The 3 Pillars of Value for a Fitness Club or Business
How do you maximize the value of your fitness club or business? What’s the difference between a club worth $150,000 and $1,500,000? Health, fitness and sports clubs and related fitness businesses typically sell for between 3 times and 6 times their cash flow. That’s a big range, but where you fall in that range is up to you.
In order to maximize the value of your club or business, remember that there are three basic categories of factors affect the value of a fitness club or business: return on investment, risk profile, and growth prospects.
Return on Investment
Buyers look to the cash flow of your business or your Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) to see what kind of pay back they will get on their investment. As a result, if a buyer offers you 4 times EBITDA for your club, they are basically saying that it will take them 4 years before they will recouped the purchase price and begin seeing a return on that investment. As a result, doing whatever you can to improve your cash flow or profitability will have a multiplier effect when you sell your club or business.
The risk profile of your club club or business is largely subjective and based on the buyer’s impressions. Their impression of risk directly affects how long they are willing to wait before they see a return on their investment. So, if your club has a higher than average risk profile, buyers may only be willing to pay you 3 times EBITDA, because they are concerned about the long-term prospects of your business.
Here is a list of some of the factors that buyers look at to determine the risk of a particular business:
- Are the long-term and short-term trends in revenues and earnings positive or negative?
- Is total membership stable?
- Are financial statements complete and accurate ?
- Is operating data presented in a clear and concise way?
- Does the business have an experienced management team willing to stay on after the sale?
- Are margins at least equal to industry averages?
Buyers are basically buying the future performance of your fitness club or business. As a result, to maximize their return on investment they want it to be bigger and more valuable when they decide to sell it years in the future. As a result, buyers will try to project how they could grow your business once they own it. Help them see the growth possibilities by understanding the following:
- What are the prospects for increasing overall membership?
- How successful would we be in introducing new programs?
- What other sources of revenue could this club or business generate?
- Could we grow by acquiring other clubs in the area?
- How much would it cost to expand or enhance the club’s current facilities?
Small changes you make today can have a huge impact when you decide to sell. If you would like to learn more about how you can maximize the value of your fitness club or business contact Rich or Jim at Sports Club Advisors at 224.513.5142 for a free initial consultation.