Thread: Sold small gym
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Old 06-11-2014, 10:48 AM   #25
Ben Rudman
Member Ben Rudman is offline
Join Date: Apr 2013
Location: Denver  CO
Posts: 7
Re: Sold small gym

Originally Posted by Bill Fahy View Post
First of all thank you to all who have contributed to this thread! I have submitted my affiliate application and should have an approval within the next week or so. In the mean time I am hammering out a buy/sell agreement with my partners and the question arises as to proper valuation methods to be used in the event that one partner wants/needs to be bought out.

I understand there are several methods out there but wondered if there was a "go to" method and rule of thumb multiple to use for this type of business.

Great question. I bet Greg Light knows about benchmark methods based on his comment that he is a full-time valuation analyst.

If I were in your shoes I can tell you I want want to recoup my capital contributed plus 1x to 2x earnings. I would think a fair way to accomplish that would be a Book Value under GAAP + 1.0 - 2.0x TTM Earnings. By earnings I mean seller's discretionary earnings (earnings + owner compensation).

I would also want to define the payment terms under various scenarios:
- Owner Discretion (i.e.: you want to be bought out).. You probably want to define this as paid out over a note (define the specifics so you are not negotiating this stuff in a potentially emotional situation), unless you want to be stuck with coming up with the liquidity just because someone decides they want out.
- Death (usually paid out over a note)
- Termination due to violation of the buy/sell by one of the partners (a lot of times you just lose your portion of the shares, or you get a discounted valuation)

Disclaimer: Not an attorney or cpa. Don't take my word for it, just going off my experience. Have an attorney help you draft it up so you cover all the bases, especially with the valuation and the payment terms.
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