Hi All - I am interested in buying a fully operational gym. It is about 15k sq ft and has a 5 lane lap pool. The revenue is $900k per year and the owner total take home is $ 195k a year.
The whole facility is leased - just signed a new lease this year with a slight monthly increase ( not enough where it makes that much difference ). Lease is 10 years with an optional renewal for another 10 years.
All the equipment in the gym is very very old but it works. I would estimate the book value of the equipment to be zero. I’m sure the next owner would need to make some new equipment purchases.
The owner is not involved in the day to day operations and drops by once per week to check on things.
What do you think would be a fair market selling price for this business??
( I would of course get an appraisal from a professional if I decided to move forward )
200k for once a week. This is good.
you need to look at “SMB twitter” for all the answers on this.
Can you elaborate on this, friend?
You’re basically asking the NPV (Net Present Value) of a $200k/yr cash flow over, let’s say, 5-10 years plus a little for goodwill and less due to equipment replacement costs. I’d adjust the discount rate by 25%, allowing for risk, then use Excel.
I suspect 1-2x gross profit would be reasonable.
1.5-2.5 of your annual gross so $300k-$500k. That being said business value is based upon what people think it’s worth.
400 to 600. Go on bizbuysell and ask for comparables for $20
I’ll look into this
Buy it OP. Turn a portion of the gym into pickleball and your membership could increase by 20% easily.
$200K with presumably a full-time manager at $50K would mean more like $300K cash flow (with maybe $50K put back in the business). I’d expect them to ask for around $750K-$1M.
How much time is left on the lease ?
OP says “just signed a new lease this year”.
For $200K cash flow it seems like gyms go for 2.5 ebitda so maybe $500K valuation? This is just a quick google search as ebidtas range depending on the business, I mostly have experience with restaurants. In general, if things go okay that means you’ll have your initial investment + a little extra back within three years
In this SDE range, 2-3x owners earnings. As long as there is a management team/staff in place. If the owners were covering shifts and or other duties, it would be on the lower side, as you are basically buying a job.
Visit your favorite banker for average p&l and balance sheet information per industry. You do need the past 3 years of financials and you do need to create your own proforma financials including membership increases and the cost of new equipment and employee compensation increases
As someone who has bought gyms before. A 3x ebitda is the standard formula for a gym pulling in 200k. So 600k valuation is fair. 400k+ and you’re 4ish multiple.
I would caution paying that full price considering the equipment age. If it’s “very very” old then repair bills will add real quick at that size of facility. I’ve typically replaced all equipment every 8-12 years since it ends up costing more to repair than replace.
The numbers being discussed are a generalization. When buying any small business the diligence phase is a mining expedition. You need to uncover every rock. Sometimes you find debt owed, bad lease terms, or even unreported cash income. You cannot generalize these buys, they are all extremely unique. Push the broker for as much information as you can get, spend the time to try to get to the owner. Ask millions of questions. The more you talk the more you will learn.
$195K take home on $900K sales for absentee owner seems rather high.
I would need to know a lot more before placing a value on this business.
Why do you think this is high ? Just curious
Absentee owner usually spends a lot more than average on labor and management to ensure customer-centric operation.
Owner operators usually run a tight ship and keep COG (i.e. 20% to 25% of sales) and labor (i.e. 35% of sales) in line. Labor excludes management salaries.
Absent the owner it not unusual for shrinkage, waste, and lack of following procedures to cause COG’s to slide up to 30 percent.
Likewise, it’s easy for absenteeism, scheduling conflicts, etc. to lead to overtime and all of sudden labor/revenue is more like 40 percent of more.
Quite frankly, I haven’t seen too many small businesses that run like a clock without the owner being involved in day-to-day.