In the early days of my business, I was advised to get it ready to sell. Specifically, to ensure optimal systems and processes were in place because, even if not selling, it would make my business a more profitable venture.
In a recent conversation with Cameron Prosser, Australia’s leading fitness business sales specialist with BF Brokers, I was inspired to put the question to him as to what makes a business more valuable when selling (and more profitable to operate). I’m very pleased to say he’s delivered some GOLD!
Whether you’re a one-person Training business or own multiple clubs, there is information in this post that will put money in your pocket. Enjoy.
To make a business more valuable to sell, Cameron points to five key topics that anyone selling their business should focus on;
- Service offering
- BONUS TIP for Trainers in a rental model.
STAFFING – KEY POINTS
Be sure to have a standard agreement form for all staff. Contracts must be clear as to whether you pay holiday pay, annual leave and long service leave.
All key roles need to be documented with responsibilities clearly outlined.
Everything must be process driven so that anyone can step into a role. Avoid ‘personal’ systems (yours or staff) for handling anything.
[Dennis’ Tip – Process.St, we use it for everything]
Remember that on the sale of the business, staff contracts are likely to be null and void and the new owner will have to rehire all staff, so ensuring that contracts in place and ready to renew is a good way to add extra value.
You must be ready to pay for any outstanding leave entitlements or expect to reduce the sale price of business to suit a roll over of the contract.
LEASE – KEY POINTS
Where’s your lease at?
For a Personal Training studio, an optimal lease would be a 3x3x3. This means ‘three years with an option to renew for another three years, and then an option for a further three years after that.
So, at the end of the first three years, negotiate for the next 3x3x3. This gives the greatest possible security for anyone that might wish to buy your business.
For larger facilities, a 5×5 arrangement is best. Again, at the end of the first five years, negotiate for another 5×5 option.
Ultimately, the longer the lease the greater the value of your business.
Over a number of years, it’s possible that CPI or annual rent increases may result in higher than market worth for the lease. It’s recommended that this is evaluated when taking up every new option.
Also, ensure any money held as a bond is fair and reasonable – by reducing your bond and/or bank guarantee you’re keeping to market rate. You’re also reducing the likelihood of a bond increase on lease transfer becoming too onerous for the person buying your business.
SERVICE OFFERING & CLIENT VALUE – KEY POINTS
Knowing who your market is and what you provide is paramount. It influences your marketing, your prices, your service and more. When it comes to selling your business, it’s also of considerable value to the potential purchaser.
The sort of things to consider are…
- What’s your target and why would someone come to you?
- Who you are to your market and what are your key clients?
- What’s your average net worth of each client?
- What is your USP in relation to competitors – Why you over the competitors?
- Retention rates
- The ratio of Direct Debit to Up Front memberships.
The clearer you are on each of these points, the easier it is for any potential buyer to see where the income for the business is coming from.
If you’ve decided you’re ready to sell, consider upgrades to facilities and services, or at least understand the cost associated with fulfilment. The purchaser will be using these requirements to reduce the sale price. In particular with regards to anything required to maintain the service offering that sets you apart.
Another question to consider is ‘is the business one that requires an owner-operator or can it be run under management?’
As an Owner Operator, management hours are absorbed, reducing the wages bill. While this might be great for a ‘hands-on’ owner it’s not going to be so lucrative for someone hoping to own a business and run things remotely.
When determining client value, working in cash is NOT optimal.
It provides no idea of the business turnover and is no good if you want to sell. If you must use cash, it should be in a systematic manner so your business can be better valued.
Clients on direct debit, on the other hand, are your most valuable clients. They speak to a steady income, an easier projection for future earnings.
Less is more. Period.
Your three greatest expenses, as a percentage of your gross revenue, are likely to be your building lease, staffing costs and equipment leasing.
Keep in mind that a saving as little as $100 a week will add $5,200 to the bottom line and increase the value of your business by ~$15,000 (using a 3 x multiple of EBITDA)
What is your marketing plan, what do you spend and is it working?
More than just the marketing plan, be sure to have the data around the return on that plan.
This sort of information highlights expenses that may be removed as ineffective in attracting members or others that have worked and should be increased.
Collect as much data as possible. If you’re unsure, find out what metrics you should be capturing and how best to capture them.
NOTE FOR RENTAL TRAINERS – Try to sell/transfer your clients.
Getting some sort of return from your efforts to build a steady and reliable client base is a reasonable aim. This is Cameron’s suggestion…
Find a Trainer/buyer best suited to your clientele and begin introducing them to your clients under an agreement that you receive –% of revenue from each client introduction, ideally over a set period of time, maybe three months. This way, the incentive for the seller to have the client maintain their training with their new Trainer is higher, resulting in a more successful turnover for the buyer.
Thank you, Cam, for an amazing insight into building more profitable fitness businesses. If you’d like to talk to Cam about buying or selling a fitness business, reach out to him via his office on 03 8823 5400.