Need help with buying a gym from my boss.

 

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Need help with buying a gym from my boss.

Hi Small business veterans! Hopefully someone that reads this forum has knowledge specific to the gym business also :). Sorry for lack of formatting. Thank you in advance for help. I will get to it.

 

My wife and I work together in the same gym company (where I met her). She has been with the company 20 years and me 13 years. The owner owns multiple locations. I oversee two of them. My wife primarily oversees one though she helps a little with another. Recently, the owner approached us about acquiring one of the locations. He is trying to take a step back and downsize.

 

This is the dream of course. To go from employee to gym owner while also not having to start from the ground up. Gym businesses are notoriously hard to make money on. This particular gym has not been lucrative for him, partly I admit due to what he pays us. We are probably the two highest paid in the company. Pre Covid, he met with us with the last three years of P and Ls to try and game plan cutting expenses. The P and Ls go from ~20k loss, then ~30k profit, then ~20k loss so there is definitely some volatility. Then recently, he gave us an updated P and L that turned 2019 to a ~50k gain. He took out stuff like taxes, one time maintenance, and other stuff we wouldn’t be paying since he would lease to us. My concern is the sales price. Our accountant/business valuation person gave us a down and dirty worth of it working only with two years of P and Ls he provided us. It was one fifth of what he wants to sell it. She said to take with a grain a salt since it we don’t have the FFE to use with the calculation. She said we needed more information. I am meeting with him this weekend to find out more information. He also said that there are some buyers who have come sniffing around since covid has created opportunities, but he isn’t willing to “give” the gym away. He said it would be cool to have us take over since the revenue was built on the sweat of our backs – around 800k gross last couple years.

 

1) The way my brain works is that it makes sense to buy the gym if we will make at least the same we do as an employee (minus monthly loan repayment to acquire the business). Is this the right way to think?

 

2)This shouldn’t be like buying a car where it loses value as soon as you drive it off the lot. Theoretically, if I buy the business at a correct price, I should be able to turn around and sell it three months later with no difference to someone else assuming profit/loss stays the same? This is a huge worry of mine. Please let me know if I am thinking right.

 

3)Since he will be our landlord, what can I get him to cover in our lease? HVAC repairs/replacement, landscaping/mowing lawn, is that feasible and is there anything else that would be feasible?

 

4)How would I convert what my accountant refers to as unearned revenue (paid in full memberships and personal training) as well as accrued training sessions that the client has yet to use and redeem which will then become my expense to pay into a better price for me purchasing the gym?

 

5)I know the owner isn’t keen to include lawyers since they are an extra expense as well as him being experienced in this. He has bought and sold multiple gyms over the years. I am way over my head with this stuff though! My accountant also suggested this as we get closer to fruition. What type of lawyer do I get to make a LLC to make sure I shield my personal assets and what type to “close the deal/draw up contract” of sale? What would typical cost be for these two lawyers?

 

6)Is there a layman’s way for me to come up with a fair price to purchase the business?

 

7)What are the most common things people don’t think of and are important and need to be done when they buy a gym and start running it?

 

8)When I meet with him, what should I focus on finding out for information?

 

9)Anything else you can think of to help me?

 

North Carolina if that matters! Thanks again anyone that reads it and helps!

Need help with buying a gym from my boss.

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7 Replies to “Need help with buying a gym from my boss.”

  1. Something is wrong here. He wants to sell you a gym for a steal during corona? And he wants to leave lawyers out of it. Fuck no. If you sign any contract, your lawyer should look it over. They will protect you and they will make you money.

    I would make the argument that the sale should come with the land or an option to buy the land after x amount of years. While the lease is in effect, you should not be paying for anything you do not destroy or break. Everything else is wear and tear.

    A business can usually be priced at 6x revenue. During corona though, you have so much more liability. I personally wouldn’t offer more 4x but would start at 3x.

    Just because you worked for him doesn’t mean he won’t fuck you over. Protect yourself, lawyer up and never pay full price.

  2. Not sure where you’re located but I would very tread carefully with this. There’s a reason a lot of gyms, including huge national chains, are filing bankruptcy right now and places that sell gym cardio equipment have been sold out for months with 60+ day back orders. People are slowly buying their own equipment for in-home use and thus creating a shift for the fitness industry.

  3. OP this sounds to me like the owner wants to become a landlord to the commercial property so that he can (1) dump a volatile location, (2) dump some expensive employees, (3) get some cash during Covid.

    That isn’t inherently a problem – if you do it right and the location *can* support your needs, it’s a win/win. However, you need to do it right. That means seeing all the books for the location for the last several years, using an accountant, **using a lawyer**, and all the rest. Also, use extreme caution buying a gym during Covid – do you have numbers for your boss’ business this year? If not, you need them.

    As for prepaid memberships and gift cards, it’s a serious convo to have and raises another issue: will you be sharing membership dues with your boss somehow and recognizing one another’s membership? If so, that sounds messy as hell but I’m not in the industry, so maybe it’s possible. If not, will you lose customers because you’ve gone independent? Is the branding similar and will you have to change it? How many members use multiple locations in a given year?

    If the boss doesn’t want a lawyer, that’s his problem. You need one to help with organizing the business entity and with drafting the contract fairly. Lawyers *save you money* when you use them appropriately.

  4. If you don’t get the property, he’ll get all the profit. He can raise the rent and you either have to pay him or pay to move and take the loss of moving.

    If he can make a 20K loss to a 50K gain there’s some bullshit going on.

    Past P&L are not relevant to future P&L when so much about the situation has changed. By situation I mean covid and the resulting economic downturn and what’s probably coming.

  5. I would run as far away from this as possible. From what you are saying, it already seems like the gym isn’t making much profit, if at all. The margins are volatile and thin. Remember numbers can be made, adding this, or taking that out to show a profit or loss. With covid going on, gyms are the top businesses that are closing and it might not be a quick recovery for gyms after covid is gone.

    You and your wife don’t want to work the business for 100 hours a week and getting paid under minimum wage, or even worst, losing money.

  6. I can almost guarantee you that no one else has contacted him to buy the gym. I would not buy it if I were you

  7. Gyms are going to do very very very poorly this and next year, I would not suggest purchasing a gym at all. The numbers he gave you are based on 2019, what about 2020, you know, the year all gyms were pretty much shut down.

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