Most CrossFit gym owners don’t start their business with the intention of selling, but there comes a time in every business’s lifetime you might want to exercise that option.
It could be because of an exciting new opportunity, or maybe the gym owner is cashing in or becomes a silent partner.
Whatever the case, selling a CrossFit gym to new owners can be a complicated and nerve-wracking process. As gym owners, you’re emotionally invested in your business, and most buyers won’t see the inherent value in the business you’ve set up for years of your life.
They care more about the bottom line, and so should you.
Here’s what you need to know to come out on top of your first gym sale.
This Post In A Nutshell
- Structure your gym business so that it can thrive without you running things. It’ll make your business more attractive to buyers.
- Work on signing new members and keeping your net income higher, as it’s the biggest indicator of your business’s value based on most valuation methods.
- If you don’t have a wide social network, consider hiring a business broker to look for buyers for you when you gear up to sell your business.
1. Your Crossfit Gym Cannot Be Owner-Centric
Most crossfit gyms are propped up on the shoulders of the founder. This means they do all of the social media marketing, teach classes, do bookkeeping, and general maintenance. While the work ethic is commendable, it can make the gym unattractive to potential buyers.
The business has become over-reliant on the founder, and they are also probably responsible for a good chunk of the recurring membership and net revenue. If they leave, the gym is sure to fail.
In the eyes of a potential buyer, the gym is a resource sink that would take a substantial cash injection to restructure and turn profitable. It’s possible they will never break even in their lifetime.
A smarter way to run your business would be to delegate and carve out clear responsibilities and roles for your staff. The infrastructure and cash flow have to remain stable with or without you at the helm of the gym.
Buyers could be able to swoop in without having to restructure the business and invest even more resources.
The same structuring rules should also be applied to all of the financials and record keeping. They need to be well-prepared for a handoff in the near future.
2. Think About Cash Flow and Net Income
Net income or cash flow is the biggest marker of value for a crossfit gym and what will determine the offers you get when you start entertaining buyers/investors.
It’s one of the clearest indicators of future profits and forms the basis of most business valuations.
Your membership subscriptions, services, and classes determine your business’s net income.
In plain terms, your net income means how much profit your gym makes annually minus your personal salary and benefits. All regular expenses still apply to the calculation because you’ll be out of the picture when your gym finally sells.
3. CrossFit Gym Valuation and How It Works
There are four popular ways that a buyer or broker can perform a gym valuation for a fitness business they intend on buying.
- Earnings multiple valuation
- Assets based valuation
- Comparable sales or market valuation
- Discounted cash flow valuation
Earnings multiple valuation
Earnings multiple valuation is one of the most common and effective business valuation methods. It involves multiplying a company’s net profit by a multiple based on the size of their gyms.
For small businesses like yours, the multiple is typically 2-3, depending on a number of factors like assets and the client’s subscription model.
Recurring customers are worth more because they guarantee a profit, and so do other services and assets. Your members’ growth rate also matters a great deal.
Essentially, an earnings multiple valuation comes down to how long your future buyer is willing to wait before their new gym is profitable.
If you make $50,000 in pure revenue from your business selling fitness coaching and multiply that number by three times, that means your business is worth $150,000, and the new owners are willing to wait three years to be profitable.
An Asset-based valuation model works by assigning values to the tangible and intangible aspects of your business and arriving at a figure through negotiation.
Intangible assets like a memberships list, networks, and an administration system are more difficult to price than tangibles like a lease agreement and equipment.
Discounted Cashflow Valuation
Discounted cashflow valuation operates by exchanging cash in hand today for discounted earnings over the next few years.
Money grows less valuable with time, so when an investor offers to purchase your gym, they’re basically giving you what they estimate your business will make over a period of time.
To calculate your discounted cash flow valuation, you need a few things.
1. Expected annual growth
2. Weighted average cost of capital
3. Net cash flow
4. Years of cash flow
Use this DCF calculator to get an unbiased estimation of your gym business in real time.
Comparable sales or market valuation
A comparable sales or market valuation is a real-estate investment term that’s useful to value and sell gyms.
It works by comparing your gym business to other businesses of comparable size and value and arriving at a price your buyer is willing to pay.
Of course, this valuation method also takes into consideration the location, job, finance, and disposition of a potential gym member, as well as other wider socio-economic factors during their process.
4. Get a Lawyer
If this is your first time selling your gym, odds are you need a lawyer and maybe an accountant to help you with the details and negotiations. You will have to dissolve all legal responsibilities and ownership as soon as your price is paid, as well as include stipulations and agreements that protect your interests as well as the company’s.
5. Finding Buyers
Finding a buyer could arguably be the most difficult or easiest part of selling your gym, depending on what type of person you are. If you have a broad community of gym owners, business owners, and investors, it shouldn’t be too hard to find somebody.
Otherwise, you might have to employ the services of a business broker or advertise on social media. However, note that going public with your plans to sell your gym might bring its own set of issues. Your members might cancel their membership if they learn that their gym has a new owner.
Prepping to Sell a CrossFit Gym
Armed with all of the information you need, it’s time to prep your gym to be sold. Little things like a new coat of paint, buying new cheap equipment, and repairing fixtures can go a long way to convincing people to buy or invest in your business.
Pay special attention to your books and general structure of your gym, and if you feel like you’re not quite ready to sell, there’s nothing wrong with working on your business a little longer to receive a better offer.
Whether you’re a small business or a large one, it’s important to approach a business sale from a position of strength, not weakness.