Closure of California Fitness: What went wrong?

Caption:  The title of this article is 'Closure of California Fitness in Singapore: What went wrong?' which was written by Lianne Chua on 20 July 2016. This article has been broken down into parts, however, the main focus would be the section titled 'Financial Management, Rather than marketing'. In this section, the author describes how the manner in which California Fitness handled its financials was the reason for their downfall. This is important as they have highlighted important issues such as unearned cash, as well as, not managing their cash flow well.  By examining this article, I am able to learn through a case-study setting on what went wrong and why it is important.  In the article, it was highlighted about how there were financial management issues that existed within California Fitness. This is due to its business model which largely relied on upfront payment of fees. This lead to the company having a large amount of cash which is unearned income as the money paid for the services have not been fully rendered. It was mentioned that one such article was the selling of lifetime memberships, where there was no estimation on whether this was even profitable. California Fitness failed to properly calculate how much it actually costs to offer such packages and that was where the mistake was. When this situation occurs, they may use up the money assuming it is profit which could result in cash flow issues in the future. According to an ex-employee at California Fitness, gym members were generally paying a low fees for their memberships which was lower than market rate. The former staff who chose to remain anonymous also said “How do you pay rent and pay for your gym equipment?” This implies that the gym had failed to consider this, which may result in California Fitness not being sustainable thus leading to their downfall. Financial planning and management is vital in starting up of any business and without addressing major gaps it is a surprise of its own that California Fitness could have gone so long in the first place. All the California Fitness gyms in Singapore would be closed down in Singapore as it does not have adequate liquid resources to continue its operations. The chain also closed all its 12 outlets in Hong Kong. In the financial management module, we have learnt to correctly account for all our sales as well as price adequately. Pricing the product or service accurately is essential to ensure that you are able to cover expenses incurred and breakeven. This is especially important as any profit-driven business would not want to be short-changed due to inaccurate assumptions. This mistake resulted in the company not being able to sustain themselves. Proper research and calculations should have been done from the start to avoid such mistakes. California Fitness also misjudged their finances as they used up the upfront cash which was actually unearned income assuming it was profit. This shows that they did not properly account for their finances which is a mistake as it will be hard to track the cash from there. This resulted in cash flow problems for the company where they did not calculate and document in well which resulted in their inadequate liquid resources in the long run. This is a grave mistake as one becomes susceptible to the loss of the business. I realise the importance of thinking for the long run and not just for that moment. Financial management to make or break your business and it is important to ensure that the right measures and planning are done without rushing into it.