I’m currently in negotiations to buy a gym. The gym has been around for approximately 3 years and has been at a loss since opening. It’s approximately an 8000 square foot facility and they have 30 members at $40 per month. They are losing approximately $4000 per month. It is an open gym style of membership, and 2 employees. Hours are currently 5:30am to 12pm and then again from 3pm to 8pm. Both of those shifts are each staffed with one person. I have gone thru the gym and total inventory for brand new equipment is approximately $32-34k, but this equipment has been used for 3 years. There is a month to month lease currently, but the owner of the building being very willing to keep this going for as long as needed. I had made an offer of $35k to take over starting August which I thought was more then fair, given this used equipment has a value closer to $20k if that, and I received a counter offer back of $50k. The response from the owner of the gym was that I am buying a fully functioning gym and while not yet profitable, it is ready to go with all the prep work done. Out of the current 30 members, I alone have brought in almost 1/3rd of them in the last 6 months.
Checklist from An Investor
It’s worth the equipment and nothing more. The lease is month to month and therefore has no value. Mark that zero. Cash flow is negative. Mark it zero. Offer the price of the equipment, and then lower your offer. You’re buying a business in its current form, not on what it could be. u/innatangle
Seriously. What’s preventing the owner from upping the rent right after you buy? u/mancubus
A Gym Owner Tells It Like It Is
This gym doesn’t sound like it’s worth the $35k you offered. If it’s a CrossFit gym, 30 members at $40/mo is not going to be a winning strategy. That type of pricing is going to need 250+ members to really be successful, whereas the magic number for a traditional CF gym is usually around 150 members at $150/mo. 8,000 sq ft. is a ridiculous amount of space for 30 members, and it sounds like this place was set up to fail from the beginning.
How long is it going to take for you to get it profitable? 3 years and they only have 30 members? Even at the $150 membership, you’re still not making a profit here, likely even before paying yourself a dime. What debts does the gym have? Unless the previous owner was funding everything, they’re likely going to have a substantial amount of debt on their balance sheet.
This sounds like a dumpster fire to be completely honest. I don’t know how they’ve been running for 3 years, but the owner sounds stupid for not taking your $35k offer.
If you have the $50k to purchase this gym, just start over yourself and do it the right way. Start small and grow naturally. You said you brought in at least 10 of those members, so if you start small, you’ll have at least 10 members off the bat, and probably more. Get the systems in place and pricing structure appropriate to start turning a profit. You would essentially be paying this guy $25k for his company’s name and whatever systems they may have in place. u/casuallycompetitive