At some point in the life of a business, every owner wrestles with the possibility of selling his or her company. Given the current climate of the fitness industry—rapid bifurification, mergers, joint ventures, new challenging brands and concepts—many entrepreneurs are reaching that point today.
Selling a business is a personal decision. It takes time and patience to do it correctly. The procedure is tedious but rarely repetitive. The problems you face during a sale are ones you have not encountered before.
The sale of your business will have a great impact on your family, employees and you. Take the time to think about all the implications before needlessly disrupting the business and your life. Examine your motives and take a hard look at your reasons for selling because once the transaction is complete, your business is gone forever.
The most successful sellers set their personal, business and financial goals long before they place their business on the market. They know what they want to achieve by selling their business. Whether they want money and time to travel, retirement or leverage to start a new venture, they have a plan to get there.
The following outline will not make the sale of your business any easier, but it will let you know where you stand in the process. You should realistically anticipate a minimum of six months to sell your business—and a year or more is not uncommon.
Set objectives. What is your motivation for selling? Retirement? Relocation? Be clear on your objectives, and discuss those objectives with your CPA to understand the implications of the different deal structures. To begin negotiations before evaluating your objectives is a deal-breaker.
Identify strengths and weaknesses. Everything will come out, so be upfront about problems. If you are not, it will cost you money later. This is a pivotal step in the process. Your goodwill will get you a higher return than you can imagine. What is the club’s unique position in the market? What about parking, signage, exclusive programming? Re-evaluate all base operating expenses and vendor relationships to make sure you are getting the best deals. Every dollar you save now is worth three to five times that when you sell. Have you reviewed your club on the Internet through Yelp or Yahoo? Your buyers will, and they surely will come to their own conclusions about your business quickly. Maintain an easy-to-navigate, informative website with links to Facebook and content worth sharing. If you own a franchised club, review your agreement and discuss it with your franchisor. Get documentation and clarification regarding the transfer of the business, fees, applications, etc.
Get an appraisal. Do you know your club’s value? Probably not. There are so many ways to value a club—price/earnings multiples, one times gross or three to six times EBITDA, discounted cash flow, to name a few. Hire a consultant in the fitness industry to give you current guidelines. You must be able to justify your price. You need to be comfortable with the deal, and the buyer will need to justify price to their lender. If the lender is not the bank, it is often you, as it is not uncommon for the seller to hold a note on the business.
Develop buyer criteria. Look for buyers that are shopping for what you are selling. Are you interested in staying on in management or sailing off into the sunset? Different types of buyers will have different requirements from you.
Identify potential buyers. There are strategic, financial and emotional buyers. They all value different things about the business and put values on things that the other does not. I have seen a business sell for more than it was listed because the competitor had a lease that was expiring and a landlord that wasn’t going to renew it. Although your competitors may be the most likely acquirers, they certainly aren’t the ones you want to open your books to. Have your broker place generic ads and screen buyers carefully. If you have the right representation and your business is valued correctly, the transaction will happen swiftly without disruption of business or rumors that you are going out of business, which hurts employee morale and could affect sales of memberships and personal training.
Develop a profile. This is one of the best opportunities to showcase the business. Technology is in your corner on this one. A video tour can keep tire kickers out of the facility while giving experienced business buyers a taste of what is available. Start with an aerial view from Google maps and then a full walk-through. I also recommend a full inspection report of all the systems, HVAC, electrical, plumbing and anything else specific to your location. Have a local service technician provide a condition report of the equipment, noting manufacturer, model, age, warranty status. Having audited financials is a big plus. You should have three years of tax returns or at least three months of bank statements and an interim statement. Emphasize your uniqueness, your operational and training systems, the marketing and advertising programs. A good broker is a big advantage now, sharing only what is necessary while not being adversarial or revealing the name of the seller.
Negotiate cautiously. Remember: You can make a buyer sign a confidentiality agreement, but they are not going to forget what they see. Stay focused and do not get emotional. Remember the goal. At this point on, it is all subjective. The price you will get is not necessarily what you deserve but what you negotiate. This is hardball, folks. If you do not have the stomach for it, bring in a qualified pinch-hitter, not your brother-in-law, the car dealer, or worse, your lawyer. By all means, consult with your accountant and lawyer on risks and liabilities but do not let them negotiate for you. An antagonistic lawyer can be a major deal-breaker.
Plan transactions. Planning for a smooth transfer of power will make everyone’s life easier. Share knowledge, train key people and have the accountant and lawyer exercise due diligence. Then take a deep breath, sign the papers—and go out and celebrate.
The key is to keep a deal moving forward. If it is not moving, it is dying.
Michael Zarrillo is managing partner at New Line Business Capital LLC, a Fountain Hills, AZ-based company that provides capital and expertise to fitness and recreational businesses. He is a charter member of the National Association of Business Brokers and a member of the Business Transfer Network. He has owned and operated independent and franchise clubs for several years. He can be reached by email at mzarrillo@newlinefinance.com.