Tedpilot

I've been working on "DC math". The attached spreadsheet shows what I have thus far. Variables are in green bold. Assumes initially 6 properties and all financed w/ initial investment. What I need is help on is some realistic figures to further populate and expand this sheet so that it becomes something achievable. I also need realistic but "creative" ideas on how to make the numbers come out in the "green"....

By no means is this near even being accurate or complete but a wqork in progress.

Disclaimer...good or bad, I have not signed any NDAs w/ DCs so I have no idea how they have them set up financially.

Attached Files

DC Business.xls (18.0 KB, 33 views)

Sherpa

Hi Ted

Here's a couple of thoughts/comments for my initial "2 c worth":
- you'll need more than the $500 per month for advertising and mailers etc - most of the clubs have very impressive sets of collateral and marketing materials
- have you built in the costs for the concierges ?
- you'll also need money for legal and accounting/auditing

Cheers

__________________
Sherpa
www.SherpaReport.com

Tedpilot

Thanks, I'll work those in.

Ted

Tedpilot

OK, updated with more info. With so many variables it is interesting what truly drives the bottom line. The two most significant factors thus far appear to be member/property ratio and how much of member deposits are put toward debt. Also, I added the twist of leased properties. It alleviates a lot of pressure with lower numbers of property.

Attached Files

DC Business.xls (19.0 KB, 3 views)

Tedpilot

Another update - Charted Data....fairly interesting and easy to see what it takes to make $ with a specific set of parameters.

Attached Files

DC Business.xls (41.0 KB, 14 views)

want2travelmore

TP , I haven't fully audited your spreadsheet but at least five variables look pretty low to me people cost, start up costs (missing), marketing and sales incentives, property acquisition travel and financing costs.

The largest undersestimate is the people cost side at only $240,000 a year. Just a CEO and CFO and one admin. assistant would be pushing that figure. If you assume in start up mode in exchange for adequate equity in the business and a free membership, the CEO is only making $125K, CFO $90K, admin assist. 40K (I am assuming these include employee benefits (some healthcare, 401(k), etc.), you still need a strong member services rep, $65K, and a head of sales - $80K plus commissions, and a property manager,$75K (handling on site agents, various maintenance contracts for landscaping, mechanicals, HOA or equivalent issues, pool/hot tub maintenance, etc.) initial fit up, plus at least one more admin. person/bookkeeping/paybles/payroll support (35K - 45K) as a starting skeleton staff, where the CEO is handling property acquisitions in terms of selection and negotiation, strategic marketing and PR interview, appearance efforts, while the CFO is the guy on the financing of the properties and the club and various compliance type issues (audit, tax). This still leaves holes for marketing collateral design, website design (you have a reasonable number for website maintenance) and legal (for the mortgage doc. review, entity formation docs., membership contracts, coordination with other counsel on each property closing documents, other governance paperwork and state, local and maybe federal filings)which would have to be rented from professionals until the club was at a much larger scale. I have no idea what the right commission structure is typical in the DC business - at least 10% would be a guess? HCC might be different because it is a really a family business and their head of sales is likely to have an equity stake as enough incentive. But at the bigger ticket clubs, getting someone to fork over $275,000 to $500,000 would require some serious incentives as these are likely to be multi-month sales cycle closes.

I would add in $100,000 as one time start up costs to cover creating a website, logo, initial entity formation, and some recruitment costs, and office equipment. I'd add in $7,000 a month in ongoing legal and another $3,000 a month for ongoing independent audit and tax accounting support. On top of that another $4,000 a month in public relations, marketing campaign designs, collateral designs (which have to be refreshed with new property pictures from time to time).

Then you'll have a lot. lot more than $750 a month in mailers and other direct mail campaigns. You'll need money for the Sherpa and Halogen report web ads and direct mail campaigns of some fairly low-cost per piece flyers to generate inquiries, but the follow up materials aren't cheap to ship out to people requesting information. I don't have as good feel for those type of costs, but I would think you'd be looking at $5,000 - $10,000 a month, minimum, if you really want this club to grow. This means you'd better increase your angel round at least $1 million. and not apply it toward the properties as you've modeled using the $2 million in your spreadsheet. I think the $1,000 a month in acquisition trips is light because they'll be follow up trips for each property under consideration and you'll probably be looking at two to three destination candidates for each one you go with. So i'd triple the travel budget.

Given the fact this is commercial not personal real estate from a lender's perspective, and you are looking at jumbo mortgages, except for the lease properties, I think 7% is a safer rate to assume and in today's climate where even resort properties in some locations (CA, FLA, Hawaii) are pulling back, that might be aggressive.

I applaude your attempt here, so please don't take offense to my suggestions. I've been involved in a start-up business, not a DC, and everything takes longer and costs more than you would expect to execute, which is why most start-ups fail for lack of initial capital.

Also, I have a question. Did your $750,000 property value include the cost of fit up (appliances, furniture, housewares,etc.)?