Accounting team project.

Please follow the given instruction from the rubric and the case. Please write a detailed business memo to Terry and Sarah providing feedback on the following issues raised in the case.

Prepare a SWOT analysis for “FitZone”.

Analyze the financing options for the HIIT program and provide recommendations.

Prepare the income statement for the next 5 years for the HIIT program, including recommendations for increasing profitability.

Analyze two proposals for digital marketing and brand awareness and provide recommendations.

Analyze the deficiencies in internal controls related to FitZone’s data integrity and privacy and provide recommendations.

Calculate the break-even point (B.E.P) in dollars and units for each club and whole company.

Analyze the potential impact of dropping the Zenith club and provide recommendations.

Address any other common business and ethical issues specific to the case. “FitZone”
ACCT 621 – Group Case
Spring 2024
In early June 2024, Terry Bodin has recently hired you as a financial analyst for her company,
“FitZone” which was established in 2010. Terry’s daughter Sarah joined as a general manager in
2015, becoming equal shareholders with Terry and jointly running the business. “FitZone”
operates a chain of four upscale fitness clubs offering a variety of classes including yoga, pilates,
weightlifting, personal training, and strength training in suburban areas of Victoria, BC. Despite a
strong initial launch and enthusiastic community reception, FitZone is facing challenges across
various areas, prompting the need for your expert advice.
Terry defines the vision of “FitZone” as: “To be the leading catalyst for healthier lifestyles,
empowering individuals of all backgrounds to achieve their fitness goals with unparalleled
experiences and community support.”
FitZone typically experiences significant fluctuations in cash flow due to seasonal trends in gym
memberships. While there is a surge in sign-ups during the New Year’s resolution period and in
the months leading up to summer, there’s a noticeable drop-off in attendance during the holiday
season and summer vacations. This fluctuation makes it difficult to predict and manage cash flow
effectively.
FitZone offers various membership packages, including monthly, quarterly, and annual
subscriptions, as well as drop-in rates for individual classes. However, most of members opt for
monthly subscriptions, resulting in uneven cash flow as payments are spread out over the course
of the month. This creates challenges in meeting fixed expenses such as rent, utilities, and payroll,
which are due monthly.
Some members delay or default on their membership payments, either due to financial
difficulties or administrative oversights. Chasing overdue payments consumes time and
resources, impacting cash flow and hindering the company’s ability to cover its expenses
promptly.
FitZone incurs various operating expenses to maintain its facility and provide quality services to
its members, including rent, utilities, equipment maintenance, instructor salaries, and marketing
costs. However, unexpected expenses, such as equipment repairs, renovations, or marketing
campaigns, can strain cash flow and disrupt budget planning.
FitZone may have limited cash reserves against unexpected expenses or revenue shortfalls.
Without adequate reserves, the company may be forced to rely on external financing or shortterm borrowing to cover its cash flow gaps, leading to increased debt and interest expenses over
time.
FitZone relies on suppliers for various goods and services, such as fitness equipment, cleaning
supplies, and marketing materials. Maintaining positive relationships with suppliers and
negotiating favorable payment terms, such as extended payment deadlines or discounts for early
payment, can help improve cash flow management and preserve working capital.
Despite these cash flow challenges, FitZone remains committed to its mission of promoting health
and wellness in the community. The company explores strategies to improve cash flow
forecasting, optimize membership payment structures, control operating processes and
expenses, and strengthen customer relationships to achieve long-term financial sustainability.
Through proactive cash flow management and prudent financial decision-making, FitZone
navigates the cash flow challenges and emerges stronger, ensuring its continued success in the
competitive fitness industry.
Exhibit I; Lunching HIIT classes
Terry is driven by her vision to launch a boutique fitness studio specializing in high-intensity
interval training (HIIT) classes in a trendy area, believing in the demand for their unique approach
to group workouts. However, securing the necessary startup capital for this new venture proves
more challenging than anticipated.
To establish the boutique studio, “FitZone” must lease a suitable space in a Victoria downtown
location to attract the target demographic. Yet, commercial rents in the area are high, and
landlords demand hefty security deposits and upfront lease payments. Additionally, the HIIT
classes require treadmills, rowing machines, weights, and other exercise equipment. Acquiring
high-quality equipment is crucial to deliver a premium experience to clients, but the cost strains
the budget significantly.
Despite Terry’s enthusiasm and a solid business plan, she encounters difficulties securing
financing from traditional sources such as banks or investors. Lenders may perceive the fitness
industry as high-risk, especially for a new venture lacking a proven track record. Nevertheless,
Terry remains determined to bring her vision to life and tasks Sarah with exploring creative
solutions. Sarah is tasked with negotiating with landlords for more favorable lease terms, seeking
partnerships with equipment suppliers for discounts, and leveraging marketing tactics. Terry and
Sarah are committed to overcoming the financial hurdles and realizing the vision of the boutique
fitness studio at “FitZone”.
Sarah found a suitable location in Downtown Victoria and successfully negotiated with the
landlord. The space previously housed a physiotherapy and massage facility, but it’s feasible to
amend the permission for gym use. The landlord agreed to a fixed-term lease of 10 years with the
option to extend, and annual rent will increase by 2.5%. Below is a summary of the negotiation
with the landlord.
One year of Rent in advance (every month 25,000)
$300,000
Damage deposit for rent
$50,000
Changing the permission of building by City of Victoria
$35,000
Building improvements (Fans, painting, roofing, new shower and restrooms) $300,000
Total expense
$685,000
Additionally, after consulting with trainers and one of loyal suppliers, Ascend, Sarah has prepared
the following list of required equipment:
20 of Treadmill Ascend X2 Advanced
each $1,500 Plus delivery and tax
$36,000
20 Ascend S2 Magnetic Spin Bike
each $1,200 plus delivery and tax
$30,000
20 Ascend L-300 Pro Elliptica
each $2,000 plus delivery and tax
$50,000
20 Ascend Air Bike 2.0
each $1,800 plus delivery and tax
$45,000
20 Ascend R-200 Air Rower
each $1,000 plus delivery and tax
$ 25,000
20 Olympic Training Bundles
each $1,000 plus delivery and tax
$25,000
Weights, exercise mats and accessories
$50,000
Vending and Coffee machine
$55,000
Total estimated cost
$316,000
Terry and Sarah were searching for sources to finance $1 million. Terry approached a bank and a
venture capitalist for financing. They both made offers to Terry as follows:
Option 1 — BMO Bank
Loan amount: $1 million
Interest: The current prime rate of 5% plus 2%
Terms: Interest is due annually, and the principal is due at the end of five years. The loan is secured
by Terry’s personal residential building, valued at $2 million. An annual review engagement report
is required on the financial statements.
Option 2 — Venture capital
Loan amount: $1 million
Interest: 20% of earnings before interest and taxes (EBIT) for the next five years.
Terms: Interest is due at the year end, along with audited financial statements. The principal is
due at the end of five years unless a conversion option is exercised. Upon the end of the five year,
the conversion option allows the venture capital firm to obtain 35% equity ownership in “FitZone”
in exchange for extinguishing the $1 million debt. The venture capital firm will provide additional
management support and have a seat on the Board of Directors.
Exhibit 2: Budgeted Income statement for the next 5 years
Terry and Sarah have provided the following assumption for the projected income statement for
the next five years for the new HIIT adventure.
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•
•
•
•
•
•
•
For fitness companies that operate on a membership model, managing memberships,
subscriptions, and renewals is essential. This involves tracking member sign-ups,
cancellations, and retention rates, as well as implementing effective membership pricing
strategies to maximize revenue while maintaining competitiveness in the market. The
most favorable membership option for our clients is the monthly subscription. For the HIIT
program, clients will pay $300 per month for 3 sessions per week or 12 sessions per
month. “FitZone” will consider a 5% increase every 2 years in the monthly subscription.
Total capacity is 5 rounds per day, each lasting 1 hour and 50 minutes with 20 persons per
round, operating 6 days a week, and 300 days on a year (Sundays and stat holidays the
club will be closed).
Drop-in fees per session are $30. As long as the club has empty capacity, 10% of weekly
capacity can be completed by drop-in customers. The price will increase by 5% every 2
years.
In 2025, the capacity utilization is projected to be 70%, with a subsequent annual increase
of 2% in operating capacity thereafter.
Additional sales, including vending and coffee machine sales, will account for 2% of total
sales.
Operating expenses will include rent, depreciation of equipment (using the straight-line
method over 10 years), and depreciation of building improvement (at 5% annually)
There will be the addition of 2 new staff (registered and certified trainers) each earning
75K annually, along with one admin manager earning 60K annually with a 3% annual
increase. Sarah pointed out the potential for hiring unlicensed instructors at a lower
annual salary and due to their extensive experience, which may go unnoticed by
customers.
Annual advertisement and marketing expense will amount to 20K.
Utilities, licenses, and other operating and admin expenses will be 5% of annual sales.
A 20% allocated head office overhead, amounting to 4K monthly, with a 3% annual
increase.
There is a possibility of selling supplements that claim to guarantee rapid weight loss or
muscle gain. Terry conducted research on some of these supplements and found that
there was not sufficient scientific evidence to support this claim.
Exhibit 3: Digital marketing and brand awareness
In the contemporary landscape of the fitness industry, where competition is fierce and consumer
preferences are evolving rapidly, establishing a robust digital presence is imperative for the
sustained growth and success of fitness clubs. However, many fitness clubs face significant
challenges in effectively leveraging digital marketing strategies, cultivating brand awareness, and
developing an engaging website that resonates with their target audience.
Building brand awareness and attracting an initial customer base requires a substantial
investment in marketing and branding efforts. This includes designing a compelling logo and
website, running social media campaigns, and offering promotional deals to attract early
adopters. Terry is approaching two website and marketing companies to ask them provide
proposals for developing as follows.
Proposal 1: FitTech Solutions
FitTech Solutions is pleased to present our comprehensive proposal for enhancing the digital
presence and brand awareness of your fitness club. Our proposal encompasses website design,
logo development, and digital marketing services tailored to your specific needs and objectives.
Website Design:
FitTech Solutions will design and develop a modern, user-friendly website for your fitness club,
incorporating responsive design and intuitive navigation to enhance the user experience across
all devices.
Price: $15,000 and conditions includes up to 3 rounds of revisions. Additional revisions will be
charged at $150 per hour.
Logo Development:
Our team of experienced designers will create a professional and visually appealing logo that
reflects the unique identity and values of “FitZone”.
Price: $5,000 and conditions includes initial concept development and up to 2 rounds of
revisions. Additional revisions will be charged at $150 per hour.
Digital Marketing:
FitTech Solutions will develop and execute a comprehensive digital marketing strategy to increase
brand awareness and attract new members to your fitness club. This includes social media
management, email marketing campaigns, and search engine optimization (SEO).
Price: Monthly retainer starting at $2,500 and conditions are customized digital marketing
packages available based on specific goals and objectives. Monthly retainer fee may vary
depending on the scope of services required.
With FitTech Solutions as your digital marketing partner, you can expect exceptional quality,
personalized service, and measurable results that drive growth and success for your fitness club.
Proposal 2: Peak Performance Marketing
Peak Performance Marketing is excited to present our tailored proposal for elevating the digital
presence and brand awareness of your fitness club. Our proposal encompasses comprehensive
website design, logo creation, and strategic digital marketing services to help your club stand
out in a competitive market.
Website Design:
Peak Performance Marketing will create a visually stunning and highly functional website for
your fitness club, optimized for maximum engagement and conversion.
Price: $20,000 and conditions includes unlimited revisions until satisfaction. Hosting and domain
registration not included.
Logo Creation:
Our team of talented designers will craft a distinctive and memorable logo that captures the
essence of your fitness club’s brand identity.
Price: $7,500 and conditions includes initial concept development and up to 3 rounds of
revisions. Additional revisions will be charged at $50 per hour.
Digital Marketing:
Peak Performance Marketing will develop a customized digital marketing strategy tailored to
your fitness club’s goals and target audience. This includes social media advertising, content
creation, and email marketing campaigns.
Price: Monthly retainer starting at $3,500 and conditions are monthly retainer fee may vary
based on the scope of services required. Detailed analytics and performance reports provided
regularly.
With Peak Performance Marketing as your strategic partner, you can expect unparalleled
creativity, professionalism, and a results-driven approach that delivers tangible growth and
success for your fitness club.
Exhibit 4: Data integrity and privacy
In the context of the FitZone’s registration process for its high-intensity interval training (HIIT)
classes, it seems there exists a notable deficiency in internal controls pertaining to data integrity
and privacy.
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Customers are required to provide personal information, including their name, contact
details, and credit card information, during the registration process for HIIT classes. The
front desk administrator oversees the collection of this information. However, the system
used by FitZone lacks adequate encryption measures to protect this sensitive financial
data during transmission and storage. Additionally, FitZone’s trainers have access to the
database, potentially allowing them to view or extract customers’ credit card details.
The front desk administrator does not follow any verification mechanisms to validate the
accuracy of the information provided by customers during registration. For instance, if a
customer mistypes their email address or provides an outdated email, there is no process
in place to correct this error. In some scenarios, individuals could intentionally provide
false email addresses or other personal details without detection. The front desk
administrator has complained that she spends a lot of time dealing with credit card
numbers that are rejected by the bank as being invalid. This necessitates contacting the
members to resolve the problem, which can take days or even weeks, causing delays and
inconvenience for both the customers and the staff.
The current registration process lacks adequate consent mechanisms to protect
customers’ privacy rights and preferences regarding the use and disclosure of their
personal information.
In FitZone’s current cloud-based database management system setup, there is a
deficiency in the implementation of robust backup and recovery procedures. Without
regular testing of backup integrity and restoration procedures, FitZone may not be aware
of any potential gaps or limitations in its backup strategy until a data loss incident occurs.
A few members have complained that the monthly fee has been charged to their credit
card after the membership has been cancelled. Also, A member complained that her credit
card was charged twice for the monthly fee. She said it took her several calls and e-mails
over a period of weeks before the issue was resolved.
The deficiencies raise concerns regarding the FitZone’s compliance with data protection
regulations, such as the General Data Protection Regulation (GDPR) or the Health Insurance
Portability and Accountability Act (HIPAA), depending on jurisdiction and the nature of the
collected data. Non-compliance with these regulations exposes the club to legal liabilities,
financial penalties, and reputational damage.
Exhibit 5: CVP Income statement
Terry and Sarah have just received the following CVP income statement, provided by the
company’s accounting manager, for the first 5 months of 2024, which includes all 4 clubs.
Elevate Club
Revenue
Variable cost
Contribution margin
CM%
353,000.00
148,530.00
204,470.00
58%
Fixed cost
Net income
Net income %
158,400.00
46,070.00 13%
“FitZone”
CVP Income statement – January to May 2024
Performance
Zenith Club
Vitality Gym
Fitness
144,200.00
307,500.00
431,150.00
67,680.00
143,200.00
208,187.00
76,520.00
164,300.00
222,963.00
53%
53%
52%
98,500.00
21,980.00
-15%
127,990.00
36,310.00
12%
158,650.00
64,313.00
15%
Total
1,235,850.00
567,597.00
668,253.00
54%
543,540.00
124,713.00
10%
Terry is curious about determining the monthly break-even point in sales dollars and the number
of customers for each club, as well as for the whole company. 80% of total revenue comes from
fixed membership, with 10% from the drop-ins and 10% from store and other sales. The average
of fixed membership is $250 monthly, and for drop-ins, it’s $25. (We’ll assume consistent revenue
and over the last 5 months.)
Sarah is surprised about the Zenith club and discussed with the accounting manager the potential
consequences of the company dropping and closing the Zenith club. Maggy, the accounting
manager, prepared the list of fixed costs for the Zenith Club as follows:
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•
The monthly rent for the club’s location is $8,000, and “FitZone” has a long-term rental
contract with the landlord. FitZone can sublet the rent, but only to other gyms or clubs.
Each month, $5,000 of head office costs (including Terry, Sarah, accounting manager, and
IT support costs) are allocated to this club. If the company drops the Zenith club, these
allocated costs will be reallocated to the other clubs.
The monthly depreciation cost of equipment is $4,000. If Zenith is dropped, FitZone can
sell the equipment, but there will be a disposal loss as the market value is less than the
book value of the equipment.
There are monthly fixed expenses of $1,700, including permits and licenses, insurance,
and taxes, which can be avoided if Zenith is dropped.
Terry also mentioned that due to strict competition, if “FitZone” were to drop the Zenith or sublet
it to other gym owners, there could be opportunity to expand market share in that area. In
addition, Zenith currently has more than 500 loyal customers who have been using the facilities
for many years. Having unhappy customers is not aligned with FitZone’s vision.
Please write a detailed business memo to Terry and Sarah providing feedback on the following
issues raised in the case.
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•
Prepare a SWOT analysis for “FitZone”.
Analyze the financing options for the HIIT program and provide recommendations.
Prepare the income statement for the next 5 years for the HIIT program, including
recommendations for increasing profitability.
Analyze two proposals for digital marketing and brand awareness and provide
recommendations.
Analyze the deficiencies in internal controls related to FitZone’s data integrity and
privacy and provide recommendations.
Calculate the break-even point (B.E.P) in dollars and units for each club and whole
company.
Analyze the potential impact of dropping the Zenith club and provide recommendations.

Address any other common business and ethical issues specific to the case.

*Reference anything you copy-paste/paraphrase heavily from the internet (or other source).
Your work WILL be analyzed for AI use (NOT permitted) and similarity.
Final Project Grading Rubric
The rubric below will be used to assess the report portion of the group case/final project. Everyone in the group can expect similar
grades for the report, unless issues arise with little/no contributions made to the project.
Level
Report
(20%)
Score:
Presentation
….(5%)
Score:
Needs
…
………Improvement
The report’s structure
needs improvement and
some sections may be
missing/poorly developed.
Satisfactory
Good
Excellent
The report’s structure needs
improvement and some
sections may be
missing/poorly developed.
The report is well-structured
with all sections (including a
title page) present and fully
developed.
Significant grammar issues
exist and APA format is not
used.
Some grammar issues exist,
APA format is not used
correctly.
There are few/no grammar
issues and APA format is
used.
The report is well-structured
with all sections (including a
title page) present and fully
developed.
There are no grammar issues
and APA format is used.
Most of the issues in the case
have been identified and
discussed thoroughly in the
report.
All/nearly all of the issues in
the case have been identified
and discussed thoroughly in
the report.
Most of the major issues in
the case have not been
identified in the report.
About half of the major issues
in the case have been
identified in the report.
The analysis section
doesn’t adequately dissect
the issues, nor does it
support recommendations.
The analysis section dissects
some of the issues in the case,
but the analysis is incomplete
or incorrect.
0-9
.
The presentation is lacking
organization and clarity.
Total speaking time falls
well outside the 12-15
minute range.
10-13
14-17
The presentation is somewhat
organized, but lacking clarity.
Total speaking time falls
outside the 12-15 minute
range.
The presentation is quite
organized, mostly clear, with
12-15 minutes of total
speaking total time.
The presentation is wellorganized, clear, with 12-15
minutes of total speaking time.
3
4
5
0-2
The issues are dissected well
through qualitative and
quantitative analysis. The
analysis ties in with
recommendations.
The recommendations are well
supported by comprehensive
qualitative and quantitative
analysis. There is a clear link
shown between the issue, the
analysis,
and
the
recommendations.
18-20