Rules of Thumb to Value a Fitness Club or Gym
What’s My Fitness Club or Gym Worth? – Simple Rules of Thumb
Thinking of selling your fitness club or gym? The first question most business owners ask is “how much is my business worth?”
Most businesses, including health clubs, fitness clubs, and gyms, are valued based on a multiple of the cash flow they generate. This cash flow is often referred to as earnings before interest, taxes, depreciation, and amortization or “EBITDA”.
These rules of thumb are used by business brokers, buyers and lenders to get a ballpark idea of the value of a fitness club or gym.
|0 – $50,000||1.0-1.5 times EBITDA|
|$50,000 – $150,000||1.5-2.0 times EBITDA|
|$150,000 – $250,000||2.0-2.5 times EBITDA|
|$250,000 – $500,000||2.5-3.0 times EBITDA|
|$500,000 – $1,000,000||3.0-3.5 times EBITDA|
|$1,000,000 and up||3.5-5.0 times EBITDA|
The selling price includes all of the equipment, fixtures, and other assets that are necessary to run your club or gym. If you own the real estate and want to include that in the transaction as well, then you would add the fair market value of your real estate to the asking price for your club or gym.
How to Calculate the EBITDA of your Fitness Club or Gym
To calculate your club’s earnings before interest, taxes, depreciation, and amortization or EBITDA, start with the profit shown on your P&L statement or tax return, then and add back interest, depreciation, and amortization. EBITDA is the starting point for any business valuation so it’s a good number to track on an annual basis.
Don’t Leave Money on the Table When Selling Your Fitness Club
Using valuation rules of thumb will give you a rough idea of what your club or gym is worth. But a word of caution. Because rules of thumb don’t take into account the unique characteristics of your club, they are usually wrong. They result in either too high a value or too low a value. To get an accurate idea of what your club is worth, the valuation needs to take into account things like past performance, future prospects, projected growth, and other things. In addition, business ownership comes with many perks including the ability to pay yourself an above market salary and to offer yourself perks and pay expenses that a new owner may not incur. The value of your fitness club is also highly dependent on things like your historical growth trends, your margins compared to other clubs, the terms of your lease, including the remaining term on the lease, rent escalation clauses, and renewal terms. As a result, it is important to work with an objective third party to evaluate what adjustments can be made to your EBITDA to truly reflect the operating cash flow of your business.
To get an accurate valuation talk with a business broker or M&A advisor who specializes in representing health clubs and gyms. They will work with you to make the appropriate adjustments to your EBITDA, evaluate your lease, and value your gym properly so you don’t leave any money on the table when you sell.