How to Value a Fitness Center or Gym
Businesses in the fitness industry operate fitness and recreational sports facilities. Fitness centers or gyms can offer a variety of amenities such as weights, cardio machines, pools, saunas, hot tubs, etc… IBIS World notes that the fitness industry has struggled in recent years due to social distancing mandates. However, we can expect improvement as the economy recovers and social distancing mandates become more lenient. In addition, demand for fitness centers and gyms will likely increase. This presents an opportunity for individuals who are buying, growing, or selling a fitness center or gym. Whether you are entering or exiting the fitness industry, it is beneficial to understand how to value a fitness center or gym.
To learn how to value a fitness center or gym, receive a business valuation. As part of a business valuation, a valuation expert identifies the risks associated with your fitness center or gym. In addition, they will determine the value of a fitness center or gym. With this information, you can begin to maximize the value of a fitness center or gym you are buying or selling.
Peak Business Valuation is a professional business appraiser. We work with many fitness centers and gyms throughout the nation. As such, Peak is happy to provide you with a business valuation for a fitness center or gym. We also commonly provide gym equipment appraisals. We can also answer any questions you may have on valuing a fitness center or gym. Schedule a free consultation below to get started!
How to Value a Fitness Center or Gym
When deciding how to value a fitness center or gym, a valuation expert considers various approaches. At Peak Business Valuation, our business appraisers often use the market approach and/or the income approach. These valuation approaches are both effective in determining the value of a fitness center or gym. However, each method uses a different basis of valuation. A business appraiser will determine which method is best for your fitness center or gym during a business valuation. This often involves using a combination of valuation approaches.
Valuing a Fitness Center or Gym Using the Market Approach
The market approach is a popular method when valuing a gym or fitness center. This approach is similar to how a real estate appraiser values a property. Real estate appraisers evaluate similar homes that were recently sold in the area. Then, they can accurately determine the value of a property. With the market approach, a business appraiser considers similar fitness centers or gyms that recently sold on the open market. If the facility is a private company, the appraiser refers to private transaction databases.
Multiples for a Fitness Center or Gym
When using the market approach to value a fitness center or gym, valuation analysts use valuation multiples. Multiples are financial ratios that compare the value of a fitness center or gym to a financial metric. To find the most applicable valuation multiples for a fitness center or gym, a business appraiser uses a NAICS or SIC code. Below, we discuss valuing a gym or fitness center with SDE, EBITDA, and REV multiples for a fitness center or gym.
SDE (Seller’s Discretionary Earnings) Multiple for a Fitness Center or Gym
- The SDE multiple represents the cash flow of a fitness center or gym. Business appraisers multiply the seller’s discretionary earnings of a fitness center or gym by the SDE multiple to determine the fair market value.
EBITDA Multiple for a Fitness Center or Gym
- The EBITDA multiple measures a fitness center or gym’s earnings before interest, taxes, depreciation, and amortization. This indicates the return on investment (ROI) a fitness center or gym can expect.
REVENUE or SALES Multiple for a Fitness Center or Gym
- The REVENUE or SALES multiple assesses a fitness center or gym’s value based on the total amount of revenue it generates. This multiple is less common when valuing a fitness center or gym.
Business appraisers will determine the best valuation multiple for a fitness center or gym during the valuation process. To learn more, see Valuation Multiples for a Gym or Fitness Center.
Valuing a Fitness Center or Gym Using the Income Approach
Another popular valuation method is the income approach. The income approach measures the value of a fitness center or gym by determining its future cash flow potential. In addition, this approach assesses the risks an investor may encounter before meeting expected earnings. Below, we highlight a few common risks associated with buying or selling a fitness center or gym.
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- Competition: The fitness industry is very fragmented and competitive. To succeed, it is vital to find ways to differentiate your fitness center or gym.
- Financial Performance: Operating a gym can come with high expenses. As such, it is important for fitness centers and gyms to develop financial strength through careful planning.
- Reputation: The reputation of a fitness center or gym plays an important role in its success. Customers are more likely to attend your fitness center or gym if it has a positive reputation.
- Equipment: The most successful fitness centers and gyms are those with high-quality gym equipment. However, gym equipment can be expensive and as mentioned above managing costs is key to maximizing profit. Obtaining a gym equipment appraisal is key when valuing a gym or fitness center.
Methods to Value a Fitness Center or Gym Using the Income Approach
There are various valuation methods under the income approach for valuing a fitness center or gym. The most popular methods are the capitalization of cash flow method and the discounted cash flow method. Below, we discuss how to value a fitness center or gym using the capitalization of cash flow method and the discounted cash flow method.
Capitalization of Cash Flow Method
- The capitalization of cash flow method determines the value of a fitness center or gym by calculating an appropriate measure of cash flow for one period. They then divide the earnings by a capitalization rate. This rate represents the rate of return an investor can expect from a fitness center or gym. In addition, the capitalization of cash flow method assesses the risks associated with a fitness center or gym. This method is best for fitness centers and gyms with long and stable histories.
Discounted Cash Flow Method
- The discounted cash flow method uses 3-5 years of future cash flow projections to determine the value of a fitness center or gym. The future earnings are divided by a discount rate rather than a capitalization rate. Generally, the discounted cash flow method is best for fitness centers and gyms with strong financial histories and reliable forecasts. Keep in mind, this method is less common since it uses future cash flow estimates which can be unreliable.
Summary
There are various valuation approaches to consider when valuing a fitness center or gym. Each valuation method provides a different perspective on the value of a fitness center or gym. To learn which method is best for your fitness center or gym, receive a business valuation. During a business valuation, you will learn the fair market value of a fitness center or gym. This information is vital whether you are buying, expanding, or selling a fitness center or gym.
Peak Business Valuation, business appraiser, values fitness centers and gyms on a regular basis. We are passionate about helping business owners succeed. As such, Peak can provide you with a business valuation for a fitness center or gym. Additionally, we can answer any questions on how to value a fitness center or gym. Schedule your free consultation with Peak Business Valuation today!
To learn more, read Valuing a Gym. Valuing a Fitness Center. Valuation Multiples for a Gym or Fitness Center. Gym Equipment Appraisals.
