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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 05-21-2014, 09:15 AM   #21
Thomas James Morgan
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Re: Sold small gym

Thanks for writing this post Brendan. It is constructive and informative to many people that share a similar situation. My box, and my story are almost identical except that I cannot find a buyer. I have moved 100miles away from my box for my relationship/family and have a fully staffed gym.

Our biggest obstacle to anyone purchasing my established, profitable box is the belief that they could do it cheaper and easier on their own.

CrossFit Palm Springs is defined through our coaching of small classes - limited to 10 - nutritional counseling, separate oly classes & workshops. We throw in a lot of bells and whistles with towels, water, & a lounge to round it out.

I pay my coaches more than any other box in the region. Having seen one coach walk with 20% of my membership to start their own box I made this a priority. It also has made them reluctant to organize themselves to take the risk of ownership themselves.

I evaluated my company initially as follows:
The depreciated value of the equipment + value of the 1 year contracts + cash assets ( inventory/deposits/savings )=$95K

The Box grosses $150K. Eventually I was in discussion with a buyer for $75K and I would finance half the purchase. We had legal counsel through the entire offering and negotiation.

I negotiated with 3 separate parties. One decided not to buy when they got word the first was opening up their own box in the region and the third thought it would be too much work. We have seen consistent growth despite the opening of, 3 new boxes within 5 miles. One is competing with a large facility and rock bottom membership fees. This has every new buyer concerned as a gym offering CrossFit at 50% your rates grows quickly.

I believe 100% in CrossFit but the business model is similar to that of a growth stock. I think your sale sounds smart, well timed and fortunate you got out before the market turned.
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Old 05-26-2014, 10:10 PM   #22
Steve Loeding
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Re: Sold small gym

so - what did you do wrong, what would you have changed from the start and what did you do well ?
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Old 06-03-2014, 12:02 PM   #23
Ben Rudman
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Re: Sold small gym

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Originally Posted by Greg Light View Post
Brian,

A few things I think you overlooked that could significantly reduce the value of the business.

1. There are a TON of other expenses that you are overlooking. Insurance, accounting, management wages, advertising, cleaning, etc. These can reduce your calculated profitability by a lot.

2. While a multiple of 3 can be a good benchmark, it can be influenced by a variety of factors and could really range from 2 - 5x.

3. The value of the equipment shouldn't be added to the capitalized value of the business. The earnings of the business are generated in part by the assets of the business, so they are implicitly included in the capitalized value. If you were going to add the value of the equipment you would be using an excess earnings method which generally would imply a lower multiple.

4. The limited pool of buyers reduces the value significantly. You can't just put an ad in the paper and sell a CrossFit affiliate to any Joe Schmoe
As someone who buys and sells businesses for a living (large ones as an investment banker, and smaller ones as a private investor), I tend to agree with Greg's assessment here.

Basically, unless there is some proprietary secret sauce that all but guarantees the business to enjoy its customer base for 3-5 years, I'm not paying for future earnings that I have to go retain or generate. The longest of contracts in this business rarely exceed 1 year, so I'm probably not dishing out much more than 1-2x earnings.

I would generally place the value of an affiliate at Book Value (Original Cost of Equipment, Leasehold Finishes, less depreciation, if any..whatever is fair) + 1.0x to 2.0x Earnings (including owner comp added back). The end result can get up to 3.0x-4.0x depending upon the assets.

1.0x earnings if the contracts are up to a year

Up to 2.0x earnings if the culture and expertise is right and resides in the training staff as opposed to the current owners, and if the gym is on the larger side of things (~200 members). I would go up to 3.0x if there was some level of sophistication, planning, and track record around growth - attracting new customers. Again, that feature can't leave with the seller though, otherwise I'm not paying for it.

Greg is absolutely right in that the limited pool of buyers creates a difficulty for the seller. The business is small, geographically focused, and requires some degree of subject matter expertise, which narrows the pool significantly in contrast to say, a local Dairy Queen franchise.

Brendan also raises a great point, which is that the right price in theory and the right price in practice are completely different. If you find a buyer who will take care of your legacy, your friends, etc, and value the relationships over pure economics, and there are no other suitors, the price is the price. I would never say someone who transacted got a bad deal; you did what you wanted to do, otherwise you would not have transacted.
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Old 06-09-2014, 02:47 PM   #24
Bill Fahy
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Re: Sold small gym

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.

Thanks!
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Old 06-11-2014, 10:48 AM   #25
Ben Rudman
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Re: Sold small gym

Quote:
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.

Thanks!
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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Old 02-04-2017, 03:30 PM   #26
Jeff Thompson
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Re: Sold small gym

This might be helpful

Deleted link. You must indicate whether your links are Work and Family Safe (WFS). You just necromanced a thread, linking to someone's marketing site. Please read the site rules and make sure you're following them.
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Old 03-19-2017, 05:42 AM   #27
Jake Dyslin
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Re: Sold small gym

Greg, I have been trying to send you a message but I am not able too. Looks like something wrong with the website. Could you send me an email? I am in discussion with someone about buying their gym and had a few questions for you. Thanks! jdiz58@hotmail.com
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