Buying into a gymnasium, what to look for?
June 13, 2014 1:51 PM Subscribe
Mr. Attackpanda teaches gymnastics and has been offered a job to become the head coach of a gymnasium and eventually become the owner of it. What should we ask of the current owner to make sure this is a good opportunity for us?
Mr. Attackpanda has dreamed about opening his own gym for a while now and a good friend of ours wants my husband to coach for him and eventually buy the gym. What questions should we be asking to make sure this is a good financial move for us? What should we be researching about owning a business or gym?
We're both excited at this possibility, but I want us to be cautious. I've never been the owner of any business so I'm very clueless. Our friend tells us the gym is doing great financially, and we've been to see the gym and the students are happy and the gym is set up quite well so we're hopeful that this is good for us.
Mr. Attackpanda has dreamed about opening his own gym for a while now and a good friend of ours wants my husband to coach for him and eventually buy the gym. What questions should we be asking to make sure this is a good financial move for us? What should we be researching about owning a business or gym?
We're both excited at this possibility, but I want us to be cautious. I've never been the owner of any business so I'm very clueless. Our friend tells us the gym is doing great financially, and we've been to see the gym and the students are happy and the gym is set up quite well so we're hopeful that this is good for us.
The Small Business Administration website has a lot of good information and should tick many of your boxes.
Other than all that is covered there, because its a gym and people can get injured, I'd ask about insurance and liability.
posted by NoraCharles at 2:13 PM on June 13, 2014
Other than all that is covered there, because its a gym and people can get injured, I'd ask about insurance and liability.
posted by NoraCharles at 2:13 PM on June 13, 2014
You might want to start by finding a local entrepreneur group in your area, or try the local SBA.
To be frank, deals with friends are often the worst, particularly where there is a knowledge gap (as there is here--the friend has inside knowledge on this business, and it sounds like you're starting from scratch, not only about this business, but about business in general).
This could be a great opportunity, and it could be a total, life-ruining disaster. If you don't have personal experience running a business (and, really, even if you did), be sure to get a good lawyer, who, in turn, can help get other professionals involved (appraiser, business accountant, etc.). Your friend is your friend, and that's great, and I expect he's not trying to take you for a ride, but he may also overvalue the business, or not realize that he has a tax or accreditation problem, or whatever. Hire professionals.
There's a great, variously attributed, maxim: the business of business is business. Take it to heart. It's great that this is DH's dream, and that friend is involved, etc.--but the numbers have to work.
Also, one concrete thing to discuss with a lawyer right away, even if you don't ultimately buy, and even if you still need to do research: get something in writing with the friend about timetables for this plan. What does "eventually buy the gym" mean? What happens if after 10 years, friend sells to someone else? Is friend going to pay market rates for DH now, or is DH going to forgo some salary to get some equity in the business? What would that equity look like? Should / could you pay now to secure a right of first refusal that gives you the right (but not obligation) to buy later when the friend decides to sell? Should / could you pay now to buy an option to buy the business later if and when you want (rather than if and when friend sells)? What happens if the gym goes bankrupt in the interim? If DH has equity, would he be on the hook for any of the gym's debts? (Also important: what's the right way to value a gym? Discounted future cash flows? Multiple of past earnings? Who knows?) A good lawyer can help you sort out these questions. Be prepared to pay for good advice; you need it.
None of this is business or legal advice, and I am not your business adviser or lawyer. Get professional advice from someone qualified in the jurisdiction where you live.
Good luck.
posted by Admiral Haddock at 2:22 PM on June 13, 2014 [8 favorites]
To be frank, deals with friends are often the worst, particularly where there is a knowledge gap (as there is here--the friend has inside knowledge on this business, and it sounds like you're starting from scratch, not only about this business, but about business in general).
This could be a great opportunity, and it could be a total, life-ruining disaster. If you don't have personal experience running a business (and, really, even if you did), be sure to get a good lawyer, who, in turn, can help get other professionals involved (appraiser, business accountant, etc.). Your friend is your friend, and that's great, and I expect he's not trying to take you for a ride, but he may also overvalue the business, or not realize that he has a tax or accreditation problem, or whatever. Hire professionals.
There's a great, variously attributed, maxim: the business of business is business. Take it to heart. It's great that this is DH's dream, and that friend is involved, etc.--but the numbers have to work.
Also, one concrete thing to discuss with a lawyer right away, even if you don't ultimately buy, and even if you still need to do research: get something in writing with the friend about timetables for this plan. What does "eventually buy the gym" mean? What happens if after 10 years, friend sells to someone else? Is friend going to pay market rates for DH now, or is DH going to forgo some salary to get some equity in the business? What would that equity look like? Should / could you pay now to secure a right of first refusal that gives you the right (but not obligation) to buy later when the friend decides to sell? Should / could you pay now to buy an option to buy the business later if and when you want (rather than if and when friend sells)? What happens if the gym goes bankrupt in the interim? If DH has equity, would he be on the hook for any of the gym's debts? (Also important: what's the right way to value a gym? Discounted future cash flows? Multiple of past earnings? Who knows?) A good lawyer can help you sort out these questions. Be prepared to pay for good advice; you need it.
None of this is business or legal advice, and I am not your business adviser or lawyer. Get professional advice from someone qualified in the jurisdiction where you live.
Good luck.
posted by Admiral Haddock at 2:22 PM on June 13, 2014 [8 favorites]
Do you have to commit to anything now? If he's just being hired on as an employee, it seems pretty low-pressure and you can take your time doing all the due diligence as described in the other comments. Just make sure that if the paperwork says anything about buying the gym, it says that you have an option to buy, and not that you have to buy. (And remember that unless you have something like that in writing, then you don't actually have an option to buy, it's entirely up to what your friend decides.)
posted by chickenmagazine at 6:11 PM on June 13, 2014 [1 favorite]
posted by chickenmagazine at 6:11 PM on June 13, 2014 [1 favorite]
My husband was on the committee for a co-op gym here for a while, and his advice is basically "A great chef doesn't necessarily know how to run a restaurant."
You need to separate the coaching part of the job from running the gym as a business. At the co-op for example, the most profitable hours were for the once a week casual gymnasts, not the serious athletes who the coaches preferred working with and brought publicity, so management had to push to get more casual gymnastics for cashflow. Then there's staff - the biggest cost center for them was labour, and a lot of time was spent getting good staff (admin too, not just coaches) and HR issues. You get loyalty with coaches, so when an unhappy coach leaves, you can lose a chunk of clients. There's also looking at the future growth, like has this gym already reached the full potential gymnast clients for its geographical area? Are there underdeveloped areas like school coaching, adult gymnastics, more boys' gymnastics etc? Do they have a marketing strategy already? Look at the books and look into the ages of equipment and replacements when you're working out future cashflow, because renovations and replacements are expensive. Look at rates of enrollment, and talk to clients, especially clients who have quit.
Try to talk to people with related businesses - hairdressing salons, stables, etc - a quasi-recreational/sport activity that relies heavily on customer/staff interactions - and see what they say are the big pitfalls and potentials.
posted by viggorlijah at 6:28 PM on June 13, 2014 [1 favorite]
You need to separate the coaching part of the job from running the gym as a business. At the co-op for example, the most profitable hours were for the once a week casual gymnasts, not the serious athletes who the coaches preferred working with and brought publicity, so management had to push to get more casual gymnastics for cashflow. Then there's staff - the biggest cost center for them was labour, and a lot of time was spent getting good staff (admin too, not just coaches) and HR issues. You get loyalty with coaches, so when an unhappy coach leaves, you can lose a chunk of clients. There's also looking at the future growth, like has this gym already reached the full potential gymnast clients for its geographical area? Are there underdeveloped areas like school coaching, adult gymnastics, more boys' gymnastics etc? Do they have a marketing strategy already? Look at the books and look into the ages of equipment and replacements when you're working out future cashflow, because renovations and replacements are expensive. Look at rates of enrollment, and talk to clients, especially clients who have quit.
Try to talk to people with related businesses - hairdressing salons, stables, etc - a quasi-recreational/sport activity that relies heavily on customer/staff interactions - and see what they say are the big pitfalls and potentials.
posted by viggorlijah at 6:28 PM on June 13, 2014 [1 favorite]
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Research things like average gym membership retention statistics and see how this gym is stacking up.
Maybe join the IHRSA, an industry association. It looks like they provide some statistics on these things for members.
posted by pseudonick at 2:08 PM on June 13, 2014 [1 favorite]