Expert Answer:Venture Capital Valuation Methods

Answer & Explanation:Venture Capital Valuation Methods” Please respond to the following: Determine
the most likely valuation method a venture capitalist would use to
value your business venture from Assignment 1. Provide a rationale for
your response. From the e-Activity, assess the effectiveness
of ESOPs to incentivize key employees and whether or not this would be a
viable option for your venture. Provide an example to support your
response.
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Running head: BUSINESS VENTURE
Business Venture
Khiminyah Chavies
FIN 317
Haroon Baqai
October 14, 2019
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BUSINESS VENTURE
Opening a gym club next to or within one of the dispensaries in Colorado is a lucrative
idea. This is because many health conditions have one thing in common; fitness (Howard et al,
2017). Thus, the gym club will be within the heath industry to help those whose physicians
recommend fitness as part of the solutions to their problems. The target market of the gym club
will be those within the dispensary’s proximity, particularly individuals with medical conditions.
Fitness has become a common norm in the contemporary society. Therefore, it is easy to
find gym clubs at every corner of a town including workplaces. Hence, competition for this
business venture will be enormous ranging from fitness clubs to free workplace gyms. However,
more people want to become fit every day and not all work at organizations with gyms.
This type of business is of great interest due to the ease of market penetration it provides.
For instance, the gym could partner with the dispensary’s administration for customer referrals
after their diagnoses. At the same time, since the gym will be offering its services to people with
medical conditions only, it will have specialized machinery for different conditions in lieu of
general work out machines (García-Fernández et al, 2018). This will probably increase the revenue
of the venture given that other gym clubs provide services for the general public without
considering those who need special services.
With specialized machinery for special health diagnoses that require fitness as part of the
treatment, there is a high probability for the success of this gym business (Polyakova & Mirza,
2016). Consequently, being located close to or within a dispensary offers an assurance of customer
in-flow due to referrals since people get diagnoses all the time. Therefore, establishing a gym club
within the health industry with special gym equipment for special health conditions is a promising
business venture as opposed to owning a normal or general gym club.
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BUSINESS VENTURE
References
García-Fernández, J., Gálvez-Ruíz, P., Fernández-Gavira, J., Vélez-Colón, L., Pitts, B., & BernalGarcía, A. (2018). The effects of service convenience and perceived quality on perceived
value, satisfaction and loyalty in low-cost fitness centers. Sport Management
Review, 21(3), 250-262.
Howard H., Stevenson, Roberts, M. J., & Grousbeck, H. I. (2017). New business ventures and the
entrepreneur. Irwin.
Polyakova, O., & Mirza, M. T. (2016). Service quality models in the context of the fitness
industry. Sport, Business and Management: An International Journal, 6(3), 360-382.
Running head: THE BASICS OF A START UP
The Basics of a Start Up
Khiminyah Chavies
Haroon Baqai
FIN 317
October 27, 2019
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THE BASICS OF A START UP
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Financial Start-Up Needs
Despite the profitability associated with starting a business, this venture could be costly
as the owner has to put in place a holistic plan from start to finish (Richardson, 2016). It is
essential to consider the long-term cost incurred to run a gym. Starting a gym club may require
high start-up costs due to the number of equipment to purchase as well as renting the space. The
projected cost for starting the gym business will range from $50,000 to $100,000. The initial cost
will relate to leasing fitness center location. Although this cost could vary depending on the gym
location and size, it will cost between $2000 and $50000. As a start, the business will rent the
space and use the same area for a spin, yoga, and cardio classes.
Secondly, gym equipment will cost the business a significant amount based on the
number and type of equipment purchased. It will range from $5000 to $10000. The focus will be
on buying the equipment in sets as a complete package to take advantage of the discounts offered
by some of the suppliers. Some of the essential stuff that the business will buy includes training
bench, barbell set, dumbbell set, treadmill, rowing machine, and stationary bicycle, among other
stationaries. Thirdly, certification costs will consist of the expenses incurred to hire professional
staff, which could be an advantage to the business (McClaran, 2003). Accrediting personal
trainers could cost the start-up between $500 and $800. The fourth expense will include permits
and licenses from the relevant authorities. Despite the variations, the estimated cost is between
$75 and $100 on average. Fifth, legal and processing fees are essential in the negotiation of the
lease and acquisition of vital documentation. This price could be $100 per hour. Lastly, the law
requires that a gym should have insurance cover relating to a surety bond, workers’
compensation, and general liability. The business should have at least $8000 in premiums to pay
for their insurance cover.
THE BASICS OF A START UP
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Financing Options
The business will consider gym equipment finance, which refers to a small business loan
that offers gym owners the necessary capital for purchasing fitness equipment for the gym club.
One of the advantages of this financing option is the ability of the start-up to use the purchased
equipment as collateral for the loan. It implies that the business can be able to qualify for the
loan without any assets to provide to the lender as a guarantee. Specifically, the gym club will
apply for SBA 7(a) loan since it is the most affordable option in purchasing the required
equipment. Some of the reasons that make SBA 7(a) loan program the ideal finance option for
the start-up include the length of time that it takes to repay the loan and the interest rates. For
instance, these loans provide up to 10years repayment period with prime rates of 2.25%.
In addition to personal savings, the business will consider partnering with the local
dispensary to finance the start-up. Partner financing involves finding another player in the
industry to fund the gym club in exchange for some access to the services provided. As opposed
to being a loan, strategic funding is more of an equity sale, but it can also be royalty-based in the
gym club. The partner financing will be beneficial to the business since the dispensary has
already established clients; hence offering an assurance of customer in-flow due to referrals since
people get diagnoses all the time. The gym can also maximize the existing marketing programs
of the dispensary to attract more clients and subscriptions (Van Huijstee, Francken & Leroy,
2007). Thus, this financing option will play a critical role in the long-term success of the
business and gym club does not have to incur interest expenses offsetting the loan.
Important Financial Ratios
The use of financial ratios is one of the ways of analyzing the performance of the firm to
determine the relevant strategies to enhance profitability. The liquidity ratios such as current and
THE BASICS OF A START UP
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quick ratios assess if the organization is liquid enough to cover its debts, as well as providing the
general overview of the financial health. They are vital in showing the ability of the gym club to
pay off its short-term obligations (Valencia-García et al., 2018). Liquidity analyzes the daily
income against the expenses. This analysis provides an insight into whether the business is
making profits or losses and the necessary action the owner should take to mitigate or enhance
the current position.
The efficiency ratios will determine the ability of the business to achieve its mid-term
goals. For example, the average collection period can provide useful information on the time
clients take to renew their subscription. The company can use this data in setting the collection
procedures as well as designing credit policies to improve their collection of payments. It may
include offering discounts to encourage them to pay for the services on time. Profitability ratios
will help the business in the evaluation of financial viability. For instance, the operating profit
margin will play a crucial role in the assessment of the ability to expand the gym club by using
either additional debts or explore other investment opportunities. Also, Return on assets (ROA)
ratio outlines the effectiveness of utilizing the assets of the company.
THE BASICS OF A START UP
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References
McClaran, S. R. (2003). The effectiveness of personal training on changing attitudes towards
physical activity. Journal of sports science & medicine, 2(1), 10.
Richardson, M. (2016, May 4). How to Start a Gym or Fitness Center -. Retrieved from
https://articles.bplans.com/how-to-start-a-gym/
Valencia-García, R., Paredes-Valverde, M. A., Salas-Zárate, M. D., & Alor-Hernández, G.
(2018). Exploring Intelligent Decision Support Systems: Current State and New Trends.
Basingstoke, England: Springer.
Van Huijstee, M. M., Francken, M., & Leroy, P. (2007). Partnerships for sustainable
development: a review of current literature. Environmental sciences, 4(2), 75-89.
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