Smart Answers

Q: How do I determine startup costs for a health club? --C.P., Davenport, Iowa

A: Accurately forecasting startup costs is crucial. The problem is, entrepreneurs tend to be unrealistic about their prospects and naive about expenses. Studies show that the average business owner's actual first-year revenues are a full 40% below projections.

To increase your accuracy, use your most pessimistic estimates for income and expenses, and come up with the date when you will achieve positive cash flow. Amass enough operating capital to cover your losses up to that point. Then add a safety net of at least six months' worth of fixed costs to carry you in case something unforeseen occurs.You might find an accountant, consultant, or partner who knows the health-club industry. Even better, get a job at a club yourself to learn the business from the inside out.

By Karen E. Klein

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