Building a Sports Facility? Avoid the Top Three Financial Pitfalls

Everyone has heard the phrase; “The three most important things in real estate are location, location, location.” Well in this business location is important, but in the beginning the phase should be; “The three most important things when building a sports facility are money, money, money.” The first “money” relates to the site acquisition, as in should I buy or lease, build to suit or convert? The second “money” relates to capital equipment, how much should I spend and do I buy or lease? The third “money” relates to the operating account, what do I need to have in cash to open the doors and keep them open while I build my business.

Site Acquisition

I’ll start with the one you will have to consider first and that is site acquisition. This is the make or break decision for your business, just about every failed facility I know of went under because of how they chose to acquire the facility. Your number one best option is to buy a facility of some kind that you can convert to your use, or if you have the funds and ability you can buy some land and build to suit. This gives you instant equity in the business and allows you have a tangible asset in hand in case your business does not work out. It also gives you the ability to sell the operations and keep the facility as an income generator. I have seen many sports facility where the only people who make money are those who own the building. So, the bottom line, find a way to own the facility you want to do business in.

Capital Equipment

The second monetary consideration is how to obtain the capital equipment needed to fill the facility. No matter what sport you plan to offer, there is some kind of equipment to buy. Rinks, fields, turf, courts, all cost money, and this is the second area I see many people get in trouble with. In the beginning you have to be as frugal as possible without sacrificing too much on quality. Purchase only what you absolutely need, the super high end stuff is not necessary. You must ask yourself with every purchase; “Will the added dollars spent contribute more income?” If the answer is “no”, which in most cases it is, then you don’t need it. Don’t get carried away by the bright shiny objects and flashy details, there will be plenty of time to upgrade later, besides you need that cash for the next “money” item.

Operating Cash

When you open your doors, you should have enough cash to keep them open even if nobody shows up to play for about six months. That may seem conservative but in my experience it is needed in this business. Remember, unlike other types of business, the sports facility business usually generates income more or less on a quarterly basis. Which means that when you open your doors and do not get the anticipated sign ups the first season you will have to wait another 2 or three months before the next season starts and gives you that next infusion of cash. There are other activities for sure during that time, but league or team revenue generally makes up about 80% of your revenue. You can burn through a lot of cash the first year if your sign-ups are not what you planned.

Don’t Reinvent the Wheel

The key to all this is putting a solid plan together from the start. Consider using our sports facility Business Plan Manual. It’s very affordable and includes everything you need to build a solid plan.

Rink Smart’s Sports Facility Business Plan Manual includes a complete sample plan, a professional facility layout, plus all the documents you need to create your own plan.

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