Short Answer …
The Concept of Gym Valuation
Whether you own a gym, fitness center or health club and want to sell it, or else you’re an entrepreneur who desires to buy an existing gym, somehow or other you need to know what the gym is worth. On the selling side, the plan is to make the price low enough to attract a bevy of buyers, while making sure you’re not giving away potential profits. From the buyer’s standpoint, you want to assess the value of a gym in comparison to its posted cost. The price you pay for a gym can seriously affect months or years of down-the-road profits, so this factor is not to be taken lightly. In many cases, a seller will engage the services of an expert to determine a reasonable market value. Buyers oftentimes hire their own experts to assess the price of a gym they wish to acquire. These dueling experts may arrive at vastly different figures. Their ability to compromise can result in a mutually satisfactory transaction for both buyer and seller, but much of that process may be based upon what method each side uses to arrive at a price.
Determining the Value of a Gym
There are three reasons why an owner of a gym will hire someone to determine its value – a pending sale, some sort of lawsuit, or else tax and estate-planning issues. For the purposes of this article we are concerned only with the first, but the process is the same no matter why a valuation is required. There are three basic methods experts use to value a gym:
- Asset-based approach
Under the “going concern” asset-based approach, one takes the net balance of a gym’s assets and subtracts its liabilities. In a liquidation asset-based approach, one adds up the current market value of the assets with the assumption they are to be sold outright, and then calculates the balance as if the liabilities were to be paid off immediately.
- Earning value approach
A gym’s past earnings are plugged into various formulas to determine an expected future return, multiplied by a factor based upon the industry in which the company operates.
- Market value approach
The value of the gym in question is compared to that of similar businesses in the same field.
Many gym valuation experts use some combination of these methods to arrive at a fair-market value. The process clearly cries out for a person who understands profit-and-loss, balance sheets, and a variety of accounting-type procedures.