Perhaps you believe you’ll never sell your gym. That’s perfectly fine. But what I’ve figured out is that if you run your business AS IF it were for sale, and you look at it through the eyes of a potential buyer…your business will be better for it because you’ll identify issues, you’ll fix those issues, and your business will improve.
There’s an old saying “It’s easier to clean your house once you know you are going to have guests”.
When you’re trying to sell your business, the same cliche applies. Everything gets cleaned, you paint the walls, you right your wrongs and make sure the gym looks it’s best both aesthetically and financially.
So by positioning your business today to operate as if it were for sale, you’ll not only sell it for more when it does come time to sell, but you’ll also make a lot more yourself between now and then!
The key to selling anything is to make it easy for someone to buy. This is especially true when it comes to a fitness business. There are certain things that have an enormous impact upon the eventual price you would like to receive AND the revenues you want to generate between now and then.
Focus on Solid Accounting and Know Your Numbers
Ask any health club broker and they will tell you that a gym with incredibly clean and well-organized books and business records will get the most interest, regardless of asking price, type of gym, etc.
Additionally, good record keeping has been shown to get a business sold for much closer to the asking price than if it has sloppy records. And you will sell in a shorter time frame as well because it makes it easy for a buyer to get a true view of your business.
One of my industry friends is looking to sell his gym. He tried to get a valuation on it and he was told that his records are not organized enough to get a solid grasp on what the business is even worth! If a broker tells you that, do you think a prospective buyer would be interested for long?? Nope.
In fact, many near-deals fall apart due to poor book keeping and cloudy numbers. A buyer won’t take your word for it, but they will believe the numbers and they will be impressed that they’re buying a business that is run like a business. Too many gyms, and businesses in general, are run more like it is a hobby. If you want a real business with real profits and a real chance of eventually being sold for top dollar, run it like a real business.
I hate how much I have to pay my accountant; I can certainly think of more fun ways to spend that money. But by paying an accountant to keep accurate books, I always know where my business stands, and I can make better decisions to improve those numbers. I’m certainly not looking to sell my business, but I have found that knowing my numbers helps me improve those numbers.
You gotta know where you are before you can get where you wanna be!
Solid book keeping will allow you to also have a solid grasp on your own cash flow and give you a much better vision for analyzing expenses, payroll, profit centers, and any other financial activity at your gym.
What Happens if YOU Can’t do it Anymore?
You either need to have a manager or managers who know how to do everything in your absence. If that isn’t a possibility right now, then you absolutely MUST have solid completion plans created.
My assistant Trudi hears the words “completion plan” nearly every day. When she does anything new, she is to create a completion plan for it. That way if she is out sick or on vacation, someone can step up and do her job by simply following the detailed plans she creates.
She simply outlines Step 1, Step 2, Step 3, etc for every task she ever completes. If she’s gone, but payroll needs processing, I can pull up her payroll completion plan and know exactly who gets paid, how much they get paid, where to send the check, etc. She does this for every task in the business.
If you don’t have this in place for everything you do, what happens if you’re sick, or you’re on vacation, or your manager is sick or on vacation, or if you fire someone, or if you’re in the hospital? (I’m knocking on wood now)
If you have someone who can pick up the slack, or detailed completion plans for someone to follow, your business will be okay. If you don’t, your business will struggle.
And most importantly for the purpose of this article, if you have these completion plans created, or a highly trained staff in place, and you sell your gym…it will be much easier for a new owner to pick up where you left off. This will be a huge selling point for your buyers.
And if you end up offering owner-financing as part of the arrangement (typical in today’s economy), you too will be hurt if it’s not easy for the new owner to implement the systems efficiently.
Tsk Tsk – Unreported Income
We’ve all been in the situation before. Cash deals, PIF’s…hmmmm….it won’t hurt anything to NOT report this to the IRS. Will it?
Or what about all those “business dinners” on your business credit card…or the big screen TV that is in your living room, but you claim it was for the gym.
It happens…but you need to understand that you may only be cheating yourself in the long run.
For every dollar you keep hidden, you’re probably saving 30 cents on taxes, right? So if you’re not reporting say, 50k per year each year for 5 years, you’ve saved yourself $75k.
But if you would have reported that same 75k instead of stowing it away or not reporting it, the total will be added to the valuation of your business. You have to remember that your business will sell typically at a 2-3 multiple. Which means that 75k you saved from the IRS would actually be worth 150k-225k in increased valuation to a would-be buyer.
Not to mention that if you were to keep that revenue IN the business, you could use it for additional marketing and staff and other things that will lead to increased revenue, far beyond the amount you hid in the first place.
Plus, it is so frustrating for a new owner to uncover all of your secrets and find out that you lack integrity (bad news spreads quickly). At the end of the day, integrity is everything. Plus, Karma is a bitch. If you do the right thing, every time, you will be rewarded. Do the wrong thing knowingly, and karma will get you. Don’t blame me, blame the Universe.
Now let’s assume you really are entertaining the idea of selling your gym. You’ve pictured yourself as a buyer and you’ve fixed all of the problems above.
How do You Sell Your Gym and for How Much?
First of all, don’t try to do the valuation yourself. Secondly, don’t have your accountant do it. Bottom line, you both would try to value it at the highest possible price, then you’ll be upset when it doesn’t sell.
Selling a gym is not like selling a house. Just because a similar gym across town or in the next town over sold for X amount doesn’t mean that yours is worth the same. Yours could be much higher or much lower depending on a variety of factors. It is much more than just revenues and net profit for a fitness business. It is future receivables, a competent staff, profit centers, upward potential, equipment and other assets, real estate, your location, member attrition, lifetime value of clients, your lease, historical trends, and much more.
If you own a gym with revenues exceeding ten million per year, you’d be best off to get a business “appraiser” to do your valuation. If your revenues are less than that, a business “broker” will do just fine. Health club broker Todd Lipton is a great place to start.
NOTE: Don’t use a real estate broker for your valuation. They typically only know how to valuate and sell buildings, not businesses.
If you do own the real estate, you can have a real estate broker valuate the building and land, but you still need a business broker to valuate and sell the business. A business broker wants more commission, but typically the commission can be built into the selling price of your gym.
It doesn’t matter whether you’re planning to sell your fitness business now, in the future, or never. The fact is that if you operate your business as if it were for sale now, you’ll earn more money now. And of course you will be able to sell faster, and for closer to your asking price when the day does come for you to sell.