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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 04-03-2014, 09:11 AM   #1
Brendan McNamar
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Sold small gym

As the CF world matures people will begin to buy and sell gyms. Information about these transactions will be helpful to others.

I sold my gym CrossFit West Valley last week to 2 coach's and one of their wives. My reason for selling was to move about 45 miles away. After a long time single I met someone special. Her life was on the East side of town, mine on the West. After looking at all our options I decided to sell when the opportunity came up.

Details:
2,300 square foot, air conditioned, gym
Lease was about $1,800 a month
85 members @ about $105 average monthly revenue per member

We were closer to 95 members but a situation developed where I asked a very popular member to leave which cost me two coaches and many members. I knew this was going to happen but made the decisions I had to ask the person to leave regardless. Self respect is more important then money.

Deal was done as an asset purchase which cost both myself and the buyers extra money but it was the only way they would do it. So they bought all the assets of my gym and signed a new lease with the landlord. This was part of the deal. I had to be released from the lease when I sold the income producing assets.

The buyers were fully aware of my desire to sell and negotiated hard. I understand I wasn't in a strong position and don't blame them for negotiating hard. I always had the option to say no.

We used an escrow agent to make sure it was done right.

Official sale price was $42,500 with me paying the escrow fees. I netted about $41,500. It was an all cash deal and I left the escrow office with a check for the full amount.

I also got all the income for the month of March without having to pay Aprils rent out of it so that was another maybe $3,000.

I figured the liquidation value of the equipment was maybe $25,000.

I loosely used the owner benefit method to come up with a price. Basically how much could I have made the year before if I had chosen to run the gym to maximize my benefit (For example I choose to pay a salary coach so I could have a reasonable work schedule. If I was worried about taking home more I would only use part time coaches). I then applied a multiple of 1.25 to this number and came up with $55,000. The difference was a result of negotiations. In my financial life the $10,000 price difference was not worth risking my relationship or happiness so I agreed. I have other assets more valuable then the gym.

All parties involved were publicly supportive of each other to minimize disruption to the community.

I have a 1 year no compete in a 10 mile radius of the gym. This is a none issue because I moved 45 miles away.

I did lots of things right and wrong in the 3.5 years I built the gym. I'll go over some of those in a different post.

I have a couple of real estate transactions I need to do before I figure out what is next. Once these are handled there is a fair chance I will open another gym. It will most likely be another affiliate, better then the first.
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Old 04-03-2014, 11:07 AM   #2
Brian Neal Carpenter
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Re: Sold small gym

Congrats Brendan! Sad day for us on the board though...your opinions are truly valuable but I guess you'll take that knowledge with you. Good luck on the east side of town! Get your next affiliate close to the light rail
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Old 04-03-2014, 12:52 PM   #3
Brian Diez
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Re: Sold small gym

Congrats on the sale, but I'm not sure I follow your logic.

Your numbers are loose. You're grossing $8,925 a month.

I'm not sure what your total overhead was, but let's deduct $1800 rent and $1000 utilities. We're left with $6,125.

Let's take half of what's left for 2 part time trainers and you're just over $3K a month.

The general guideline is 3 years of net profits. That would give you $108K, plus assets of $25,000, your systems (everything you created to bring in business which you could sell as coaching to other boxes, say $10,000), good will in the community...

There are times you come to the table with the other party's interest before yours. This isn't one of them.

I think you robbed yourself. I would've held out for $130K minimum.

I only post this to provide the next person who's thinking of selling with more information.
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Old 04-03-2014, 06:02 PM   #4
Greg Light
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Re: Sold small gym

Brendan,

As someone else said, sad day for the boards. I have always enjoyed reading your posts.

To give you some insight, I value businesses for a living and given the limited Information provided, I think you got a fair price. Probably could have gotten a bit more, but sometimes it's worth taking a little less to further your personal life and happiness. I have worked with valuing 3 separate crossfit affiliates over the past 18 months and it is always a fun process.

Please pm me if you are willing to share some more details of the transaction as it would benefit me greatly in my practice. All confidential of course.

If you (or anyone else) would like to discuss the way we value an affiliate, please don't hesitate to reach out. It is definitely a unique process since there is a very limited pool of buyers for an affiliate since someone would have to have their own affiliation that they would transfer the business into. This relates to what is commonly referred to as a discount for lack of marketability.

One of the main things that frequently gets overlooked are the wages that should be paid to an owner for their management responsibilities. This should really be subtracted for purposes of calculating owners profit that is capitalized (a multiplied to) when estimating a value. The whole idea is to apply the multiple to standalone business income that would exist if the owner was not involved in the business and paid employees to perform the ongoing responsibilities of the business.

Super interesting process that I would be happy to discuss in further detail if anyone is interested.
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Old 04-03-2014, 06:11 PM   #5
Greg Light
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Re: Sold small gym

Quote:
Originally Posted by Brian Diez View Post
Congrats on the sale, but I'm not sure I follow your logic.

Your numbers are loose. You're grossing $8,925 a month.

I'm not sure what your total overhead was, but let's deduct $1800 rent and $1000 utilities. We're left with $6,125.

Let's take half of what's left for 2 part time trainers and you're just over $3K a month.

The general guideline is 3 years of net profits. That would give you $108K, plus assets of $25,000, your systems (everything you created to bring in business which you could sell as coaching to other boxes, say $10,000), good will in the community...

There are times you come to the table with the other party's interest before yours. This isn't one of them.

I think you robbed yourself. I would've held out for $130K minimum.

I only post this to provide the next person who's thinking of selling with more information.
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
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Old 04-03-2014, 09:00 PM   #6
Peter Keller
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Re: Sold small gym

Brendan,

Cheers, mate! I think we can argue about the valuation, but it sounds like you made the right decision for yourself.

And thanks for the transparency and honesty in posting this here- I'm sure it will help a lot of people.
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Old 04-03-2014, 09:26 PM   #7
David Osorio
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Re: Sold small gym

Thank you for this candid and very transparent assessment of selling. I have a lot of respect for people willing to openly share information they think can serve a greater good.

Best of luck with your new life.
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Old 04-04-2014, 03:04 AM   #8
Will Hurst
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Re: Sold small gym

I invested $18k into my 55% of my affiliate in CA netted $40,000 one year later from the sale to my partner, all on good terms. I feel my share was worth double that but it was my idea to sell and I wanted a quick cash transaction so I had to make it manageable for him.

We were 100 members in one year, rapidly growing in 3500 sf, think he's already at 125 in a couple months since, it was a nicely equipped facility. I'm reinvesting 100% of that plus some into my wholly owned facility where I am now, it's even larger and is outfitted to the max.

Best of luck Brendan, nice meeting you at the coaches prep cert in Mesa!
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Old 04-04-2014, 07:03 AM   #9
Brendan McNamar
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Re: Sold small gym

Brian - What is missing from your calculations was my implied salary. I worked 40 plus hours a week. You have to include that in the expenses for valuation purposes. Add another $3,000 to $4,000 worth of expenses a month to compensate me for actual time I worked in the gym.

The new owners have to pay someone to do my job. One of the new owners is taking my place but he had to quit a $40,000+ a year job to work full time at the gym.

Once you add in this and the other expenses you will see our numbers are fairly close.

Part of what held down the valuation in my case is we have lots of available space for rent in my area so if you push too hard on price the buyers can just open a new gym from scratch cheaper. My buyers were people who would have opened their own gym sooner or later anyway. So instead of them opening another gym from scratch they bought mine.

If you want too maximize the sale value of your gym you have to get it to the point where the purchaser's own salary is only a small expense to the whole organization. Then it becomes a much more valuable enterprise.
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Old 04-04-2014, 07:42 AM   #10
Eric R Cohen
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Re: Sold small gym

you can calculate all you want, but a business is only worth what a buyer will pay for it.
Congrats, sounds like you get a "do-over" which a great opportunity.
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