What Type of Financing is Right For My New Fitness Business? A Complete Guide

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What Type of Financing is Right For My New Fitness Business? A Complete Guide

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Starting a fitness studio business is exciting, but it requires significant financial planning to succeed. Financing a fitness studio business involves more than just securing funding. There are several critical steps you need to take to ensure that you can pay for everything you need and stay financially sound over the long term. 

Create a Business Plan

The first step to financing a fitness studio business is to create a business plan. Your business plan should outline your goals and objectives, your target market, the products and services you offer, your marketing strategy, and your financial projections. Your business plan is essential if you hope to secure external funding, as it will give investors and lenders a clear vision of your business and its potential for success.

Determine Your Financing Needs

After creating a business plan, you should determine your start-up costs and your first year's expenses. First, estimate- to the best of your ability - how much money you need to start and run your fitness studio business. Consider build-out, rent, equipment, payroll, insurance, and marketing costs. You can use a pro-forma or a financial forecast template to keep you organized and help you think of start-up expenditures you may not have on your radar- like licensing, fire department testing, or NNN fees. 

It's crucial to take this process extremely seriously. Most new business owners underestimate their expenses and overinflate their first year's earning potential, which could leave you in the red. Carefully research the comps of local businesses in your areas, call your utility and insurance companies for actual numbers, and interview other owners if you have relationships with any neighboring businesses. Knowing your precise financing need will help you seek the proper funding to build your business.

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Explore Financing Options

Once you have determined your financing needs, the next step is to explore financing options. Various financing options are available, including traditional bank loans, Small Business Administration (SBA) loans, equipment leasing, friends and family investors, and crowdfunding. Each financing option has pros and cons, so research and compare them to determine which best suits your needs. You may need a few different financing sources if your forecast is expensive. Here's a breakdown of common choices:

  1. Self-Funding

Self-funding, also known as bootstrapping, is one of the most common ways to finance a new business. This involves using your savings, assets, or credit to fund your business. It's a popular option for entrepreneurs with significant savings to get their businesses off the ground. Self-funding can give you complete control over your business and its finances, but it can also be risky, as you're putting your own money on the line without the safety net of other investors. Even if you self-finance, you should still complete a comprehensive financial forecast. 

  1. Friends and Family

If you don't have the capital, borrowing from friends and family is also an option. Seeking financial assistance from people close to you who believe in you and your business and are willing to lend you money is usually an easier pitch than going to banks. Friends and family can be reliable funding sources, but treating it as a professional arrangement and having a clear repayment plan to avoid personal conflicts is important. Unlike with a bank, if your business fails and you can't repay your friends, you risk losing relationships as well as your business.

  1. Bank Loans

Bank loans are one of the most common sources of funding for small businesses. This involves borrowing money from a bank or financial institution and paying it back with interest over time. Bank loans can be secured or unsecured and may require collateral (your personal assets) to secure the loan. The approval process for bank loans can be time-consuming and usually require a good credit score and a solid business plan.

  1. Small Business Administration (SBA) Loans

SBA loans are a type of bank loan that is backed by the US Small Business Administration. The SBA guarantees a portion of the loan to the lender, reducing the risk for the lender and making it easier for small businesses to secure funding. SBA loans can be used for a variety of business purposes, including starting a new business, expanding an existing business, or purchasing real estate or equipment. They often come with better terms for the business owner and are often a great place to start for funding needs.

  1. Crowdfunding

Crowdfunding is a relatively new way to finance a new business. It involves raising small amounts of money from a large number of people through online platforms such as Kickstarter or GoFundMe. Crowdfunding can be an effective way to validate your business idea and build a community around your brand. However, it can also be time-consuming and may require significant effort to produce a successful crowdfunding campaign.

  1. Venture Capital

Venture capital is a type of funding typically used by high-growth start-ups with the potential for rapid growth and significant returns. Venture capital involves raising money from professional investors who provide funding in exchange for equity in the company. Venture capital can be a valuable source of financing for start-ups, but it can also be a challenging process that requires a solid business plan, a convincing pitch, and a significant amount of networking.

Prepare Your Financial Documents

Once you've chosen your target funding source, it's time to prepare your financial documents, including your business plan, balance sheet, income statement, cash flow statement, and tax returns. Depending on the financing option you choose, you may only need some of these documents, but the more professional the source, the more robust your proof of concept and financial acumen must be. You may also need to provide personal financial statements and credit reports. Check with your specific source to ensure you have everything they're looking for, and verify that your financial documents are accurate, up-to-date, and well-organized to improve your chances of approval.

Apply for Funding

After preparing your financial documents, the next step is to apply for funding. If you have an SBA coach, they can walk you through applying for many different types of financing (for free!) and decrease the learning curve. No matter the source you choose, make sure you submit all the required documents and follow up with the lender or investor to know the status of your application.

Monitor Your Finances

Finally, monitoring your finances carefully once you have secured funding is essential. Keep track of your income and expenses, create a budget, and regularly review your financial statements to ensure you're on track to achieve your financial goals and repay your loans. Use your financial statements and KPIs to make informed decisions and adjust your strategy as you learn and grow.

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About the author:

Niki Riga
Industry Expert
Limitless Studio

Niki has been a client, a studio owner, and a coach in boutique fitness for over a decade, and she can’t think of an industry she'd rather be in. Her favorite part about coaching and studio ownership are the same: she loves supporting clients as they push past their limits and achieve their goals. Niki became a coach because she was regularly asked, “how did you do that!?” by other studio owners who were drowning in the day-to-day responsibilities of business ownership but didn’t have the support to grow their studio to its potential. She created Limitless Studio to partner with owners who have a vision for their business and are ready to implement systems to build the studio of their dreams.