Selling a Fitness Center: 6 Essential Ways to Prepare
These 6 essentials can help you get a premium sales price when selling your fitness center.
When people think of America, ‘health conscious’ generally isn’t the first phrase that pops into their head. In a country where obesity, heart disease and diabetes are leading health issues among its citizens, more people are choosing to invest in their bodies to create a better future. This trend towards a healthier lifestyle has given way to a massive gym, fitness and health club market valued at around $27 billion in the U.S. alone. Specialized markets and niche interests continue to emerge in the fitness industry every day, making it a prime sector for entrepreneurs looking to purchase a business. The nature of the industry in junction with customer engagement and the opportunity to channel creativity into the business has attracted thousands of buyers who are actively looking to purchase, putting gym owners in a very favorable position.
The gym, fitness and health club sector remains very competitive but also offers tremendous variety. Businesses in this industry can vary from multi-location gyms with 30,000 square foot facilities to the beach side studio that offers paddle-board yoga. The wide variety of options is what appeals to buyers who are mainly entrepreneurs looking to purchase a business that allows them to have fun. The profits are around 8.6% on average and successful fitness centers are seeing membership rates at about 10x capacity. Startup costs can be steep so it’s easy to see why buyers would prefer to purchase an existing fitness center. As the owner of a fitness center, the best time to consider selling is when your cash flow is trending up and the industry is expanding. If you have been thinking about selling your health club, the first step is finding out how much it is worth with a business valuation. To give you an idea of what’s important in determining the value of a fitness center, we have included some numbers below but keep in mind that only a professional business broker can tell you the true value of your business.
- 70-100% of annual sales + inventory
- 2-3x SDE + inventory
- 5x EBIT, 3-4x EBITDA
Now that you have an idea of what goes into valuing a fitness center, you’ll want to make sure you get the best price possible when selling your gym. After selling dozens of fitness centers and health clubs, we know what it takes to increase the value of a business so that when you are ready to sell, the sales price is just where you need it to be. These 6 steps can help you begin preparing now so that even if you aren’t ready to sell for 6 months, your gym’s value will be significantly higher.
Fitness centers go through a lot of wear and tear and it often shows in the equipment. Equipment is one of the most valuable assets you have in your gym so you’ll want to make sure all of it is properly maintained and replaced when necessary. The state of your equipment also correlates with your membership capacity, so even if you are not ready to sell now, investing in your equipment will still help with cash flow and revenue for the time being.
The size of your fitness center does have some bearing on the ultimate value; for example, a small Pilates studio might get around 3x EBITDA whereas a multi-location gym could get around 5x. Every owner needs to think about expansion options in these terms; “acquire or be acquired”. If you are not thinking about selling and see yourself running your business for a few more years, opening a second location will help you get a better price when you are ready to sell. On the flipside, now you know that other business owners are looking to acquire smaller studios, giving you an advantage if you have been thinking of selling. Keep in mind that changing the size of your business does not always equate to purchasing a second location – this could also mean moving into a larger building that can house more equipment or acquiring a studio that specializes in an area that you do not.
As more people begin to invest in their health, the newly diversified market calls for a wider variety of exercise offerings. Adding additional classes or training sessions can help increase your gym’s enrollment and also add a whole new revenue stream to your bottom line. First and foremost, consider offering private sessions with a one-on-one trainer. Private session costs can vary based on frequency of sessions, additional consulting, and customized training plans, which could all be used to increase revenue and bring in more clients. Offering classes based on niche markets is another way to increase your cash flow and enrollment. Emerging markets include women-only classes, kid’s classes, senior aerobics, and even highly specialized classes such as anti-gravity yoga or pure barre.
Businesses are beginning to take an interest in the health and well-being of their employees and are introducing initiatives to encourage healthy lifestyles. Many businesses are implementing health-related contests, team events or even fundraisers to inspire employees to take better care of their bodies. These corporate health initiatives create a unique opportunity for fitness centers to increase revenue and enrollment by entering a partnership. Oftentimes, gyms will offer discounted memberships to businesses to get more clients in their doors and also establish some recurring revenues via contractual terms of the partnership. Even establishing a partnership with small businesses in the area can really help increase some numbers and build a reputation in the community.
Client retention is probably the most critical factor in establishing steady revenue and increasing the value of your business. On average, 30%-40% of members do not renew their membership, creating a rift in revenues and requiring gym owners to double down on marketing expenses. The main way to increase client retention is to incentivize clients by waiving the initiation fee or offering cheaper monthly rates to sign on with a long-term contract. By building a steady stream of revenue over the years, potential buyers will view your gym as a secure investment that already has a built-in cash flow. Clubs that show 80% of more client annual client retention bring in higher multiples during the valuation.
Another critical way to establish recurring revenue – set up ACH or electronic billing with your clients. Electronic billing has a profound effect on the value of your business, with monetary value correlating directly with the amount of money you bill electronically every month. For example, if a club bills $10,000 in electronic billing per month, value comes out to $100,000. Electronic billing also eliminates the need for invoicing, collections and negotiations – you simply bill the client on the same day every month. Having an electronic billing system gives you an easy way to show buyers a steady stream of revenue and also eliminates the overhead costs of accounts receivables.
If you have been thinking about succession planning and an exit strategy for your gym, we hope these 6 tips have given you some insight on how to increase its value. The health and fitness industry is booming right now, and buyers are looking in the Southeast for acquisition opportunities. If you are thinking about selling your fitness center, the first step is finding out how much it is worth and we can tell you with a no-cost, no-obligation valuation. Even if you are 6 months to a year away from selling, taking these steps now can help you increase the sales price for when the time is right for you.