Fitness industry owners and managers have learned of the importance of reinvesting in the physical plant and equipment on a regular basis. Yet, many still do not create committed three- to five-year plans. In fact, facility operators are often reactive vs. proactive when making capital expenditures.

For instance, the decision to add a group cycling studio may be in response to a competitor creating one. Or, the purchase of additional elliptical machines may be a defensive response to a few members who complained they were tired of waiting. Unfortunately, without evaluating the true value of capital expenditures such as these, money spent may be wasted.

Need for capital budgeting

Fitness center owners are somewhat cavalier about the financing and specific dates of capital spending. Most regularly create 12-month operating budgets, even broken down by departments, yet they do not similarly create a meaningful one-year capital budget.

This is unfortunate, because about 4 to 6 percent of a fitness center’s annual gross revenues are spent on capital items, but not always in a priority fashion and without a clear schedule. For instance, if a racquetball court is to be converted into a group cycling or a yoga/Pilates studio, it is critical to know when construction will begin and end. Obviously, racquetball league and lesson revenue would end, no revenue would be available during construction, and revised revenues and expenses would ensue only once the new studio is operational.