Are you planning to "Build-A-Spa"?

The Importance of Planning and Analyzing Your Dream

By

Dr. Reinhard Bergel

H.E.A.T. Inc. Spa Therapy Development

and

Wayne "Skip" Williams

Resources & Development, Spa Financial Advisor

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During the past fifteen years the fitness-wellness-cosmetic salon industry in America has experienced an enormous amount of growth into the world of Spa treatments. Presently wellness programs require specialty facilities in order to administer various water therapies, body wrap/pack treatments and relaxation surroundings in a Spa facility.

We have had the opportunity during these years to advise clients in the financial and architectural planning of:

• Square Footage Requirements

• Construction and Set-up Costs

• Equipment Specifications

• Staffing Requirements

• Operating Expenses

• Profit, Cash Flow and Break Even Analyses

The information in this presentation has been gathered from these many Spa projects, the experience of operating our own Spa center and from the financial information of many other Spa businesses.

Visiting Spa therapy facilities and analyzing them, one can quickly see the diversity among Spa projects. Diversity that is in no way limited to "physical attributes". An owner’s concept or dream, the cost of a building, location, the market, the Spa treatments offered, make comparisons difficult, even among Spa facilities within the same category. Construction costs vary, some regions have a large, others a small employee pool from which to draw from, some are part of a larger property while others stand alone, some include fitness and/or salon services, and the variables go on and on.

If you can’t make comparisons, how can you answer relevant financial questions, and quantify your dreams? How much facility can you build and operate at a profit, given the amount of funding available to you and given the strength of your potential market?

If you were in the manufacturing industry you would analyze first, the strength of the market, and then the cost of making the product, raw materials, labor, and the overhead each direct dollar has to carry. You would do this because your product is labor intense.

If you were in retail sales you would analyze the profit of each square foot and change the product mix until you have the most return on each square foot. You do this because your product (if you will) is your location and the use of the space available dictates your sales success.

In a Spa therapy center both labor and square footage are important to you, for the exact same reasons as in manufacturing and retail. Why then shouldn't you analyze both labor and square footage in your facility? What is the cost per treatment? Is a bath, pack, facial, wrap or a massage most profitable? Would the square feet occupied by a pedicure station be more profitable than additional retail space? Do you have enough square footage, treatment rooms and retail space to support your fixed expenses? What are your direct (fixed) and indirect (variable) expenses? How many people will you need to staff your dream facility? Did you plan too many or not enough facial/wet/tub/massage rooms or retail space for your available client base? What is your "break-even point"? How many treatments do you have to perform to make a sound profit? What is your Return on Investment?

The answers to these questions become more important as the Spa business becomes more competitive. We have seen hot service type businesses from the 1970's and 1980's, such as health clubs, video stores and quick lube businesses, get swallowed up or pushed out by larger chain businesses that know the numbers and have their "act" together.

Don't get us wrong, marketing analyses, product mix, employee training all enter into the success equation, but you first need to know the important numbers that will make your Spa a viable business.

If the answers to the above questions are not transferable from facility to facility, yet knowing them is important, how do you analyze and predict them?

There may be a few ways to do the analysis, whereby most CPA’s might just sketch a projected "Profit and Loss" statement. They hope that, fingers crossed, it will match the budget.

We believe, the "Build-A-Spa" method described below, will give you more accurate information, and gives you the ability to make business changes in mid stream. After all, as a business owner you need to know a lot more than a bank might require. You want to know the cost of each Spa component, to build, to run and to market, and then the same costs for the complete Spa operation. Don't you?

Build-A-Spa™

The Module Method

Breaking down a Spa operation into its "planned Spa components", or "possible Spa components", allows you to magnify the detail of each part of your operation, and you are less likely to forget any part of this puzzle in your planning. Subsequently we will refer to these Spa components as "modules".

Let us look at the example of a Wet Room Module:

Set-up Costs

Answer the following:

• How many square feet are required for each wet room?

• What equipment and fixtures are desired for this module?

•  Knowing the square footage and multiplying it times the construction cost per square foot, and adding this result to the equipment cost, enables the module to answer building and setup cost.

Operating Costs

Answer the following:

• How much will each treatment cost?

• How much in the way of supplies are needed for each treatment?

• How much will you pay the treatment provider?

• How many treatments can you sell?

• Knowing the answers will allow you to project a "break-even point" within that treatment module, and to project the revenue and profit.

 Answer the same questions for the all other desired Modules

The above procedure tells you everything you need to know about one wet room module. You analyze every "module" by applying the above procedure for any additional treatment rooms, for the front desk area, for hallways, bathrooms, showers, locker/changing rooms, utility rooms, waiting area, etc..

Summary of Outcome

You summarize your planned facility by multiplying every module times the quantity of each treatment room desired. For example you might want 3 wet rooms, 4 massage rooms, 3 facial rooms, 3 tub rooms, 2 changing rooms, 1 front desk, 2 utility rooms, etc. until your desired facility is represented.

This financial model approach allows you to not only make a projected "Profit and Loss" statement, but also it allows you to project construction costs, setup and equipment costs, compare treatment profitability, project payroll, ongoing expenses, calculate the "Break-even" point, compare use of square footage and Return on Investment. This financial model provides all information broken down by individual module and/or total facility.

What If...’s...?

Provided you do these calculations in this manner on a Lotus or Excel Spreadsheet, it is very simple to make changes.

• What if you want to change your construction cost per foot?

• What if you decide that you need 7 massage rooms?

• What if you find a better price on equipment?

• What if you need to adjust your provider’s commission rate?

(see Fig. 1&2)  (and Fig. 3&4)

 Simply change the numbers and then let the spreadsheet change your charts, graphs and do the rest of the work.

 Planning and Continuous Analysis

This exercise should be done continuously at each planning phase of a project. You should analyze your project when you are planning your Spa, when you have the building, when you have an architect/contractor, when you know your market, when construction or remodeling begins and yet again 3-4 months after opening and yearly. Careful planning and continuous analysis is never easy in any business and especially in the growing Spa business. In this growing Spa industry it is essential that you continuously analyze your business for success and profitability.