Regardless of the reason behind why you’re choosing to open up your own gym—whether it be to fulfill a passion, change the scene, or achieve a lifelong dream—every business owner ultimately wants and needs to know the value of what they have created. Much like any other item you purchase, your gym is an asset and can be valued in three very different ways: through its asset value, the value of future cash flows, or based on comparable transactions.
The Asset-Based Approach
Through this style of valuation, the total liabilities of a company are subtracted from the fair market value of a company’s total assets. This approach is the simplest, yet the least profitable for your gym. Why? Unless you own the property that your gym is situated on, the value of your gym extends far past that of your equipment. For example, if you have an established client base that regularly renews their annual contract with your gym, which has value that otherwise would not be accounted for in this style of valuation.
The Income Approach
This valuation approach does take your clientele into account. You can look at it this way: if you were looking to purchase a building, would you rather purchase one with renters signed up for the next ten years, or would you prefer to purchase a building with renters lined up for only one? You’d likely rather purchase the building with a ten-year guarantee of future generated income, which is the same for gyms. The longer the contract terms that you have cemented in place, the greater your gym’s value.
The Market Approach
With this approach, your gym is worth what the current local market is willing to pay based on what similar businesses in your area are believed to be worth. By having one or more competitive differentiators, however, you may be able to leverage your business above the rest and prove it as holding greater value than current market valuation, which leads us to our next point.
Creating Value in a Competitive Landscape
The majority of CrossFit gyms are outfitted with the same type of equipment, and very likely from the same vendors and suppliers. This means that you’re more easily replaceable, and therefore less valuable than companies in other industries. But by having something that differentiates your brand from the rest, you’re creating more value for your gym and also extending its life by allowing it to make money well into the future.
So how do you do that? Here are a few things to get you started:
Build a Brand: Creating a name for yourself and establishing yourself firmly within your community will instantly add value to your gym. Take cues from the culture of your community and place yourself in areas where you can benefit others while promoting your company (i.e. offer community boot camp sessions with donations going to the American Heart and Stroke Foundation).
Ensure Stability: Being able to show clients sign longer contracts (i.e. over one year) with your gym or prove lengthy customer growth and retention is a good way of ensuring value.
Become Replaceable: Anyone who is interested in buying your gym wants to be sure that the brand doesn’t go with you when you bow out. Make yourself replaceable and a buyer won’t be afraid of having to rebuild it once you’re gone.To ensure you’re always on top of the financial situation at your gym, you need to make sure you’re keeping a close eye on certain metrics.
Discover which metrics you should be tracking, as well as how to track them, in our free Fitness Business Metrics Guide.