Allday Fitness Club (AFC) was founded 23 years ago by a married couple, Tejinder and Taranjit Singh, both professional athletes. They had very specific goals for their fitness centre and crafted the following mission for AFC: AFC aspires to help people in the greater Montreal region to lead healthier lifestyles. AFC will provide members with a personalized weight-training program in a welcoming, enjoyable, and pleasant environment that will allow them to achieve their health and fitness goals. AFC is a two-level fitness centre and has three training rooms on the ground level: a spin studio (for stationary cycling classes), a weight-training room, and a fitness room. The second floor houses locker rooms with showers and the administration office. AFC is a small fitness centre but the business has been much more profitable than other small fitness centres, mainly because it has a friendly atmosphere and personalized weight-training programs. AFC is open 20 hours a day, seven days a week. AFC employs one administrative clerk and a trainer for the spin classes. In addition to managing the business, Tejinder and Taranjit create personalized weight- training programs for each member (diet plans and training schedules) and provide the weight-training. In recent years, recreational fitness activities such as yoga, Pilates, Zumba, and group cardio and strength activities have become very popular. Studies have shown that yoga can help reduce stress and anxiety. People perceive recreational fitness as more enjoyable than traditional weight-training. A few major fitness centres already offer these recreational fitness activities and have expanded into group classes to help people prepare for various races. AFC's members continue to sign up for spin classes and weight-training, but Tejinder has noticed that participation in the spin classes has been static for a few years and participation in weight-training has declined gradually. Tejinder has always wanted to maintain a profit margin of 10%. Currently, AFC's facility is too small to simply add new activities. The only way to add activities is to remove the equipment from the weight-training room and combine the fitness and the weight-training room into one. Taranjit thinks this change in the market is a great opportunity for them to reduce their time spent on weight-training and focus on managing the business with a potential increase in staff and class scheduling. Tejinder also thinks that AFC needs to make some changes to remain profitable. The owners believe that they could remain in the weight-training business with minor changes (for example, improve their marketing strategies, add more options to the weight-training programs, increase price for the weight-training membership, and so on), but they would also like to evaluate whether removing the weight-training room and replacing it with recreational fitness activities is a good idea. They are, however, also concerned that this business shift would be drastic and are uncertain of the impact on profitability of the changes over the next five years. Before making any changes, Tejinder would like an idea of how many new recreational fitness members AFC would have to attract to at least cover the expenses initially and over the long term to maintain his target profit margin. Both owners are concerned with the significant capital investment and would like an assessment of whether this investment in recreational fitness is worthwhile and can be recovered within the next five years. You, CPA, are an external consultant hired by AFC to provide business advice that is supported qualitatively and quantitatively. AFC's administrative clerk has given you last year's unaudited financial information (Appendix I). You have also summarized information about the recreational fitness industry (Appendix II) and the costs of the renovation (Appendix III). Your response should be no longer than 1,800 words, excluding any Excel files.

Alday Finess Clib (AFC) was founded 23 years ago by a married couple. Tejinder and Taranit Singh, both prolessonal ariletes. They had very spechic goals for their fitness centre and orafled the following mission for AFC: AFC aspies to hep peopie in the gieater Moniveal repion to legd heathier Mestyec AFC wi provico nombors with a personaiked weight teaining program in a woborming. enjoyatec, and peasant eritronenent fiot wit allow them to achieve their heath and feress goals. AFC is a two-level finess centre avd has three training rooms on te ground level: a spin studio lor stafonary eyeling olassesh a weight-6aining oom, and a flonoss room. The seoond floor houtes locker rooms with showers and the adreinitration offoe. AFC is a smali fiteest centre tut the business has been much more profiabio than other imal foness centres, mainly because it has a frenenly atmosphere and persotalized weight-traning programs. AFC in open 20 hours a day, seven days a weok AFC employs one adninittative delik and a trainer for the spis classoct in addtisn to managing the busiess. Tojnder and Taraspt cieate persenalited weigh. traning programs for each member (diet plare and traning schedues) and provide the weight traning. In reoent years, recueational feness motivites such as yoga. Plates, Zunta, and group cardio and stength astrites have become very popular. Sludiss have thown that yoga can help redice stress and arocinty. People perceve recreational fithess as more these fecreatonal finets activities and have axpanded into group clastes to hela peocle prepare for varisus raced. AFCis memben contrue to sign co for soin classes and weightatanivg, tui Tejndel has noticed hal paticipasion in the sph classes has been state lor a few years and mantain a proft margin od 10\%. Curency, AFC's tacilty is 100 smal to simply add new adtivited. The only way to add activities is to remove the equipment from the weightsaing room and combine the fitest and the woight-taining room into ane. Teranit think this change in the maiket is a great opportunily for them to reduoe feir time spent on veight training and locas on manaping the business wth a poterlal increase h staf and clas scheduing. Toinder aloo thinks that AFC needs to make some changes to remain proftable. The owners believe that they could remain in the weight-taining business weh minor charges (for example, ingrove ther markesing stacegies, add more options to the weight-4aning progrars, inorease price for ble weight-trainisg mombership, and 60 an) but they would also like bo evaluate whether removing the weight-trining room and replacing it with recreatonel fmess actives is a good idea. They are, however, asso conoerned that this business shift would be dratic and are uncertain of the ingact on protitability of the changes over the next five Belore making any changes, Tejinder would like an idea of how many tew reoveational fitess menbers AFC would have to atract to at least cover the expenses intially and over the long berm to mainain his target pools macgin. Both owners are conormed with the significant capital itvestment and would like an assessment of whether this ivestment in recreafional foress is worthotlile and can be recovered within the next free years. You. CPA are an exlomal consulant hired by AFC to provide business advice that is supported qumitatirely and quantiatiely. AFCis administrative desk has gives you last year's unaudited financial information (Agpendx II. You have also summarized informaion about the rocreational finess industry (Appendix it and the cocts of the renovation (Afpendie it). Your response should be no longer than 1,000 words, excluding any Excel files. Anhendive I Appendix II Information related to the recreational fitness industry You have besn provided the followiry data by Tejinder and Taranit who reseacched the recreaticnal forets market and turveyed current AFC members aboud postible changets. The following table shows the expected numbers of merterstig: * The proe of a spin class membership is S40 per month per member. AFC had 165 members in total for spin dasses in 2019. * The price of a weight training membership is $80 per nonth per raember, AFC had 364 thembers in total in the weightitraiking program in 2019 . The price includes a consultatos and weight-training program for each menber. * Membership for the spin classes and weight-traning is oounted by weighted avorage; for exarple, if ore person had a membership foe sik months and two pecple had mombershipo for three mendis each, this is courtod as one member in total for the year. * Salaries indude $50.000 for a spin class trainer, $30.000 for an administratice derk. and \$60000 each for Tejinder and Tarany for the weight-traniog inetructoon. Teinder and Taranyit also receve 540.000 each for managing the businesi. * The iemaining useful Be for the ueighteraining and spin equpenent is eight years; degreoalon is 55.200 per year for the weight.traning equioreent and $1,300 per year lor the spin ecuipment. Note 1: Whh apgresstve marketing AFC can expect 300 members for recesitional fitness activites in the first yoar. Note 2: AFC s cutrent feclity can accomrmodate a maximum of 350 recieational fithess matribert. Nole 3: The merrber sumey showed that spin class memberthips wil decreate by 15% as a result of renovating the fithess centre for recieational fithess. * The average price for recreatonal ftress mil be 3150 per month per member, and the price for the spin olass memberthips wil remain the same. * Tejinder and Tatanif will stop receiving their weight-training salariesc inswead. AFC will need to hire four instructors for recreations fthess: each instructoe will be paid $55.000 per yoar and be in charpe of several iecreatonal fifnss dastes. * In adstion, if the number of members is more than 330. AFC wil nesd to hire a part. tme interucior af 540,000 for an bxira dlase. Tejinder and Taranipt wonder whether it is worthwhile to hive an additonal irstructor. * Operatirg expetsas are not expected to charge. * Advertsing expense will be doubted for the frst wo years, tefuming to its fomer level in year 3