What is your Gym, Health, of Fitness Club Worth? How to Value Gym ...

A.???????? Nature of the Business

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Health clubs, fitness/recreation centers, and gyms provide equipment and exercise rooms used for individuals interested in improving their health and athletic ability.?? IBISWorld reported in February of 2013 that there are over 29,501 gyms, health and fitness clubs in the US market with $26 billion in revenue. The industry?s has annual growth at 1.4% from 200-2013 and employs over 573,000 persons. IBISWorld also reported that the demand for gyms and health centers will to continue to rise over the next five years as the public becomes increasingly health-conscious.

Within the industry, there are different types of gyms.? The most common gyms are the franchised gyms .? These generalized gyms can offer a variety of fitness related amenities that include:

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• Fitness machines
• Free-weights
• Cardio machines
• Fitness classes
• Swimming pools
• Racquet ball courts
• Kids club
• Steam and/or sauna rooms
• Locker rooms

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The latest trend in the industry is the establishment of microgyms. Some examples include mixed martial arts and Jiu-Jitsu.? Microgyms are different because they offer a more specialized workout that encompasses one or two types of training. These gyms typically offer programs that are built around weightlifting, intervals, and circuit training.

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The majority of revenue for fitness centers is generated through membership fees.? The fees can be charged on a month-to-month basis, annually, or long-term membership contracts.? Some fitness centers also require a down payment or activation fee to become a member of the club. Fitness centers also generate profits by providing additional amenities, which include personal training sessions, fitness classes, swimming pools, courts, etc.

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B.???????? Industry

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In June of 2011, IBISWorld analyzed 33,385 fitness centers and found the industry costs had percentages equal to a profit of 8.0%, rent of 12.0%, utilities of 3.5%, depreciation of 7.5%, wages of 29.6%, purchases of 20.0%, and ?other? totaling 19.4%.

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C.???????? Facility / Employees

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The facility will depend, to a certain extent, on the type of gym.? A franchised gym may need to construct a new building, using plans provided by the franchise.? Independent or privately owned gyms have the option of leasing or purchasing a building that has enough open floor space for the business.? The amount of space needed can be determined by the niche market and the amount of equipment the business will offer.

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The staff required to operate a fitness center generally involves an array of employees.? Employees may include: reception staff, maintenance and cleaning staff, personal trainers, managers, and/or dieticians.? Depending on the location and sport (e.g.Jiu-Jitsu)of the fitness center, personal trainers and fitness instructors may need to be licensed.? Since this is a service-based industry, staffing experienced and well-trained employees is an important factor to retaining existing customers and securing new customers through referrals.

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D.???????? Equipment

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The equipment will vary from gym to gym.? Gyms that are catering to a wide audience will either lease or purchase the equipment.? Leasing the equipment may help the business stay up-to-date with the ever changing technology in this industry.? Niche gyms should consider equipment for their specific needs.? For example, a boxing gym will need punching bags, boxing gloves, boxing ring(s) and protective equipment.? A gym that offers CrossFit may need different specialized equipment such as an Olympic weight set, kettlebells, climbing ropes, plyo boxes, jump ropes, and/or sets of rings.

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Typically, gyms have a reception area and locker rooms that will need to be furnished.? A clean and sanitized facility is important to the industry. Most fitness centers will need a variety of cleaning supplies which can include towels, sanitizing sprays, paper towels, etc.

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Franchised gyms usually require the owner to have a net worth benchmark in order to get the gym built, equipped, staffed and running through its first year.? Franchised gyms can have pre-planned layouts and pre-selected equipment for a franchised owner, insuring that each gym is held up to the franchises? standards and is consistent with other franchise locations.

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E.???????? Income and Expense Pro Forma ? The following is general information regarding the ?????? profit / loss of the business.

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$2 million to $10 million ? Fitness and Recreational Sports Centers (NAICS #713940)¹

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1. Net Sales????????????????????????? 100%
2. Operating Expenses??????? 89.3%
3. Operating Profit?????????????? 10.7%
4. All Other Expense (net)???? 6.4%
5. Profit Before Taxes??????????? 4.3%

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¹ RMA Annual Statement Studies 2012-2013. (Philadelphia: RMA, 2012), p.1574-1575.

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F.???????? Valuation (Not All Inclusive)

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1. Cost Method:
   1. Generally also known as the Asset-Based Approach, the Cost Approach values a company by determining what proceeds can be derived from selling off assets, less the cost of satisfying liabilities. This approach determines a company?s value by analyzing the market value of a company?s assets.? Many times this serves as a valuation floor since most companies have greater value as a going concern than they would if liquidated.

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1. Income-Capitalization Method:
   1. Discounted Cash Flow Method/Earnings Method/Capitalization Approach:???? The worth of a company is based on the earnings or cash flow that the company can generate in the future for the benefit of its stockholders/owners. These protected earnings are discounted to present value, which includes the terminal value of the business.
   2. Excess Earnings Plus Adjusted Book Value Approach: This method relies on the historical earnings performance of a company.? Generally, excess income is capitalized to determine Goodwill.? The Goodwill in addition to the adjusted book value of the net assets can be used to approximate the worth of a company.
   3. EBITDA Approach / Value Over Costs?: This approach is short for ?Earnings Before Interest, Taxes, Depreciation and Amortization?.? This method is used to determine how much money a company is making before taxes, depreciation, and amortization have been deducted.? Then, EBITDA is multiplied by the inverse of the appropriate capitalization rate to determine value of the company.

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1. Market Method:
   1. Guideline Company Approach : Under this approach, the fair market value of the business is determined by comparing the sales data of private companies sold, i.e. have the same standard industry classification code (SIC Code). This approach may be less effective for the valuation of a closely held business if adequate data is not available.

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Rules of Thumb: The rules of thumb for remediation companies vary based on numerous factors.? Please contact Zamucen & Curren at (949) 955-2522 for applicable rules of thumb.

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G.???????? Associations

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International Health, Racquet & Sportsclub Association (iHRSA)

70 Fargo Street

Boston,MA02210

(800) 228-4772

(617) 951-0055

Fax (617) 951-0056

www.ihrsa.org

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IDEA Health & Fitness Association

10455 Pacific Center Court

San Diego,CA92121

(858) 535-8979, ext. 7

Fax (858) 535-8234

www.ideafit.com

Source: http://www.zamucen.com/blog/what-is-your-gym-health-of-fitness-club-worth-how-to-value-gym-health-and-fitness-clubs/

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