❓ Cashflow on Gyms & Fitness Centers - Your March Playbook

Buffing up your Biceps … and your Wallet!

Welcome to your March 2022 playbook.

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Episode 14 - Passive Income with Gym Acquisition

Entering 2022, the top two New Year’s Resolutions were to:

1. Exercise More
2. Lose Weight

Therefore, many people join a gym to get their desired results. The fitness environment they choose may differ, whether it is a small, hot garage or a large air-conditioned facility complete with amenities.

Summary

In all, the health and wellness market is a trillion-dollar opportunity. Gyms and fitness centers alone in the US account for $37bil. Here’s the thing: according to our guest this month Zac, only 15% of people in the US have access to or are subscribed to a fitness studio.

Yet as the number of gyms increases, franchises mostly, that number doesn't change. So you’d be just a small fish in a non-growing pond.

How do you solve that and successfully add profitable fitness center acquisitions to your portfolio? Great question.

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Interview

We spoke with Zac Pennington who quit the propane business game and pivoted to specialize in turning around fitness franchises in rural locations.

As the CEO of Country Mile, which specializes in the acquisition and turnaround of underperforming Anytime Fitness locations, his team currently oversees eight total locations across Tennessee, Kentucky, and Iowa and four of their gyms rank in the top 20 of the Anytime Fitness global system.

Anytime Fitness has over 4,500 locations on all seven continents and Pennington has managed to get 50 percent of his Country Mile portfolio to make up 20 percent of Anytime Fitness’ top 20 gyms.

As a fitness center acquisition expert specializing in turning around underperforming clubs, he bought a local gym franchise that went bankrupt for pennies on the dollar. But in 18 months, he turned it into over six figures in revenue, just by making some improvements to the gym and their previously broken business model.

How?

Pennington created a strong community and culture at his gyms with a commitment to service to help their members achieve the results they want, as well as a strong team and set of processes that are turn-key integrated into each one of his new acquisitions.

He noticed that the gyms he goes after having no add-on services. They are simply gyms you went to when you wanted to lift weights, but they offered no additional perks like personal training or nutrition coaching.

Zach was able to get a small business loan and put in $50k for renovations. When the project was completed, he was able to DOUBLE the price of the gym membership and offer other services (at an extra cost) to his customers who had rolled over from the previous owner.

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Playbook

Now to the step-by-step guide on how to find, vet, and execute on adding a gym, fitness, or health club acquisition to your portfolio.

Step 1 – Know What You’re Looking For, and Where to Find It

a) First know: Are fitness centers for you? Zac talked about never having any dedicated experience in the fitness niche. But what he DID have, was marketing savvy. Maybe you’re a fitness buff with some digital marketing or sales expertise, this could be your sweet spot.

And like buying any business, you need to do your homework. Zac focused SOLELY on Anytime Fitness Franchises (there’s a lot to be said about going vertical in a niche for expertise and replication). Eventually down the road too, there could be a nice exit from a portfolio full of the same businesses. So next know: fitness franchise or private brand?

​Here’s a list of 2022’s top gym franchises.​

All gym or fitness center franchises are unique in what their brand reputation is and who their target clientele is.

1. So, where do you find them?
2. Third-party sites such as BizBuySell; Bizquest; businessessforsale.com; are the usual online suspects
3. Direct through the gym franchisor site if you choose that route
4. Door Knock; cold call or email/letter write to gyms in your area (especially ones you go to if they’re privately owned)

b) Prioritize Location

1. Understand where your gym would be. Drive to see it in person; walk around the area.
2. Take note of other businesses, schools, and neighborhoods nearby.
3. Monitor traffic and accessibility on different days and times; is it easy or convenient to get to?
4. Check online for recent reviews of the business and the surrounding area.

​Visibility and accessibility are perhaps the most important things for marketing your gym and increasing your membership. As Pennington told us, “You can change an operation, but you can’t change a location. Location is key.”

c) Assess the opportunity - It is important to note the demographics and other businesses or competitors in the area. Are there new individuals or families in the neighborhood to whom you could market and bring on as new members? How does your gym’s mission, workout, and community differentiate you from other gyms in the area and can you use that to flip members? Are there athletic-type businesses—running stores, protein supplement stores, physical therapy trainers, etc— in the area that people already come out to visit? Or, perhaps, is it already too saturated?

But what are the signs to look for that tell you one particular gym is a great opportunity?

1. Value Add – Potential revenue streams that you can add to your gym
   1. Annual Equipment Refresh or Upgrade fees
   2. Additional training classes or coaching packages
   3. Personally branded nutrition, hydration, or workout shirts/towels to sell
   4. Coaching or personal training opportunities?
2. Turnaround – The goal is to find a functioning gym business in a great location that you can add value to right away. Pennington was able to do it via:
   1. Commitment: Help his members achieve their fitness goals
   2. Community: Create a gym where team employees and paying members see each other frequently and support each other
   3. Culture: Create a clean, vibrant, and fun atmosphere so members will want to continue to come back

Find a gym that is in a good location, is not automated, and sells extra add-ons such as training sessions, protein snacks, and drinks or gear and you have the opportunity for a great potential turnaround. Go in, make the adjustments and you will have a terrific cashflowing gym in your portfolio.

d) when vetting a space, planning is key. Here’s a checklist on what to look for prior to meeting with club owners.​

Step 2 - Evaluate the valuation, DYODD!

Now’s the time to choose your target. Remember, it is important to do your own due diligence when evaluating any deal. You want to ensure that you buy a business that is PROFITABLE (the most important thing Zac looks for are profitability + underperforming; aspects he can improve). Ideally, there is enough profit for you to hire an experienced operator and you feel very confident that you can increase the gym’s annual revenue by making targeted changes.

1. Depending on the deal details, the purchase price may be about 1.5-3X of the annual gross revenue.
2. Be sure to understand if any real estate is included in the deal. That should be valued independently of the business.
   1. Many gym deals will typically not include the real estate and have leases instead. Be sure to do your due diligence on the lease terms as that can make or break your future success.
3. ​Due Diligence Checklist - here’s Zac’s list of what he asks for in any DD process.

First and foremost, your top requirement is that the gym you are targeting to acquire is profitable. If it is not, stop!

This is where understanding how to read a pro forma comes in handy. Here’s a sample one from AF to give you an idea of gym line items.​

Then you can dive in and ask ‘What are you receiving in the deal?’ Work to name your terms and understand exactly what you are receiving in the transaction:

• Business name
• All financials (ideally for the past 36 months)
• Real estate
  • If not, the current lease (when does it expire?)
• What fitness equipment or other inventory & assets?
• Member contracts (when do they expire?)
• What materials/documents (coaching plans)?
• Can employees stay on or do they plan to leave?
• Website and/or social media accounts?
• Any Franchise requirements of what you must use?
• Vendors/Suppliers you must or cannot work with?

**To view the rest of the playbook and access your resources, visit the vault!**

Tips & Tricks

At Contrarian Thinking, we’ve talked about how to find seven income-producing streams to get to seven figures in a year. The businesses within the business. Here are some ways to do the horizontal cashflow strategy on your new fitness center. Or add-ons as Zac would like to say.

Once you have your gym, look to incorporate these add-ons to increase your revenue:

1. Vending Machines
   1. Quick snacks or sports beverages
   2. Ice (our fave)
2. Premium Nutrition
   1. Protein shakes, smoothies, energy bars, etc. (can someone saayyyy juice bar??)
   2. Is there an affiliate or wholesale play here?

3. Sell/Rent out equipment and recovery equipment (massage guns, boxing gloves, yoga mats, bike helmets)

4. Sell athletic gear (i.e. t-shirts, leggings, hats, water bottles, etc.)

1. If you want to develop your own merch line (more specific to private owners)
2. Design & sell specific coaching workout plans or sessions (i.e. to prepare for a marathon or other competition) - These could be a good virtual add on to your biz

Stack cash and get fit (in the wallet),

Codie

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