Unit 7 Rahat Mohammed
Business Decision Making 20223965
Business Advisory Report
Purpose of this report
In this activity, I will provide Esah with advice in my role as an assistant at a small business
advisory service. As Esah wants to start a fitness business. She has provided information on her
company concept, the market, and the two different alternatives. She is thinking of asking for
advise on two possible business routes.
Executive Summary
Esah has two business alternatives, and after thoroughly considering them, Option 2, which calls
for opening a fresh workout facility on the industrial property, is the better one. Option 2 is in
line with the current market trends, providing a wide variety of fitness studio choices to suit a
wider clientele. Option 2 is a more solid and less risky investment than Option 1. It is suggested
that Esah take Option 2, which involves establishing a fresh exercise facility on an industrial
estate, after the two business choices for her fitness company were analyzed. When compared
against Option 1, Option 2 shows better financial potential and less risk. With a more favorable
current ratio of 2.86 Option 2 has a stronger ability to satisfy financial commitments and good
short-term liquidity, according to the examination of liquidity ratios. Plus, Option 2 has a larger
gross profit margin about 98%, which shows effective cost control and a big profit margin after
subtracting the total cost of goods sold. Option 2 has a fair level of profitability with a net profit
margin of 29.356%. Additionally, the second option has a larger sales revenue margin of safety,
which acts as a safeguard against a decrease in sales. Option 2's inventory turnover efficiency
ratio is 3.74 which is higher than Option 1, suggesting that inventory management is better than
option 1. After considering risk minimization, profitability, and stability in finances, Option 2 is
the better option for Esah's fitness company.
Context of current scenario
Esah's history includes working at a nearby fitness center after completing a degree in health and
fitness at college. She is driven to start her business, which will provide personal training to
improve overall health and wellbeing while assisting customers in reaching their fitness goals.
She is qualified to provide exercise instruction. The purpose of this report is to choose the best
option from the two options: Option 1, which involves providing mobile fitness services at
clients' homes, and Option 2, which involves the building of a new fitness studio on an industrial
estate.
Aims and objectives
Esah has two main objectives and goals for her new micro-fitness business:
Her first goal is to make a steady profit.
Esah is also committed to supporting the expansion of her company.
Unit 7 Rahat Mohammed
Business Decision Making 20223965
Key Factors and Risks
Interests and skills of the entrepreneur- Key components influencing the success of Esah's
personal training business are her interests and abilities as a certified exercise instructor and
fitness fanatic. With her academic background, practical experience in an exercise studio, and
enthusiasm for health and fitness, she possesses an in-depth understanding of the fitness
business. In addition to improving the standard of her work, this also helps her customers reach
their fitness objectives. The objectives and goals of Esah's microbusiness are in line with her
personal interest in fitness, allowing her passion for fitness to mix peacefully with the financial
success and expansion she aims. Her ability to educate people about exercise and her sincere
desire to promote health and well-being are the basis of her company's success since they align
with the main values and goals of her business enterprise.
Gap in the market- Incomplete customer requirements or potential for development within a
particular industry are referred to as “gaps in the market.” Esah's micro-fitness firm seeks to fill
the gap in the sector as the heath and exercise sector continues to change. The industry's
estimated worldwide value is $70.3 billion in 2023, and growth at a predicted annual rate of
7.67% through 2030 should see it reach USD 169.7 billion. Interestingly, there is a clear change
in demographics occurring: by 2045, one in five people will be 60 years of age or older. Esah's
strategic goals of profitability and growth correspond with this gap in the market. Esah hopes to
tap into the growing market for specialized and cutting-edge fitness products by providing
distinctive services including personalized training plans and cutting-edge fitness solutions. One
important aspect of this market gap is that it gives Esah's business a chance to grow and succeed
in the highly competitive fitness industry while simultaneously making a consistent profit and
establishing itself as a leader in meeting the needs of evolving customers.
Current market trends- Fitness club memberships are rising globally, and market developments
in the fitness industry show an important increase in consumer interest in and expenditure on
health and wellbeing. The industry is notably adapting to the idea of “active aging,” matching
products and services to meet the needs of the expanding older population who aim to maximize
their remaining years. Esah’s goals and aspirations for her fitness company are directly impacted
by these developments. Her objective of increasing the company’s customers is in line with the
rising health consciousness and growing consumer base. Additionally, Esah’s dedication to
profitability and the worldwide fitness trend meet, as increased demand fosters an advantageous
atmosphere for her business growth. The industry’s embrace of “active aging” gives Esah even
more opportunity to expand into new areas and diversify her offerings, which strengthens her
methodical strategy for long-term success in the highly competitive fitness sector.
Changes in the product portfolio- The changes in the product line of the fitness sector have a
big impact on Esah's goals and aspirations for her fitness business. Hot yoga studios, high
altitude training rooms, metabolic testing equipment, medical exercise sections, and day spas are
just a few of the new facilities and equipment that fitness centers provide. The scenario also
highlights the growing popularity of purchasing home gym equipment and the growing necessity
for mobile apps and online fitness programs. Changing consumer preferences and the adoption of
diverse fitness techniques have led to the evolution of the product portfolio. For Esah, the growth
Unit 7 Rahat Mohammed
Business Decision Making 20223965
of her microbusiness and the fitness firm she subsequently launches depend on her ability to
recognize and adapt to these changes. By providing a wide range of creative and diverse fitness
services, including those that cater to home-based and digital fitness trends, Esah can position
her business to meet the evolving needs of her audience. This adaptability, which makes use of
the wide and expanding array of fitness goods and services, not only raises the possibility of
success but also places Esah's fitness initiative at the top of rivals for industry development.
Currently Esah has two options. Providing mobile fitness facilities at the client's place is Esah's
first option. This fits perfectly with present patterns in the fitness sector, which emphasize the
growing popularity of convenient and individualized services. Considering the rising expenditure
of home gym supplies and the increasing number of online fitness classes, Esah can take use of
this option to make a profit on the increasing desire for at-home fitness services. The benefit is
that consumers aren't required to go to a fitness studio because of the flexibility and convenience
that this option offers. Esah must ensure that her products and offerings differentiate from a
market where options for at-home exercise are quickly growing, and she will need to make
marketing investments to reach potential customers.
In second option Esah is also looking at the possibility of starting a new exercise facility on an
industrial area. This is in accordance with the market trend of a wider variety of fitness studio
options, such as higher-altitude training rooms and hot yoga facilities. Having a physical location
might draw those looking for community-based exercise opportunities. She must, however, pay
close attention to the competitors and the area. Active aging in the market indicates that there
might be a segment in serving an older audience. Her fitness studio could expand if she
combines services and equipment to suit different age groups, but successful positioning and
marketing are essential for success.
Option 1- Provide mobile fitness services at the client’s home
Physical Resource
Lease for the vehicle and equipment and its maintenance/repairs: This cost is related to the
car's tangible asset—air conditioning—which is essential to the delivery of mobile exercise
services. The use of this specific resource is covered under the lease. The renting of the vehicle
and all its equipment is $18,000. In addition, $1,000 is set aside annually for equipment and
vehicle maintenance and repairs, which are directly related to maintaining the mobile fitness
studio's operation.
Inventory (Protein Bars, Bottled Water, Cleaning Materials): Esah will provide the mobile
studio with about equal quantity of physical items, which is represented by the $600 inventory
cost that is included in current assets and liabilities. These products, include material resources
like nutrition bars, water bottles, and cleaning supplies.
Option 2 -Open a new fitness studio on an industrial estate
Physical Resource
Unit 7 Rahat Mohammed
Business Decision Making 20223965
Commercial Property: The place Esah intends to rent for her fitness training in a busy
industrial region is the property, an actual and physical asset. The property that holds the fitness
studio can accommodate Esah and one more employee in addition to a small kitchen. Esah will
pay $4,500 a year to lease the firm space.
Lease of fitness equipment: Esah plans to hire fitness equipment for the class for a yearly fee of
$6,000. She will also set aside $1,200 each year for maintenance and repairs of the exercise
equipment. With the money in this fund, the physical facilities will be maintained throughout
time. Maintaining the studio's equipment and quality for the good of its members requires these
expenses.
Inventory (Drinks and Cleaning Materials): Esah is going to set aside $200 for things like
beverages and studio materials. When it comes to keeping the studio tidy and welcoming for all
visitors, Esah will keep a close eye on the number of beverages and cleaning supplies that are on
hand.
Option 1- Provide mobile fitness services at the client’s home
Financial resource
Yearly Costs: Esah has to pay a number of costs each year to run her mobile fitness business.
She sets aside $18,000 to lease the car and other business-related equipment. She has $8,000 in
insurance to protect her business. The overall cost of fuel and other expenses, such as electricity,
is $5,000. To keep the car and its accessories in excellent condition, Esah budgets $1,000 for
regular repairs. She additionally takes into consideration for the fact that five percent of her sales
income will go toward paying for the expenses related to the products she offers or sells.
Other financial information: Esah plans to charge $30 each session for her roughly twenty-five
weekly fitness classes. She can estimate the business's future revenue according to this
prediction. Esah looks at the average costs of each session and estimates that they are about $15
in order to determine the profitability. She also acknowledges fixed expenditures, which don't
change based on the number of sessions, including bills and maintenance. The total weekly cost
of these fixed expenses is about $300.
Current assets and liabilities: She owes $995 in unpaid trade payables to suppliers or people
she acquired supplies from in order to launch her mobile fitness business. She also keeps an
inventory of $600 worth of goods, including cleaning supplies, nutrition bars, and bottled water.
Positively, she has $1,000 within her bank account, which indicates that she has access to instant
cash.
Option 2 -Open a new fitness studio on an industrial estate
Financial resource
Unit 7 Rahat Mohammed
Business Decision Making 20223965
Yearly Costs: Esah deals with different costs every year to run her exercise studio. She sets aside
$4,500 for the studio's rent as well as $6,000 for a lease on the exercise equipment. To make sure
her workers are fairly compensated, Esah sets aside $13,000 for staff pay. It costs her $5,000 in
business insurance to protect her company. Bills for utilities and other costs, such as water and
electricity, come to a total of $2,000. Esah budgets $1,200 for upkeep and repairs in order to
keep the property in its best condition. She also accounts for the fact that two percent of her sales
will go toward paying for the expenses related to the products she offers or sells.
Other financial information: According to Esah's annual financial estimates, sales income will
bring in $37,440. According to her idea, monthly subscriptions would cost $40 per, with annual
memberships anticipated to have variable prices of $8. Esah further sets aside $2,650. This
money covers monthly fixed expenditures.
Current Assets and liabilities: Esah has $350 in trade payments, which represents unpaid bills
from suppliers in her current financial situation. Tangible goods kept for business reasons are
represented by a $200 inventory of beverages and cleaning supplies. Esah has 800 dollars in the
bank, demonstrating her easy access to funds on the asset side.
Option 2 -Open a new fitness studio on an industrial estate
Time Factor
Esah is preparing to open a fitness centre on an industrial area in Option 2. Time is one of the
essential factors in this situation, as it will likely take a month or so to order and set up all of the
studio's equipment. Esah will be working hard throughout this time to make sure the area is
completely set up and operational. After everything is set up, anyone may sign up for monthly
subscriptions to have access to the studio. Esah includes free beverages in the membership
package.
Option 2 -Open a new fitness studio on an industrial estate
Human Factor
Considering Esah's intention to open a fitness centre, the hiring procedure for staff members is
the human component. Emily imagines that she and one other employee will run the studio; the
employee will be paid $13,000.
Unit 7 Rahat Mohammed
Business Decision Making 20223965
Extracting and analysing financial forecast
Option 1 Option 2
Weekly sales volume= 25 hourly sessions Predicated sales revenue for the year= $37440
Total sales volumes= 25 x 52weeks Memberships
= $1300 sessions
Monthly Fixed cost= $2650
Weekly fixed cost= $300 Total fixed cost= $2650 x 12 months
Total fixed cost= $300 x 52weeks = $31800
= $15600
Price of Monthly Membership= $40
Price each hourly session= $30 Variable Costs per Yearly Membership= $8
Variable cost each hourly session= $15
Contribution Margin per Membership=Price of
Contribution Margin Per hourly session= Monthly Membership−Variable Costs per Yearly
Price each Hourly Session−Average Variable Costs Membership {Contribution Margin per Membership}
each Hourly Session {Contribution Margin per = $40 - $8 = $32
Hourly Session}
= $30 - $15 = $15 Break even= fixed cost / (selling price – variable cost)
= 2650 / (40 – 8)
Break even= fixed cost / (selling price – variable cost) = 82.81 Monthly Memberships
= 300 / (30 – 15) = 83 Monthly Memberships
= 20 Hourly sessions
Unit 7 Rahat Mohammed
Business Decision Making 20223965
Revenue= selling price x total sales volume
Cost of sale= 2% x $37440
= $30 x $1300
= $748.8
= $39000
Total operating Expenses=
Cost of sale= 4% x $39000
$4500 + $6000 + $13000 + $5000 + $2000 + $1200 =
= $1560
$31700
Total operating Expenses=
$18000 + $8000 + $5000 + $1000 = $32000
Esah Fitness Gym
Income statement (Option 1)
For the month ended on December 31, 2023
Revenue
Fitness services $39,000
Cost of Goods sold $1,560
Gross Profit $37,440
Operating Expenses
Insurance $8,000
Fuel and other bills $5,000
Vehicle and equipment maintenance $1,000
Fixed Costs $15,600 $29,600
Net profit $7,840
Esah Fitness Gym
Income statement (Option 2)
For the month ended on December 31, 2023
Revenue
Unit 7 Rahat Mohammed
Business Decision Making 20223965
Fitness services $37,440
Cost of Goods sold $748.8
Gross Profit $36,691.2
Operating Expenses
Rent of Property $4,500
Staff wages $13,000
Insurances $5,000
Utility and other bills $2,000
Property maintenance and repairs $1,200 $25,700
Net profit $10,991.2
Esah’s Fitness Gym
Balance Sheet (Option 1)
As of December 31, 2023
Current Assets
Cash in Bank $1,000
Inventory (Protein bars, etc.) $600
Total Current Asset $1,600
Fixed Assets
Vehicle & Equipment $18,000
Total Assets $19,600
Liability & Owner’s equity
Trade Payables $995
Equity $18,605
Total liabilities and owner’s equity $19,600
Esah’s Fitness Gym
Unit 7 Rahat Mohammed
Business Decision Making 20223965
Balance Sheet (Option 2)
As of December 31, 2023
Current Assets
Cash in Bank $800
Inventory (drinks, etc.) $200
Total Current Asset $1,000
Fixed Assets
Fitness Equipment $6,000
Total Assets $7,000
Liability & Owner’s equity
Trade Payables $350
Equity $6,650
Total liabilities & owner’s equity $7,000
Ratio Analysis
Option 1 Option 2
Unit 7 Rahat Mohammed
Business Decision Making 20223965
Liquidity Ratios Liquidity Ratios
Current ratio = current asset / current liability Current ratio = current asset / current liability
= 1600/ 995= 1.61 = 1000 / 350 = 2.86
Interpretation: Strong short-term liquidity is indicated by a Interpretation: With $2.86 in current assets for every $1 in
current ratio of 1.61, which indicates that the company has current liabilities, the business has a current ratio of 2.86,
$1.61 in current assets for every $1 in current liabilities. indicating strong short-term liquidity.
Profitability Ratios Profitability Ratios
Gross profit margin = (gross profit / revenue) x 100 Gross profit margin = (gross profit / revenue) x 100
= (37440 / 39000) x100 = (36691.2 / 37440) x100
= 96% = 98%
Interpretation: The company maintains a sizeable amount Interpretation: The company's roughly 98% gross profit
of its gross profit margin, which is around 96%, after margin shows that it keeps a significant amount of
deducting cost of goods sold. This high gross profit revenue even after subtracting the cost of goods sold. The
margin indicates that expenses have been efficiently profit margin on this product is large.
controlled in the provision of goods or services.
Profitability Ratios Profitability Ratios
Net profit margin = (net income before tax/ revenue) x100 Net profit margin = (net income before tax/ revenue) x100
= ($7840 / 39000) x 100 = (10,991.2 / 37440) x 100
= 20.10% = 29.356%
Interpretation: The business has a net profit margin of Interpretation: The company's net profit margin, after all
around 20.10%, which means that for every $1 in revenue, of the expenses are subtracted, is around 29.356%, which
it generates about 20.10 cents in profit after all of the means that for every $1 of revenue, it generates
expenses are covered. This demonstrates how profitable approximately 29.356 cents in profit.
the company is overall.
Efficiency ratio Efficiency ratio
Inventory Turnover = costs of goods sold /average Inventory Turnover = costs of goods sold /average
inventory inventory
= 1560 / 600 = 748.8 / 200
= 2.6 = 3.74
Interpretation: A 2.6-inventory turnover rate—that is, Interpretation: A 3.74 inventory turnover, or 3.74 sales
inventory that is sold and replaced 2.6 times annually— and replacements annually, shows a poor level of
indicates effective inventory management. effectiveness in inventory management.
Conclusion
Unit 7 Rahat Mohammed
Business Decision Making 20223965
With a net profit margin about 29.356% and an outstanding gross profit margin about 98%,
option 2, which includes opening an exercise facility in an industrial place is in line with current
market trends and shows strong financial performance. A solid basis for short-term liquidity is
guaranteed by a liquidity ratio of 2.86. Though the future seems positive, Esah must carefully
oversee the setup phase by forming strategic partnerships to draw in clients. With $37,440 total
revenue from fitness services, Option 2 shows a $10,991.2 net profit. Exercise equipment’s
valued at $6,000 is included in fixed assets, but cash and inventory totaling $1,000 are shown as
current assets on the balance sheet. The $350 in trade payables is one of the liabilities. Although
Option 2 appears promising, Esah should use caution when managing the yearly expenditures
associated with rent, employee salaries, and equipment lease. As a result, Option 2, appears more
to be keeping with current industry trends.
In conclusion, Esah is given the choice between Option 1 and Option 2, both having advantages
and disadvantages related to the constantly evolving fitness sector. But option 2 is the more
favorable choice. Option 2, which includes establishing a fitness center, appears to be keeping
with industry trends and has shown exceptional financial success.
