Case Study
George’s Gym (GG)
George identified a potential niche market for a new gym in his local area. He set up GG as a sole trader business three years ago. GG is a modern gym with the latest equipment.
George has recently gained planning permission to build a new swimming pool. George wants to open the swimming pool because a national competitor is planning to open a new gym close by and he wants GG to remain competitive. The swimming pool will cost $400 000 and George has yet to decide on the best source of fi nance. He has $50 000 in savings that he could use and he does not have any mortgage or loans. George is thinking about seeking a private investor but is unsure of the risks involved.
The local population is wealthy. Last year (2012), GG had 300 members who each paid a membership fee of $60 per month. George is thinking about new ways of increasing revenue such as offering additional ‘keep fit’ classes. He also plans to increase the monthly fee he charges members to $66. His accountant has told him he needs to think about the price elasticity of demand before making a pricing decision.
Table 3 – Annual revenue and profit for the year for the previous 3 years ($000)
2010 | 2011 | 2012 | |
Annual revenue | 120 | 160 | X |
Profit for the year | 20 | 50 | 80 |
George hopes that the information in Table 3 will help show any potential lender how attractive the gym is as an investment.
GG has a problem of a high labour turnover of personal trainers. Three of them have left in the last six months. He has just employed a new personal trainer, Sally. George needs to issue her contract of employment. George thinks that the reasons for the high labour turnover include:
George is always busy and so he can never offer an effective induction training programme for his employees
GG salaries are below average for the industry.
Calculate the value of X in Table 3.
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