Whether you own a fitness center and want to sell it, or you’re an entrepreneur who wants to acquire an existing gym, one way or another you will need to know what the gym is worth. On the selling side, the idea is to make the price low enough to attract plenty of buyers, but while making sure that you’re not leaving potential profits on the table. From the buyer’s point of view, you want to determine the value of the fitness center in comparison to the listed cost. The price you pay for a gym can seriously affect months or years down the road of profits, so this is factor is not to be taken lightly. In many cases, a seller of the fitness center will engage the services of an industry expert to assess the value of the business they wish to acquire. These experts may arrive at vastly different figures. Their ability to compromise can result in a mutually satisfactory transaction for both buyer and seller, but much of that process may be based upon what method each side uses to arrive at a price.
Determining the Value of Your Fitness Center
There are generally thee reasons why an owner of a fitness center will hire someone to determine its value – a pending sale, some sore of lawsuit or tax and planning issues. For the purposes of this article we are concerned only with the first, but the process is the same no matter why a valuation is required. There are three basic methods that experts use to determine the value of a fitness center.
Asset-based approach
Under the “going-concern” asset-approach, you would take the net balance of a club’s assets and subtract its liabilities
Earning value approach
A club’s past earning are plugged into various formulas to determine expected future revenue and multiplied by a factor of 3 or higher depending on several variables.
Market value approach
The value of a club in question is compared to that of similar clubs in the same field.
Many gym valuation experts use some combination of these methods to arrive at a fair-market value. The process clearly cries out for a person who understands profit and loss, balance sheets and a variety of accounting type procedures.
Be sure you have clean books
If you want to sell your gym for maximum value, you need to be sure your books are in order. I once asked to see a club’s books and they handed me a shoe box full of receipts. That won’t work.
In order to decrease tax liability many gym owners run personal expenses and non-recurring expenses through the business such as travel, meals, entertainment, repairs, etc and this is really discretional earnings so you will need to go through all the books and records and add those personal and non-recurring expenses back to the bottom line.
Know what makes your gym valuable
In order for your gym to be attractive to a prospective buyer, you will need multiple sources of income, a healthy member dues base and a solid management team in place. Buyers will look at how ell brand the gym is and if the gym has any intellectual property in place. They look to see if the gym has any contracts in place that are perhaps transferable. Buyers want to be sure that the gym has employees and a management team in place because they don’t want to buy a job.
Keep it quiet
The best way to ruin a gym is to tell people you’re selling it because employees, members, vendors and landlords worry they won’t like something about a new owner of the gym. IN fact, the only people who are happy to hear that a gym is selling are your competitors who will shout it from the rooftops. Selling a gym is completely different than selling your home.
Have a good fitness industry business broker
But you need to be careful. Many business brokers have about the same rate of success as gym owners do in selling their business. The key is finding a gym broker with a proven track record in the fitness industry.
Common mistake in valuation
A common mistake in the valuation process is the seller (gym owner) attaching a value to all his/her blood, sweat and tears to grow the business. If you are thinking of selling your gym, the number one reason we see for a gym staying on the market and not selling is that’s its overpriced, so understanding the valuation process is worth your time to properly understand.
Now, go value your gym!
Jim Thomas is the founder and president of Fitness Management USA Inc., a management consulting, turnaround and buy-sell intermediary brokerage firm specializing in the fitness and health club industry. With more than 25 years of experience owning, operating and managing clubs of all sizes, Thomas lectures and delivers seminars and workshops across the country on the practical skills required to successfully build teamwork and market fitness programs and products. Visit his Web site at: www.fmconsulting.net, www.jimthomasondemand.com or gym buy-and-sell intermediary brokerage.
