The FEC business plan: The roadmap to success

An entrepreneur planning to open a family entertainment center (FEC) or another type of location-based entertainment (LBE) business such as a bowling center will need a business plan to secure financing or investment capital. However, a business plan is much more than a tool to obtain financing. A well-prepared business plan is the roadmap to:

  • What type of FEC or LBE is most feasible
  • What market niche of customers should be targeted in its market area
  • What should the brand identity be and what attributes are required for its success
  • How should the business be successfully operated

Kep Sweeney, author of the book The New Restaurant Entrepreneur says, “The fact is that when developing your restaurant [or FEC/LBE], the outcome is foretold long before the restaurant [or FEC/LBE] opens. Planning determines success.” The slogan for Foundations Entertainment University states it a little differently, “Businesses don’t plan to fail, they fail to plansm.” The written business plan is what ultimately determines the business’ success by setting out both the needed planning in precise detail and how the business will be marketed and operated.

There are a large number of business plan software packages, websites, books and other aids that are guides to preparing a business plan. They all outline the needed basic components. In summary, any good business plan includes, at a minimum:

  • Description of the business
  • Description of the target market
  • Competition analysis
  • Market feasibility analysis
  • Description and expertise of management team
  • Sales and marketing plan
  • Operations and personnel plan
  • Start-up costs
  • Pro forma profit and loss statements
  • Pro forma cash flows
  • Pro forma EBITDA
  • Breakeven analysis

Business plans for family entertainment centers and other type LBEs are more complicated than for other types of businesses that are not as dependent on their real estate or location. The feasibility of an FEC is very specific to its location and market. Investors and lenders rarely commit to fund an FEC until a site is identified (and hopefully secured) and a market feasibility study is included as part of the business plan. If nothing else, the specific site determines the geographic boundaries of its market area and its population, competition and the development costs (land and building or rent and construction costs). There is no such thing as a generic FEC or LBE. FECs come in all sizes and types, the optimization of which is highly dependent on both the site and its market. Changing the location of a site, sometimes by as little as a mile, can have a dramatic impact on what its market will be, attendance, and ultimately, the FEC’s success. 

Another issue with FECs is that the demographics and socioeconomic-lifestyles of its market population and the direct and indirect competition in the surrounding area have a direct impact on attendance and per capita expenditures, which must be projected to determine revenues. Bottom line, the site has a direct impact on revenues.

It is the market feasibility study that becomes the foundation for not only revenues, but just as importantly, for exactly what the LBE should be -- its mix and size, its level of finishes, its type of service, all its traits that ultimately determine its brand identity. Getting the size to match potential attendance so the FEC is neither too large nor too small is called right sizing or determining design day requirements.

We have seen many family entertainment centers perform poorly or fail due to having a poorly researched and prepared business plan lacking a solid market feasibility foundation. Most often, this results from entrepreneurs who perform their own market feasibility study and project both attendance and per capita expenditures when they have neither experience nor a firm basis on which to:

  • Determine exactly what the geographic market area will be
  • Understand how to interpret the demographics and socioeconomic-lifestyles of the market population
  • Determine the impact of competition (entrepreneurs, due to their belief in their business concept, tend to discount competition even when it is real)
  • Understand how to interpret all the above to determine the best type, mix, and size for the FEC to best match its market
  • Understand how to interpret all the above to derive attendance and per capita projections

We have actually seen FEC entrepreneurs wave a set of demographic reports of some mileage-ring areas surrounding their site in their hands, claiming that constituted a market feasibility study. Often their justification for feasibility is something like, “I know it will work because there is nothing in my town for families to do.”

Another error we often see in FEC business plans is totally unrealistic (too low) cost projections, often based on using generic square-foot estimates to project construction and other costs. Without a preliminary design plan with sufficient detail and finish scope descriptions any cost estimate will basically amount to mush.  This is because general contractor needs a design plan to develop a reliable construction cost estimate. A detailed plan is also needed for a detailed cost estimate of all equipment, furniture, fixtures, soft and start-up costs. The big risk is that once you fund the project with lenders and investors, if the cost estimate was too low, you either can’t finish the project, the lenders and/or investors will have you over a barrel for additional funding or the project can’t be completed as designed, resulting in lower than projected revenues.

We often see entrepreneurs try to launch their LBEs with nothing more than a completely self-prepared business plan and no capital. We can say with 99.9% certainty that such projects have no hope of ever becoming a reality. One reason is that banks and investors want credible market feasibility studies, cost estimates and economic feasibility projections prepared by experienced industry professionals. Secondly, investors want to see the entrepreneurs have skin in the game and financial risk, including capital investment, in the project. Thirdly, there is no such thing as borrowing 100% of costs. And lastly, even if an 80% or 90% loan is possible, overleveraging greatly increases the odds of bankruptcy. During the last recession, most of the businesses that failed were too highly leveraged.

A well-prepared thorough FEC business plan will run up to 60 or more pages. This isn’t something that can be accomplished in a few days or weeks. The successful business plans (meaning the ones that result in funding and a successful business) we have produced with our clients have taken anywhere from three to six months to write, edit, edit, edit, proof, proof and finalize.

Having a convincing and credible story is essential, but typographical and spelling errors will quickly doom a business plan. Even worse are mathematical errors in the financial projections, often due to formula mistakes using Excel. Financiers and investors find it hard to have any confidence in an entrepreneur’s ability to execute a successful business if they can’t deliver a business plan free of typos and errors. It just doesn’t come off as professional.

It takes money to find money. The market feasibility study, preliminary design plans, detailed cost estimates and pro forma financial projections required for a credible business plan cost money when prepared by an industry expert (It is not a few hundred or few thousand dollar investment as some unreputable websites and aledged experts, such as suppliers, charge.) A deposit or option payment is usually required to secure a contract or option on a site. Special engineering or environmental studies may be required to determine site development issues and costs. If you are planning to raise money from investors, in order to comply with state and federal securities laws and regulations, you will need to hire a securities attorney to help prepare the offering memorandum. Be prepared to spend anywhere from $50,000 to $100,000+, depending on the type, size and location of the project to get all this done and be in a position to start begging for the money.

A business plan is the first step to launching an FEC or LBE business. With comprehensive preparation, it will become your blueprint to funding and longterm success.

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