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Old 01-24-2008, 12:56 PM #1
SplatzMaine
 
 
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Occupancy Costs

There are statistics that you can review to get an idea of what certain costs should be for a particular industry. While paintball is a relatively new sport and a niche market there are comparable industries that can be used for comparison. Even generally, most businesses pay the same ball park figure for occupancy costs. As a business broker, I deal with businesses of all types, in all industries. It's interesting to note that in all of these threads, NO ONE is talking about returns on investment. One of the reasons we see so many businesses failing is that pb startups ignore basic business metrics.

Using stats for amusement parks/theme parks:

Occupancy costs...15%
Payroll costs...24%
COGS...11.5%

Pretax profit...10%

Notice however that amusement parks have a much lower COGS, but a substantially higher capital/start up costs.

My own experience pb parks(excluding pro shops/retail) ON AVERAGE!!!:

Occupancy costs...5-12%(rent/taxes/utilities/repair & maintenance)
COGS...35-40%
Payroll...20%(does not include owner salary)
Misc...15%(all other expense lines incl. insurance, professional fees, advertising)

Pretax profit...15-20%

While other threads have probably dealt with this:

1. Build your pro forma spreadsheet with revenue assumptions.
2. cut revenue assumptions in half
3. cut revenue assumptions in half again
4. work with the new revenue #'s and build up your expense profile.

Find a site/location etc based on your proforma. If you can't, DON"T adjust your assumptions to meet a location...that means your business cannot be supported.

On a side note...assuming a 15% pretax profit(also can use "SDE: Seller Discretionary Earnings" or EBITDA(earnings before interest, taxes, depreciation & amortization)...means if you have a target income of $40,000 yr. from your paintball field business you need to generate about $270,000 in gross revenue.

Rent + NNN than would be a target $40,500 yr.

For a seasonal field that operate 8 mos/year thats $8500/wk in sales volume.

Unfortunately, property values are driven by "highest and best use". Thus paintball very rarely can afford to pay normal rents in high population areas due to the competitive uses of the property and lower affordable rents can only be found in less populated areas(which means smaller customer base.)

I'm sure that people will post after this about how they don't pay any rent, or they are way under these percentages etc...and that's great. But this forum is trying to address a lot of questions by potential new business owners. As we all know, the paintball industry is in a serious nosedive and part of the problem is too many new pb businesses are run for "fun", by inexperienced operators and undercapitalized owners. For this industry to succeed it ultimately will need to mature and be a legitimate target for capital flows and provide investors with real and measurable returns on their investment and labor.

Just a few things to ponder.

Brian
www.splatz.net
www.mainebusinessbrokers.com
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Old 01-24-2008, 02:03 PM #2
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This is some useful information, so I'm copying the post as a new thread and linking to it in the MEGATHREAD.
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Old 01-24-2008, 02:33 PM #3
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kinda confusing i'm not gonna lie...
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Old 01-24-2008, 03:00 PM #4
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wow talk about hard facts gonna copy and paste this...
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Old 01-24-2008, 03:53 PM #5
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Anyone reading the first post and not being able to make sense of it, probably needs to do more research and possibly take some business classes. Also, I'm sure Brian (thread starter) will tell you that these are based on averages. A few percentages change in the formulas (ie. you rent is high and your payroll is high), could mean the difference between making it and not making it. Your 15% pretax profit can very easily become 7 or 8% or even less if you don't know what you are doing. And forecasting sales is even trickier.

Also note, that 15% pretax profit is estimated with no owners' salary. In other words, your "profit" is your salary, unless I'm misunderstanding that. And if that's the case, with your target income of $40,000 basesd on $270,000 in sales, there is no ROI (Return on Investment) included.

Good post though for a general guideline.

Last edited by Horizon : 01-24-2008 at 03:55 PM.
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Old 01-24-2008, 05:12 PM #6
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I see stores and fields come and go all the time. The ones that fail usually fail when it comes time to replace fixed assests like bunkers and compressors. Or when their labor is no longer free.

These owners are pretty good at charging enough to cover the week to week variable costs. They just don't understand the cost of owning equipment.

It seems that there is always someone offering cheaper prices with a business model that will only last 2 years.
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Old 01-24-2008, 05:25 PM #7
bhportland
 
 
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Reiner:

Your correct! In my example I did not include the cost of capital(investment plus interest expense) because it's so variable.

So lets talk about that:

Return on Investment =

(ODE-Owners Salary-Interest Expense-Reserves for Replacement)/Cash Invested

Example:

A paintball field has gross revenues of $300,000 year.($10,000/wk for 30 weeks)

Owner Discretionary Earnings(ie: ebitda) are $45,000(15% of gross)

Owner Salary is $35,000/yr(its part time seasonal)

Start up costs were $40,000 with $10,000 cash down and $5,000 for operating capital. $30,000 was borrowed from a home equity line @ 8% for 5 years.
(lets say $2000/yr in interest expense).

Owner puts aside $3000/yr for replacement costs(airfield needs to be replaced every 3 years, rental equipment, netting etc).

ROI =
$45,000 ODE
$35,000- owner salary
$2000- interest expense
$3000- reserves for replacement

$5000= net

$5,000/$15,000(cash investment) = 33.3%

This would be considered an excellent return on investment and is due to the relatively low cost of entry. There is not a lot of businesses you can open for $40,000, and one of the reasons so many people are jumping into paintball businesses.

For those of you who aren't following this you need to seriously reconsider your dream of owning a paintball business. There are A LOT of fields and stores closing that are being run by experienced and well financed owners.

You may want to check out my other post on the benefits of buying an existing paintball business vs a new start up.

If anyone is interested we can discuss the metrics of a retail paintball store.
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Old 01-24-2008, 07:14 PM #8
Horizon
 
 
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Quote:
Originally Posted by bhportland View Post
Reiner:

Your correct! In my example I did not include the cost of capital(investment plus interest expense) because it's so variable.

So lets talk about that:

Return on Investment =

(ODE-Owners Salary-Interest Expense-Reserves for Replacement)/Cash Invested

Example:

A paintball field has gross revenues of $300,000 year.($10,000/wk for 30 weeks)

Owner Discretionary Earnings(ie: ebitda) are $45,000(15% of gross)

Owner Salary is $35,000/yr(its part time seasonal)

Start up costs were $40,000 with $10,000 cash down and $5,000 for operating capital. $30,000 was borrowed from a home equity line @ 8% for 5 years.
(lets say $2000/yr in interest expense).

Owner puts aside $3000/yr for replacement costs(airfield needs to be replaced every 3 years, rental equipment, netting etc).

ROI =
$45,000 ODE
$35,000- owner salary
$2000- interest expense
$3000- reserves for replacement

$5000= net

$5,000/$15,000(cash investment) = 33.3%

This would be considered an excellent return on investment and is due to the relatively low cost of entry. There is not a lot of businesses you can open for $40,000, and one of the reasons so many people are jumping into paintball businesses.

For those of you who aren't following this you need to seriously reconsider your dream of owning a paintball business. There are A LOT of fields and stores closing that are being run by experienced and well financed owners.

You may want to check out my other post on the benefits of buying an existing paintball business vs a new start up.

If anyone is interested we can discuss the metrics of a retail paintball store.
I would argue that it takes considerably more than $40,000 to open up a decent paintball field and it will take a decent paintball field to induce annual sales of $300,000. I know our start up costs were close to $60,000 and our sales didnít reach $300,000 until part way into the 5th year. So yes, that ROI is possible, but probably not in the first few years and those first few years can go either way if the sales arenít what you forecasted.

So this is all good stuff and potential field owners can learn from it, but beware, that itís not as easy as plugging in the numbers. There are a lot of variables involved. Sales projections being the biggest. Anyone reading the threads in this section will no doubt have tuned in on the fact that paintball fields are struggling right now. Sales are decreasing at most fields in North America. I would hate to try to ďguessĒ at future sales in this environment for a field that has no track record yet to begin with.

Brianís suggestion to look at fields already in existence is probably good advice for anyone determined to get into the business. Sinking $40,000 into a business that is not quite making it with the right leadership, might be a better option.
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Old 01-24-2008, 09:41 PM #9
bhportland
 
 
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Exactly...I hope that all potential field/store owners are spending time reading and studying all of these threads.

I have been running paintball businesses since 1989: everything from 36,000 sq' indoor fields, speedball courses, high end paintball stores, tournament series etc with start up costs from $500 to $250,000.

People enter the business for love of the sport, but in general its a extremely risky business venture. I just decided to close 2 fields and my largest store: the writing is on the wall in both the paintball industry and the economy in general.

I won't point any fingers but this industry is the most $#@$%!! up business model I have seen. I have written to all the major manufacturers, blogged extensively and put my opinions out there, but until the motivators are in line between manufacturers, dealers and customers we will continue to have the industry at cross purposes:

1. players want cheap equipment and paint
2. dealers need to charge a reasonable price to cover their costs and provide a modest and livable return
3. manufacturers want to sell their inventory quickly before product turnover and obsolescence.

So really what we have is manufacturers and players bypassing the middleman(local dealers/fields). Players buy almost direct from manufacturers, they get "sponsorships" directly from manufacturers and the seek out the lowest cost even though their dollars are being sent out of state or out of the area. Manufacturers sell direct to players at prices higher than wholesale and thus compete directly against dealers.

Here's the rub: paintball is "locality driven". That means none of this matters if there is no physical location to play. So the past year as players and manufacturers basically interact directly(some big internet retailers are proxies), the fields and stores(middlemen) have suffered. As their business declines so too their events, their inventory, the quality of their fields and sponsorships(player development).

The industry needs to reorganize for a cascade effect(or pyramid if the visual works for you). Manufacturers focus on retailer/field development and retailer/fields then focus on player and team development. Cascade industries align everyones interest and create a positive feedback loop: more players generate business for fields/stores and fields and stores generate more business for manufacturers. This feedback system works well for customer support, repair, product development and promotional efforts.

While there is a lot of talk about different "solutions" most of these fixes are just addressing symptoms, not the core problem. MAP is not a solution, just a fix for low margins. In store warranties is not a solution, just a competitive strategy against low cost internet businesses. Low prices are not a solution for declining player roles, just a reactive approach to loss of business.

Whats needed is a industry strategic realignment, and there is a blueprint--one used by many other industry sectors.

Last edited by bhportland : 01-24-2008 at 09:45 PM.
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Old 01-24-2008, 09:58 PM #10
Horizon
 
 
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Quote:
Originally Posted by bhportland View Post
Exactly...I hope that all potential field/store owners are spending time reading and studying all of these threads.

I have been running paintball businesses since 1989: everything from 36,000 sq' indoor fields, speedball courses, high end paintball stores, tournament series etc with start up costs from $500 to $250,000.

People enter the business for love of the sport, but in general its a extremely risky business venture. I just decided to close 2 fields and my largest store: the writing is on the wall in both the paintball industry and the economy in general.

I won't point any fingers but this industry is the most $#@$%!! up business model I have seen. I have written to all the major manufacturers, blogged extensively and put my opinions out there, but until the motivators are in line between manufacturers, dealers and customers we will continue to have the industry at cross purposes:

1. players want cheap equipment and paint
2. dealers need to charge a reasonable price to cover their costs and provide a modest and livable return
3. manufacturers want to sell their inventory quickly before product turnover and obsolescence.

So really what we have is manufacturers and players bypassing the middleman(local dealers/fields). Players buy almost direct from manufacturers, they get "sponsorships" directly from manufacturers and the seek out the lowest cost even though their dollars are being sent out of state or out of the area. Manufacturers sell direct to players at prices higher than wholesale and thus compete directly against dealers.

Here's the rub: paintball is "locality driven". That means none of this matters if there is no physical location to play. So the past year as players and manufacturers basically interact directly(some big internet retailers are proxies), the fields and stores(middlemen) have suffered. As their business declines so too their events, their inventory, the quality of their fields and sponsorships(player development).

The industry needs to reorganize for a cascade effect(or pyramid if the visual works for you). Manufacturers focus on retailer/field development and retailer/fields then focus on player and team development. Cascade industries align everyones interest and create a positive feedback loop: more players generate business for fields/stores and fields and stores generate more business for manufacturers. This feedback system works well for customer support, repair, product development and promotional efforts.

While there is a lot of talk about different "solutions" most of these fixes are just addressing symptoms, not the core problem. MAP is not a solution, just a fix for low margins. In store warranties is not a solution, just a competitive strategy against low cost internet businesses. Low prices are not a solution for declining player roles, just a reactive approach to loss of business.

Whats needed is a industry strategic realignment, and there is a blueprint--one used by many other industry sectors.
Good post.
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