Fun Center Feasibility - 10 Steps to Get Started
Original article courtesy of John Gerner, Leisure Business Advisors
If you're thinking about starting a family fun center, the following advice is for you too. It's from my 25+ years of fun center feasibility experience with indoor party center attractions, family entertainment centers, laser tag attractions and working with many who have gone down the path you're looking at right now. One of the real benefits of our industry is shared experience. We don't have to reinvent the wheel when it comes to FECs. The basic fun center model has been a proven concept for years, and although there is always improvements that can be made to the concept, but it's a proven one with an established track record that now spans decades.
Download our fun center guidebook: How to Start a Family Entertainment Center
Family Fun Center - Feasibility in 10 Steps
Step One: You first need to look within yourself and think about why you want to develop a family fun center. If you are thinking that you will work less and make more money, getting rich within the next year or so.... think again. Although there's always the feeling that a clever new idea can lead to great fortune, few in our business actually do get rich operating amusement attractions and those that do probably didn't think they would when they started. If your main reason is to take on the challenge of developing a thriving fun business that could entertain thousands every year, and drop you into the middle of a fun working environment, then your on the right track. Many FEC developers are actually buying themselves a job, which is not too bad, because when done right it can be profitable and a lot of fun for all involved. The goal of being your boss, doing something you enjoy, and hopefully building something of community value that you can pass on someday to others, is a noble pursuit.
Step Two: you're going to need money. Not all of it, that's what lending institutions like banks, help with. But you're going to need what we call "seed money". If you're the creative type that simply wants to conceptualize and not deal with money, this is the time to begin finding a business partner. The leisure attractions industry has benefited time and time again from pairing creative and business types. I'm sure you've heard of Walt and Roy Disney.
How much seed money you're going to need is hard to say. I've been asked if there is some way that we can provide a "preliminary" feasibility analysis that would help get this seed money. Sadly, the answer is no. However, our Startup Academy program is a step along the way to a full feasibility report, that works with you to ease the pain and expense of project feasibility. We provide you with the materials, support and coaching to get a lot of the preliminary work done locally, so that you can decide if the business is right, and test the funding options. However, a full fun center feasibility report is going to take considerable time and effort.
Think carefully about the general risk involved in developing a new fun center or indoor party center business. There are no guarantees and you will need to be comfortable with these risks before you can seriously move forward.
Step Three: you should have a good idea of what type of family entertainment center you want to develop. One type is not inherently better than another; such as indoor versus outdoor or teen-oriented versus children-oriented, but you will eventually need to focus your FEC's target audience. This is the time to educate yourself as much as you can about FECs. The Family Entertainment Center website is a good start, but you should expand your education. In particular, you should visit as many family entertainment centers as you can, and see first-hand what you like and don't like. Soon, you should have a good idea of what you want to develop.
Step Four: you should also have a good idea where you want to develop your family entertainment center. Ideally, you should have a specific site in mind, but be open to a change in location as the analysis of the local market and project feasibility comes together.
Step Five: site location is a key part of the process and once you have determined the kind of fun center business you want to start you can formally begin the process of searching for the best location. Working locally with a knowledgeable commercial real estate agent is the best path forward as they can answer questions about space appropriateness, build-out, lease rates, zoning and the surrounding commercial area.
Step Six: you're very likely going to need a feasibility study unless you have the financial resources to develop the project on your own. That's because our industry, like most, has its own version of the golden rule and it says "the one with the gold makes the rules". Lenders and other investors want to see an objective, analytical report prepared that evaluates the potential of your proposed type of FEC at your prospective location. This effort might be divided into separate market and financial feasibility studies, but typically it is done in a single report.
Although you've paid for it, the feasibility study is not written directly for you. It's written for prospective lenders and investors, and assumes they have little if any knowledge of family entertainment centers.
The study will likely identify the potential markets for your proposed FEC, through distance rings, travel corridors, and other means. It may or may not include tourists, depending on the location. It should present the size of each market segment and its demographic characteristics. It should project potential attendance by applying market penetration rates to these market segments, influenced by the quality of these markets, competition, and the experience of comparable FECs elsewhere.
The feasibility study should provide general physical recommendations to ensure that the proposed FEC will physically be able to effectively service its expected attendance. This study, however, does not design the FEC and should offer design flexibility in completing the fun center build-out.
The study should also project potential financial performance and provide guidance on the total development costs needed to achieve a worthwhile return-on-investment to investors. This amount needs to be high enough to provide the "critical mass" of experiences needed to achieve its market potential, yet avoid overbuilding. An FEC can often be expanded later if needed, but downsizing is generally very difficult. With the feasibility study in hand, you're ready to continue moving forward.
Step Seven: you should prepare a detailed business plan for your proposed family entertainment center. Its purpose differs from the FEC feasibility study. The feasibility study is prepared by an outside expert and hopefully demonstrates the potential of your proposed FEC. If not, you will need to make changes to the concept and/or location. Even a positive feasibility study does not predict or guarantee success. Instead, it shows the potential performance if the FEC is developed and managed effectively.
The business plan shows how you plan to effectively develop and manage the FEC so that it will achieve the potential identified in the feasibility study. Although the business plan may partially or completely be prepared by outsiders, it is ultimately your document, and ideally you should be intimate with it as together, the two of you will need to persuade skeptical readers that you can actually make this happen. They will look hard at the top people involved in the project that are described in the business plan, and will want comfort that these individuals are qualified.
Step Eight: depending on your overall project scope, you may need initial design and concept development work as part of the complete package to present to prospective investors and lenders. Generally the more investment you are seeking, the more thorough and comprehensive your complete package should be. If you are looking to start an indoor party center for under $500,000 dollars, this may not be required, if on the other hand, you are seeking an investment of $2 million dollars or more, initial concept and design is probably going to be required. There are many fine design firms in our industry that will be happy to discuss this with you and you should begin talking with them early in the planning process. Again, depending on scope of your FEC project, there may also be others needed to effectively move the planning process forward, such as food service, landscape, environmental consultants and others.
Step Nine: you may need to bring in other equity investors (those who provide you with investment dollars in exchange for a percentage of your business - the business equity). Banks and other lending institutions will never provide 100% funding. They will require you to have some skin in the game, and in the current economy that is 20% - 30% of the total startup investment. If this exceeds your own funding ability, the remaining amount has to be provided by equity investors. Since the lenders will likely have liens on the assets of the FEC, the equity investors have higher risks, but also have the potential to reap the higher rewards from a successful operation.
Step Ten: you have funding in place and are ready to begin construction. If you've made it this far, you've accomplished quite a bit and should take a moment to celebrate. More challenges lie ahead, but you're well on your way.
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