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.
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.
|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|
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
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:
|Add||Amortization expenses and depreciation|
|Add||One owner’s total salary|
|Adjust||Compensation of other stakeholders to market value|
Source: Two Brain Business
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.
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.
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.
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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:
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.