Last year, my wife and I moved 15 minutes from our fitness center each way. We live in a high density, fast growing community that has few fitness center options. As such, we have discussed on countless occasions building a fitness center closer to our home. However, the cost of building a fitness center or becoming a franchisor is high, so those discussions have been nothing more than discussions.
Bolstered by public health initiatives, the gym, health and fitness club’s 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 is become a prime sector for entrepreneurs and individuals looking to purchase a business.
The gym, fitness and health club industry remains very competitive, but also offers variety of options for every individual. Businesses in the industry can vary from multi-location gyms with 30,000 square foot facilities to a beach side 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.
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 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:
- 0.60x – 1.1x Sales, including inventory
- 2.3x – 3.2x Sellers Discretionary Earnings, including inventory
- 4.2x – 6.5x EBITDA, including inventory
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 sell. I will touch on three ways in which you can increase the value of your business. There are many factors to take into consideration, but this will provide you with the basis of what your company is worth and a few ideas to increase your company’s value. If you are searching for a more extensive valuation, reach out to a valuation professional like myself.
1. Key Success Factors
There are several success factors that help distinguish a fitness center:
- 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.
- 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.
2. Niche Offerings
Recently, the fitness center I attend began offering on-on-one training sessions and bootcamps. 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 4:30am in the morning, most of these offerings are not available until about 6:00 am.
3. Corporate Partnerships
Corporate wellness as 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 contractual terms of the partnership.
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.