Question

PLEASE PROVIDE DETAILED RESPONSE AS WELL AS THE VISUALS OF THE SCHEDULE 1 AND SCHEDULE 6 BUDGETS

Your consulting firm has been hired to help Triple F Health Club evaluate its new membership plan and fee structure. Prepare a presentation for the club’s president, addressing the following questions:

1) What are the key factors that Triple F Health Club should consider in its evaluation of the new membership plan and fee structure? Why are these factors important?

2) Develop a Schedule 1 (revenue) budget and a Schedule 6 (cash receipts) budget based on the new membership plan and fee structure. Will Triple F Health Club’s new membership plan and fee structure improve its ability to plan its cash receipts? Why or why not?

3) What other types of analyses, beyond the Schedule 1 and 6 budgets, (both strictly financial and strategic) would you offer to perform for Triple F Health Club in order for them to make a complete evaluation of the new membership plan and fee structure? Explain your rationale.

4) Explain how Triple F Health Club’s cash management would differ from the present if the new membership plan and fee structure were adopted.

5) From a strategic perspective, what are the advantages and disadvantages to implementing this membership plan and fee structure? Given the importance of the potentially clashing goals of better cash management, and increased revenue, would you recommend Triple F Health Club go forward? *Note: Please use THESE questions and not the questions in the book to prepare your analysis.

Using Budgets to Evaluate Business Decisions

Triple-F Health Club (Family, Fitness, and Fun) offers tennis, swimming, and other physical fitness facilities to its members. There are four of these clubs in the metropolitan area. Each club has between 1,700 and 2,500 members. Revenue is derived from annual membership fees and hourly court fees. The annual membership fees are as follows:

Individual....................$45

Student.......................$30

Family.........................$100

The hourly court fees vary from $8 to $12 depending upon the season and the time of day (prime versus non-prime time).

The peak racquetball season is considered to run from September through April. During this period court usage averages 90 to 100 percent of capacity during prime time (5:00–9:00 p.m.) and 50 to 60 percent of capacity during the remaining hours. Daily court usage during the off-season (i.e., summer) averages only 20 to 40 percent of capacity.

Most of Triple-F's memberships have September expirations. A substantial amount of the cash receipts are collected during the early part of the racquetball season due to the renewal of the annual membership fees and heavy court usage. However, cash receipts are not as large in the spring and drop significantly in the summer months.

Triple-F is considering changing its membership and fee structure in an attempt to change its cash receipts. Under the new membership plan, only an annual membership fee would be charged, rather than a membership fee plus hourly court fees. There would be two classes of membership:

Inidividual......................$300

Family............................$500

The annual fee would be collected in advance at the time the membership application is completed. Members would be allowed to use the racquetball courts as often as they wish during the year under the new plan. All future memberships would be sold under these new terms. Current memberships would be honored on the old basis until they expire. However, a special promotional campaign would be instituted to attract new members and to encourage current members to convert to the new membership plan immediately.

The annual fees for individual and family memberships would be reduced to $250 and $450, respectively, during the two-month promotional campaign. In addition, all memberships sold or renewed during this period would be for 15 months rather than the normal one-year period. Current members also would be given a credit toward the annual fee for the unexpired portion of their membership fee, and for all prepaid hourly court fees for league play which have not yet been used.

Triple-F's management estimates that 60 to 70 percent of the present membership would continue with the club. The most active members (45 percent of the present membership) would convert immediately to the new plan, while the remaining members who continue would wait until their current memberships expire. Those members who would not continue are not considered active (i.e., they play five or fewer times during the year). Management estimates that the loss of members would be offset fully by new members within six months of instituting the new plan. Furthermore, many of the new members would be individuals who would play during non-prime time. Management estimates that adequate court time will be available for all members under the new plan.

If the new membership plan is adopted, it would be instituted on February 1, well before the summer season. The special promotional campaign would be conducted during March and April. Once the plan is implemented, annual renewal of memberships and payment of fees would take place as each individual or family membership expires.

Answer 1