The multifaceted US fitness sector is booming. Currently, 55294 gyms, fitness, and sports clubs exist nationwide. Let’s understand Valuing a Fitness Studio.
Indeed, we will observe excellent mobility around the fitness business now. Moreover, IBISWorld says that 2.3% more gyms are opening every year.
It is not out of the line to say that investing in a fitness studio will give you considerable returns.
You also plan to mobilize, expand, retract, or do something quirky with your fitness business.
I have been in your shoes, and I know valuing a fitness studio is the most significant encounter at this stage.
And trust me, that’s not easy.
Before valuing a business, you must select and sort a specific niche. Then, you need to set benchmarks, too.
Similarly, boutique studios and low-cost multi-studios are now grabbing most of the limelight.
What Value Does Valuation Add?
We learned why Valuing a Fitness Studio is critical. But what is valuation in financial and business terms?
It is the value of the business, as per the current market’s caliber.
Let me demonstrate with an example here.
David Barton sold off TMPL in 2017. The contemporary membership costs of the gym were $140 to $200.
However, the brand has low equity. So, the intangible asset value of TMPL was not the net worth of the contemporary membership collections accumulated (plus other factors).
Instead, the value was compromised due to a stark drop in the brand’s worth.
That’s the way of Valuing a Fitness Studio.
The bottom line is that it is difficult to fathom the valuation of the intangible assets in a fitness studio. Some of the dicey factors may be:
- Staff behavior
- 1-2-1 client handling skills of gym trainers
- Essential skills and popularity/personal achievements of the trainers
- Gym ambiance and many more…….
The Challenge Ahead
Since so many volatile factors are involved, you may need help to carry out an objective valuation.
However, a fair market assessment is necessary when Valuing a Fitness Studio. Otherwise, you won’t get a fair price when selling or expanding your fitness studio.
You will end up facing the same fate as TMPL.
The same goes for entrepreneurs planning to buy a small gym. It would help if you made an objective and non-emotional assessment to ensure you don’t overpay.
| Deliverables while Valuing a Fitness Studio (to buy):Ensuring that you don’t pay more for the intangible factors Have complex financial data of the gym for the last three years available Perceive a decent profit potential from the purchase Ensuring that you can finance the costs and contingenciesYou know what your debt commitments areYou have a record of performing potential of all intangible assets |
What Decides a Fitness Studio’s Value?
There are drivers and pacifiers in every business. While Valuing a Fitness Studio, these factors become critical.
Most factors can depreciate your fitness studio’s value if not appropriately handled.
Equipment
The host of equipment and the facilities generally affect a gym’s value. The effectiveness, ease of use, and equipment currency alter a gym’s worth.
Often, a fitness studio may have diverse equipment. Aparametly, its value should be high. However, they need to be better kept. In such cases, you must be careful while Valuing a Fitness Studio.
So, the intangible factors to consider here are:
- Whether equipment is well kept or recently bought
- Whether the equipment is clean and usable
Similarly, I came across a listing site- Mind Body Online. It lists the best local fitness studios across genres. The listing also cites each fitness studio’s unique features and limelight-worthy intangible assets.
If you find such characteristics in a gym.
Memberships
Members are the driving force of any fitness studio. When Valuing a Fitness Studio, you must consider all the members and memberships in that studio.
Beginners learning how to value a gym business may begin by analyzing the importance of memberships.
The main factors regarding membership are:
- How many members are there across departments?
- How many of them are retained?
- How many new members (less than six months) are there?
- What is the membership cost?
- Is the membership cost high or low compared to industry standards and the local economy?
- Did existing members leave the fitness studio after membership prices hiked?
Other Sources of Revenue Generation
The Fitness Studio Franchise article discussed that a franchise’s incumbent brand value is critical. A famous brand attracts high returns from clients.
In the same way, if a local fitness studio is famous, it may yield higher revenues. However, we also discussed the issues related to Fitness Staffing.
I pointed out that staff retention is a snag in the US fitness industry.
It is also one of the deciding factors to consider while Valuing a Fitness Studio.
Pro Tip: If you find a gym whose staff leave frequently, consider it a prime red flag. The studio might have managerial issues or hire incompetent staff.
The last of the miscellaneous factors is Fitness Studio Insurance Policies Your Business Needs. Without insurance, you may have to undergo dynamic contingencies. For example, any loss of theft or damage to equipment may be insured. Gyms with insurance are the best buys.
Does the Gym Have Other Revenue Channels?
Some gyms have alternative revenue streams like t-shirts, gym gear (personalized and logo printed), supplements, and internal events.
If a gym has it all, you may go for it in a breadth.
Current Economy
You don’t have any control over factors impacting the clients’ economy. However, it is an essential factor affecting the new membership rate.
Let’s take the example of NY. The average NY economy is growing quite sluggishly. The real GDP growth here is only 1.6%. And it is much lower than the national average.
Consequently, the US has the least number of gyms. There are only three gyms for every 100000 NY residents.
So, check for recent variability in the local economy.
Industry Trends
Industry trends are one of the most significant drivers affecting the valuation of a fitness studio.
While Valuing a Fitness Studio, check the latest trends in the fitness industry. Most people in the US now search for Dance and yoga studios. In comparison, much fewer fitness freaks search for machine gyms.
So, invest in the trend to make quick money by attracting members in the nascent stage of your business. Once you are set up and running, diversify across other sectors too.
Previous Income
One of the things that entrepreneurs should take into account is scaling the revenue streams of a business before buying it.
Don’t follow the same league.
Start by checking the loss statements for the last three years (if any).
Consider buying the gym if you find irregular ups and downs in profit.
Location of the Gym
If you’re buying a fitness studio, it is critical. While Valuing a Fitness Studio, scrutinize how the gym’s location adds value to its business.
Key Takeaways
- Understand the set of factors you choose to value your fitness studio. Choose the factors carefully and think if those resonate with the way you want to run your business.
- Measure the weaknesses and evaluate the strengths precisely. It will help you to pinpoint the specialties in your business.
- Business brokers or advisors are there to help. Let the experts handle your fitness studio if you cannot value it objectively. There are dedicated brokers for the fitness business genre around your locality.
Key Drivers to Boost Valuation
While Valuing a Fitness Studio, pester the positives in the business.
Begin with fixing the revenue collection and regularizing the revenue sources.
If memberships give you the most significant revenue, then show membership growth, increase in membership charge, and other such stats while Valuing a Fitness Studio.
Experienced trainers and modern equipment are the other essential factors. Especially, M&A Experts in Fitness & Leisure can play a crucial role.
Conclusion
After valuing a fitness studio, check common factors that explain why gyms around the location failed in the past.
Then, check if such factors may affect your business too.
The bottom line is evolving a business to adapt to miscellaneous factors that affect its value.
If you need more guidance on the valuation of your fitness business, comment your queries below.
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