One of the toughest decisions to make when seeking to own your own business is what type of business is best? “One way to own your own business is to buy a franchise (Kimmel, 2009). Snap Fitness, is a fast-growing franchisor of compact state-of-the art 24/7 fitness centers worldwide. In this paper the subject to discuss is the cost volume profit analysis of a fitness center franchise. A business will use CVP analysis to analyze existing or new business opportunities to determine a break-even point and potential profitability, including the sales volume required to reach a target profit (Wiley, 2013).
Challenges of a Franchise There are advantages and challenges to nearly every business type. The key is to understand what they are and the impact they will have on the business before becoming a business owner. “The challenges of owning a franchisee often have to do with unreasonable expectations – you’re not your own boss, the brand is your boss. Richman,” (2008). Brand standards reach every part of the business, from uniforms and how they are worn to what types of coupons the business can and cannot use. Franchisee inconsistency defeats the purpose of a franchise, thus emphasizing the importance of following brand standards.
Franchise agreements may dictate locations, vendors, and options of operation. Many franchisors expect their franchisees to buy supplies only from their approved list of vendors. This limits the flexibility of a business owner, especially when these suppliers’ costs are much higher, and it cuts into profits. Another thing to watch out for in a franchise system is requirement by franchisor for royalty payments and marketing fees that affect profit. Still another concern is relying too heavily on the parent company’s services. You are one of many and the success or failure of your store is completely up to you.
Know what services are guaranteed from the franchisor and be realistic about what you need to do in order to make your business a success (Richman, 2008). Those seeking to start a business but do not have well-to-do benefactors or friendly bank lenders may have a challenge getting financing for a small business or franchise operation (Miller, 2011). Start-up cost and franchising fees can be very costly to open a franchise, sometimes more than it would for a start-up business. Therefore, careful analysis is required of the CVP analysis results and franchise expectations.
The more you understand about the challenges involved, the more likely you will be a successful franchisee owner. Conclusion Cost volume profit analysis is important in profit planning. Understanding of the fixed cost, variable cost, break even point, benefits, and challenges of the franchise will lead to financial success. The CVP analysis reveals that starting a Snap fitness franchise is a good business decision. With a lot of hard work and support from the franchise the new Snap fitness center can be a successful business. Reference: Wiley, C. (2013). What is cvp in a company?
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