompt decision-making and accurate forecasting. We receive regular reports on staff performance against KPIs, individual gym revenue and costs to gross margin level compared to budget and sector best practice, and company performance to net profit. KPIs results are used to target training needs and bonus allocation. All reports are against annual budgets, except for cash forecasting, which is undertaken monthly.
Data integrity is essential and each month we undertake a review of the balance sheet and main P&L accounts. This includes a bank reconciliation and an analysis of all balance sheet accounts to ensure they have valid and relevant entries. Any large or unusual entries are also verified to ensure they are correct. This leads to accurate reporting and a smooth year-end audit.
Now, Neil works with businesses in the north west of England, having returned from South East Asia in 2020. He remains involved with the continued growth of The Little Gym as a main board director.
In his second article, to be published next month, Neil explains how he grew The Little Gym business to seven gyms and international expansion.
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Click HERE to view Neil`s Case Study