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Valuing a Fitness Center

Valuing a Fitness Center

Bolstered by public health initiatives, the gym, health, and fitness club industry has grown tremendously over the past five years. With an average annualized growth rate of 2.6%, revenue has grown to $33.4 billion in 2018. Most of the growth has been attributed to an increase in rising gym memberships among baby boomers. In addition, specialized markets and niche interests continue to emerge in the fitness industry every day. For instance, Soul Cycle and CrossFit. The nature of the industry has become a prime sector for entrepreneurs and individuals looking to purchase a business. Valuing a fitness center is an important part of buying or selling a fitness center

The gym, fitness, and health club industry remains very competitive, but also offers a variety of options for every individual. Businesses in the industry can vary from multi-location gyms with 30,000-square-foot facilities to a beachside studio that offers yoga. The wide variety of options is what appeals to buyers looking to purchase a business that allows them to enjoy their work. Profits average around 11.45% and successful fitness centers are seeing membership rates of about 10x capacity.

Peak Business Valuation values fitness centers across the country. In the following paragraphs, we discuss key success factors for a fitness center. These success factors will increase the value of a fitness center. The best way to understand the value of a fitness center is to obtain a business valuation. Whether you are buying, selling, or growing a fitness center it is important to understand its value. We are happy to answer any questions you may have about valuing a fitness center. Reach out by scheduling a free consultation today!

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Looking to Sell?

If you currently own a fitness center, consider the possibility of selling when cash flow is trending upward. Current industry trends point to further growth, which provides a great opportunity to sell now. The first step to selling your business is obtaining a business valuation. Whether you are looking to sell or hold on to your company, understanding the fair market value of your business is important. A valuation specialist will show you a range of values for your business and consult with you on how to increase the value of your business.

Over the past five years, I have provided business valuations for several fitness centers for various valuation purposes. To give you an idea of each of those engagements, I will list out some of the key factors used in valuing a fitness center. Keep in mind that the factors listed below are only a guide.

Market Multiples for a Fitness Center:

  • 2.48x – 2.93x SDE, including inventory
  • 3.33x – 4.34x EBITDA, including inventory
  • 0.65x – 0.97x REV, including inventory
** Disclaimer: These multiples are for educational purposes only. Multiples are based on companies with revenues between $1-$5 million. As such, the information provided does not constitute valuation advice and should not be acted as such. These multiples do not represent the valuation opinion of Peak Business Valuation or any of its valuation professionals. Seek the guidance and advice of a qualified business valuation professional with respect to any matter contained in this article.

With a clearer understanding of what your business is worth, you can begin taking steps to increase the value of your fitness center prior to a potential sale. There are many factors to take into consideration, but the following factors will provide you with the basis of what your company is worth as well as a few ideas to increase your company’s value. If you are searching for a more extensive valuation, schedule a free consultation with Peak Business Valuation, business valuation Utah.

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Key Success Factors

There are several success factors that help distinguish a fitness center. Peak Business Valuation values fitness centers on a regular basis. The below success factors will help distinguish your fitness center as well as increase the value of your fitness center. For additional ideas see Value Drivers for a Fitness Center, How to Value a Fitness Center or Gym, and Valuation Multiples for a Gym.

Easy Access for Clients

A high-profile location offering easy access and parking can provide a competitive advantage.

Technical Knowledge of the Product

Skilled employees who can demonstrate the use of various types of equipment and assist participants are important to attract repeat customers.

Equipment

Providing appropriate equipment and maintaining it regularly is essential to attracting and retaining customers. Equipment is one of the most valuable assets you have in your gym and tends to correlate with membership capacity.

Economies of Scale

Fitness operators that have a large number of establishments and provide a wide range of services are able to attract and retain new and existing members, as well as reduce costs per member.

Effective Product Promotion

Being able to promote specific products effectively increases awareness and attracts greater membership and local turnout. An effective marketing strategy is key to this.

Niche Offerings

Recently, the fitness center I attend began offering one-on-one training sessions and boot camps. Certain areas of the fitness center were outfitted for these activities. Such offerings lead to a more diversified revenue stream. These additional classes and training sessions led to an increase in members. Even though I do not participate in any of the offerings my fitness center presents outside weights and cardio, I enjoy having the opportunity to do so. As I attend my fitness center at around 4:30 am in the morning, most of these offerings are not available until about 6:00 am.

Corporate Partnerships

Corporate wellness has been a common trend for the past five years. Many businesses have been 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 enrollment by entering into a partnership with businesses. Oftentimes, fitness centers will offer discounted memberships to corporate employees to increase enrollment and secure recurring revenue through the contractual terms of the partnership.

 

Summary

Understanding the value of your fitness center is important, regardless of any near future transactions. Even if you have not thought about selling your business, consider the future of your business; it is never too early to start planning. The first step in that process is a business valuation, which we are happy to provide you with. We can also help to identify ways to increase the value of your business.

At Peak Business Valuation we work with a handful of fitness centers. We welcome any questions you may have. Feel free to reach out by scheduling your free consultation below!

 

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