How do you value a gym business?

Valuing a gym business can be a tricky(ish) task, but it’s essential for both gym buyers and gym sellers to understand the gym business valuation process. It’s important to know the value of your gym before selling or making any major decisions. So how do you value a gym business? Read this gym valuation guide to understand what you need to know. There are four different methods of valuing a gym business and we will take a quick look at each, as well as provide some tips for gym owners looking to value their own gyms. Be sure to take a look through our gym owner guide and then head over to the world’s best gym software platform and request a demo to see if we can help you increase your gym’s valuation.

#1 Earnings Multiple Valuation

By far the most common method for establishing a gym valuation, the earnings multiple method is a simple way to value a gym business. It involves taking the business’s earnings (usually EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) or SDE (Seller’s Discretionary Earnings)) and multiplying it by a multiple that’s specific to the fitness industry. For gym businesses, the multiple typically ranges from 3 to 5 but can be as low as 1 for very small gyms and can be even higher than 5 for large gyms with many other favorable factors. This method is quick and easy, but it doesn’t take into account the specific characteristics of the gym business.

EBITDASelling Price
0 – $50,0001.0-1.5 times EBITDA
$50,000 – $150,0001.5-2.0 times EBITDA
$150,000 – $250,0002.0-2.5 times EBITDA
$250,000 – $500,0002.5-3.0 times EBITDA
$500,000 – $1,000,0003.0-3.5 times EBITDA
$1,000,000 and up3.5-5.0 times EBITDA

How to Calculate Gym EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)

To calculate your gym’s earnings before interest, taxes, depreciation, and amortization (EBITDA), start with the profit shown on your Profit & Loss statement, then add back interest, taxes, depreciation, and amortization. EBITDA is the starting point for any business valuation (not just gyms), and is quite common in the private equity world, so it’s a good number to track on an annual basis. Read more about gym average profitability.)

Source: Sports Club Advisors

How to Calculate Gym SDE (Seller’s Discretionary Earnings)

An alternate gym valuation method that is quite similar to the EBITDA valuation method is the SDE Method. This could really be it’s own valuation methodology but is included with the EBITDA valuation methodology because it is essentially the same thing but for smaller gym businesses run by owner operators.

Start with the gym’s pre-tax earnings from the income statement and then:

AddNon-operating expenses
SubtractNon-operating income
AddOne-time expense
SubtractNon-recurring income
AddAmortization expenses and depreciation
AddInterest expense
SubtractInterest income
AddOne owner’s total salary
AdjustCompensation of other stakeholders to market value

Source: Two Brain Business

#2 Comparable Sales Valuation

The comparable sales method involves looking at similar gyms that have been sold recently and using those sales as a benchmark for valuing your gym business. This method can provide a more accurate valuation, but it’s important to find comparable businesses that are truly similar to yours. Factors to consider when looking for comparable businesses include location, size, and type of gym. Most of this is self-evident. A CrossFit gym valuation is different from a Yoga Studio valuation is different form a sports performance gym valuation; and a Nashville, TN gym valuation is different from a Miami, FL gym valuation is different from a Houston, TX gym valuation.

#3 Discounted Cash Flow Valuation

The discounted cash flow method involves projecting the future cash flows of the business and discounting them back to present value. This method takes into account the specific characteristics of the business and can provide a more accurate valuation. However, it’s also the most time-consuming and requires the most information about the business.

#4 Asset-Based Valuation

The asset-based method involves valuing the business based on the value of its assets, such as equipment and real estate. This method is typically used for businesses that have a significant amount of tangible assets. It’s important to note that this method doesn’t take into account the business’s earning potential, so it may not provide an accurate valuation for a gym business.

Athlete Performance has become an essential piece to our brand and business model. The ease of use and consumer reports have allowed us to maintain great client relationships and rebuild others.

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General Manager, Athlete Performance

How do you calculate the value of a gym?

So, how do you calculate the value of a gym? To calculate gym value with a quick rule of thumb, be sure to include the following key considerations:

  • Gym History
  • Predictability of Revenue
  • Recurring vs One-Time Revenue
  • Location
  • Online vs In-Person
  • Niche
  • Trends (Macro and Industry)
  • Size
  • Equipment
  • Staff

Gym Valuation Tips

  • Understand the method you’re using to value your business. Each gym valuation method has its own strengths and weaknesses, and it’s important to choose the one that’s most appropriate for your business. Ultimately, it’s important to keep in mind that a gym is only worth what someone will pay!
  • Be honest with yourself about your gym’s strengths and weaknesses. This will help you to make more accurate projections and find comparable businesses.
  • Get professional help if you need it. A business broker or a financial advisor can help you to value your business more accurately and provide guidance on the selling process. Some business brokers even specialize in the fitness industry. (Read more here: How to Buy a Gym Business & How to Find Gyms for Sale)

Increasing Your Gym’s Valuation

If you want to buy a gym or sell a gym, it’s essential that you understand how gym valuation works. The Earnings Multiple Method, Comparable Sales Method, Discounted Cash Flow Method, and Asset-Based Method are all methods that can be used to value a gym business. It’s important to understand the method you’re using and be honest with yourself about your gym’s strengths and weaknesses. If you need help buying or selling a gym, don’t hesitate to seek professional assistance from a business broker or a financial advisor. And if you need help managing and growing your gym business, get a demo today.

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