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The determination of the profitability of business project needs thorough analysis and study. The decisions made are vital through defining whether the risks accompanying the project justify the benefits and the advantages. This paper is going to consider a particular case of opening a fitness Gym “Elite Personal Training” in London in giving general basics on analyzing effectiveness of business.
The case considers the idea of opening a fitness club by in the city of London, Ontario. The main concept is involving the idea of personally training individually the clients of the gym. The idea of the gym belongs to Martin Menard and Mirella Craciun, personal trainers who in their current work have a client base of 40 people. The primary money investment is approximately 14.000$ held by Craciun, and Menard contribution would have to be in de form of managing and growing the business. The financial objectives of the project were decided to be as following:
- Monthly salary of 2500$ each. (Could be possibly gave up in the first 2-3 months)
- 10 000$ in the first year for re-investment.
- Register four to eight new clients every month starting from the second year.
The guarantee of the commercial success of fitness clubs are many, to mention a few, clear and adequate concept, objective information about the demand for the sport services in the region, the unique style, the creation of the competitive advantages, the effective marketing measures. Furthermore, the detailed planning of investments makes it possible to accurately determine the necessary sum of investments and to plan the profit of the sport club.
Measures of effectiveness of business projects can be divided into two groups:
- Measures of the effectiveness of the operating activity of enterprise, which realizes project in our case it is fitness club activity. The plan (report) about the profits and the losses and balance is used with the calculation of the indices of this group. Here are involved the measures of profitability, solvency, liquidity, effectiveness of the turnover of entering, average rate of profit on the investments.
- The measures of the effectiveness of the investments, whose calculation is, produced on the basis of the plan (report) of the flow of cash resources. In this group of indices is examined the payback period project, the clean given cost of the flow of money, the index of profitableness, internal net profit ratio, and other
The groups given in this division makes it possible for the owners to answer the following questions.
- How rapidly will the initial capital be paid off?
- How will be correlated the profit, obtained as a result of the realization of project with the initial investments?
- To what extent is the result effective with the given investments?
The index period of compensability characterizes sufficiently well the risk of project; however, it does not reflect the effectiveness of project after the period of compensability and cannot be used for determining the profitableness of project. This method makes it possible to give only the crude estimate of the liquidity of project. In our case it is approximately two years
In the represented overview has been examined the idea of the creation of such place for fitness, where the residents of London could effectively train. In this case it is necessary to note that today it is one of the only fitness clubs or sport complex gives its clients of the possibility of individual training.
Calculating the approximate given values the initial investment could be considered sufficient if followed the predictions given in the case, however some costs should be reduced in the first 4-5 months which include promotions.
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