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Running a CrossFit Facility Tips and guidance on how to open and operate a CrossFit gym.

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Old 09-28-2016, 09:07 AM   #1
Andy Newell
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Location: Fort Dodge  IA
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Possibly buying an existing box

I have been considering buying a box that was started a few years back when there was a partnership of box owners and one left in June 2015, he was the one that wanted to start the second location, 16 miles from the primary location. Since that time the second location has basically been the "red-headed step child" and left out of a lot. I have been in talks with the current owner and he has given me some "off the cuff numbers" and I was wondering the thoughts of others as far as his valuation of the business. listed below are the numbers, this is in a town in the middle of Iowa

This is off the cuff and fast. Here are some #ís.
48 members
12- 5 days a week $60/month
36- 3 days a week $50/month
That is $30,240/year
Expenses:
Rent $7200/year
Trainers $2400/year
Insurance $1000/year- this is a high estimate
Website- $15/month
Fees for CC processing $50/month

This produces a profit of around $19,000/year. Businesses usually sell for 3-5x a yearly profit. I would go close to lower side of that, for $65,000.

Any thoughts on this would be greatly appreciated.
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Old 09-28-2016, 09:52 AM   #2
Alex Burden
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Re: Possibly buying an existing box

What about all of the equipment?
The members- how long are they tied up?
Why only 48 members
Water, electricity and other costs for anything else.
Limitations in the rental agreement
What condition are the changing rooms, toilets

What fees are they paying CFHQ, affiliate fee and so on

Just to start with... To help you get a better picture.

Plus you need to know what your budget is and contingency fund
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Old 09-28-2016, 01:46 PM   #3
Sean J Hunter
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Re: Possibly buying an existing box

Great points Alex,

It's important to realise that many small companies do not take into account all real costs, and so tend to not run at a "REAL" profit, very typical in low cost of entry markets like CF. When they are valued for sale, the owner tends to find that there is little to no "REAL" EBITA (profit). Add to this a customer base that isn't particularly tied in (only month to month contracts) and the PE ratio might only be x 2 (not x 3-5).

I hate to say it but like in many CF box sales, you may find the goodwill variable in the sale price is vurtually $0.00. So instead you end up taking the equipment off the vendor at second hand or book value depreciation rate, taking the lease liability off their hands as well, they often get tied into a non compete / solisitation clause, making it difficult to go off and start again, and the owner ends up walking away with little to no actual profit from all their hard work.

Lastly as Alex pointed out, why are they only at 48 members, do you know the reason, do you think you can fix that reason? most boxes don;t start making any real profit until they reach 100 - 150 members.

HTH

S

Last edited by Sean J Hunter : 09-28-2016 at 02:21 PM.
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Old 09-30-2016, 12:23 AM   #4
Alex Burden
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Re: Possibly buying an existing box

Quote:
Originally Posted by Sean J Hunter View Post
Great points Alex,

It's important to realise that many small companies do not take into account all real costs, and so tend to not run at a "REAL" profit, very typical in low cost of entry markets like CF. When they are valued for sale, the owner tends to find that there is little to no "REAL" EBITA (profit). Add to this a customer base that isn't particularly tied in (only month to month contracts) and the PE ratio might only be x 2 (not x 3-5).

I hate to say it but like in many CF box sales, you may find the goodwill variable in the sale price is vurtually $0.00. So instead you end up taking the equipment off the vendor at second hand or book value depreciation rate, taking the lease liability off their hands as well, they often get tied into a non compete / solisitation clause, making it difficult to go off and start again, and the owner ends up walking away with little to no actual profit from all their hard work.

Lastly as Alex pointed out, why are they only at 48 members, do you know the reason, do you think you can fix that reason? most boxes don;t start making any real profit until they reach 100 - 150 members.

HTH

S
Sean: As you pointed out this box might be worth $0 and they just want to get everything off their hands.

Andy: pointing out the website costs $15 is very trivial that is not a big cost.

I think you need to be careful because you do not want to take over something that will tie you up in debt if things fail for you. You will be taking all the risk.

You know that sometimes you invest money in something and there is no return... this might be the case here for them.... they might take what they can and run with it.

I would also take a look at the local market, where is the competition and what type of competition there is, where is there a box located, can people find it, is the homepage crap, can you find any reviews anywhere on google. You will also need to know what sort of possible clients live in the area, is it a low income area or high unemplyment then the pricing may be out of reach for them. That would mean a change of strategy.

good luck though and let us know how it goes.....
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Last edited by Alex Burden : 09-30-2016 at 12:40 AM.
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Old 10-08-2016, 02:46 PM   #5
Andy Newell
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Re: Possibly buying an existing box

Quote:
Originally Posted by Alex Burden View Post
What about all of the equipment?
The members- how long are they tied up?
Why only 48 members
Water, electricity and other costs for anything else.
Limitations in the rental agreement
What condition are the changing rooms, toilets

What fees are they paying CFHQ, affiliate fee and so on

Just to start with... To help you get a better picture.

Plus you need to know what your budget is and contingency fund
All of the current members are on year long contracts with the current owner, most pay monthly for membership.

The reason that its only 48 members right now is that the owner doesn't put the effort or time into running it. He is a chiropractor and owns an Anytime Fitness with a CrossFit attached to it in a different town, that gym has over 100 members and is doing really well. His previous partner is the one that pushed for the second location and then left the business June of 2015.

Water and all utilities are included in the rent, the box is attached to a rec center in a small town. The bathrooms and shower facilities are nice and recently updates. I am not 100% sure on limitations of the lease/rent agreement.

Currently not affiliated with CFHQ, he let the affiliation lapse because he did see the return on the money fast enough.
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Old 10-08-2016, 03:03 PM   #6
Andy Newell
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Re: Possibly buying an existing box

Quote:
Originally Posted by Alex Burden View Post
Sean: As you pointed out this box might be worth $0 and they just want to get everything off their hands.

Andy: pointing out the website costs $15 is very trivial that is not a big cost.

I think you need to be careful because you do not want to take over something that will tie you up in debt if things fail for you. You will be taking all the risk.

You know that sometimes you invest money in something and there is no return... this might be the case here for them.... they might take what they can and run with it.

I would also take a look at the local market, where is the competition and what type of competition there is, where is there a box located, can people find it, is the homepage crap, can you find any reviews anywhere on google. You will also need to know what sort of possible clients live in the area, is it a low income area or high unemplyment then the pricing may be out of reach for them. That would mean a change of strategy.

good luck though and let us know how it goes.....
Local market is not saturated, there is only his primary location, 15-20 miles away, and one other gym about 45 minutes away. The community is a fairly wealthy farming community in rural Iowa, so there is not much in the way of competition from other boxes.

The homepage is not good, he updated the primary location to a Barbell Logic website and Wodify and will not be doing that for this location. I would change websites and possibly move to Wodify to make improvements to that and to help with marketing. I know that he has not done much in the way of marketing to the community and the growth potential is pretty good. I have talked to people in the community that have left due to reasons with the management and programming and just a "feeling of being an after thought"

The community backs a lot of the local businesses and would support a local owner who has ties to the town and community. I work currently at the Hospital and with the high school athletes in strength and conditioning and sports teams.
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