How To Sell a Fitness Club for Maximum Value, with Jim Thomas, Fitness Management & Consulting (How To Sell a Business Podcast, Episode 3)
Jim Thomas, Founder and President of Fitness Management & Consulting, joined host Ed Mysogland for a conversation about the fitness club and gym business. Jim owned and operated numerous gyms over his career and now serves current and future owners. He and Ed discussed business differentiators, customer retention, customer acquisition costs, improving the value of the business, what a club owner needs to do to prepare to sell, and much more.
How To Sell a Business Podcast is produced and broadcast by the North Fulton Studio of Business RadioX® in Atlanta.
Fitness Management & Consulting
Fitness Management & Consulting is focused on helping clients achieve success in a highly competitive business. Their services cater to both operators of single clubs and multi-club operations. Their scope covers all types of operations from full athletic clubs to small corporate fitness centers.
Fitness Management & Consulting offers flexibility in serving its clients to best serve their needs. They specialize in helping current owners and future owners of gyms, fitness centers, health clubs, and multi-purpose athletic clubs to find solutions for how to open a new gym, gym start-up, billing and collection, real estate site selection, and lease negotiation, broker services, fitness center sales, financing, consulting and troubleshooting, health club promotion, fitness center advertising, gym equipment, and flooring.
They welcome the opportunity to meet with current and potential club operators and investors to discuss how they may be of service to them.
Company website | Facebook | YouTube | LinkedIn
Jim Thomas, Founder and President, Fitness Management & Consulting
Jim Thomas is the well-known founder and president of Fitness Management USA, Inc., a management consulting and turnaround firm specializing in the fitness and health club industry. With over 25 years of experience owning, operating, and managing clubs of all sizes, Mr. Thomas lectures and delivers seminars and workshops across the country on the practical skills required to successfully build teamwork and market fitness programs and products.
Since forming Fitness Management, Mr. Thomas has been turning health clubs around at an amazing rate and garnering a reputation as a producer of change…a sharp-eyed troubleshooter, a brilliant sales trainer, and a motivator. Fitness Management provides programs that show measurable results and Jim’s team is proud of their ability to glean profit from every square foot of a client’s investment.
A dynamic, articulate motivator, Mr. Thomas exudes confidence without artifice and accomplishes wonders without the bruised feelings that can so often accompany change. “We pride ourselves in reaching people and motivating change in a way that encourages self-esteem on the part of the players.”
Whether you operate a health club, fitness center, gym, or other type club, Jim Thomas and Fitness Management have a program to fit your need, expand your market base, and keep your members and staff productive and enthusiastic.
Ed Mysogland, Host of How To Sell a Business Podcast
The How To Sell a Business Podcast combines 30 years of exit planning, valuation, and exit execution working with business owners. Ed Mysogland has a mission and vision to help business owners understand the value of their business and what makes it salable. Most of the small business owner’s net worth is locked in the company; to unlock it, a business owner has to sell it. Unfortunately, the odds are against business owners that they won’t be able to sell their companies because they don’t know what creates a saleable asset.
Ed interviews battle-tested experts who help business owners prepare, build, preserve, and one-day transfer value with the sale of the business for maximum value.
How To Sell a Business Podcast is produced virtually from the North Fulton studio of Business RadioX® in Alpharetta. The show can be found on all the major podcast apps and a full archive can be found here.
Ed is the Managing Partner of Indiana Business Advisors. He guides the development of the organization, its knowledge strategy, and the IBA initiative, which is to continue to be Indiana’s premier business brokerage by bringing investment-banker-caliber of transactional advisory services to small and mid-sized businesses. Over the last 29 years, Ed has been appraising and providing pre-sale consulting services for small and medium-size privately-held businesses as part of the brokerage process. He has worked with entrepreneurs of every pedigree and offers a unique insight into consulting with them toward a successful outcome.
Connect with Ed: LinkedIn | Twitter | Facebook
Intro: [00:00:00] Business owners likely will have only one shot to sell a business. Most don’t understand what drives value and how buyers look at a business. Until now. Welcome to the How to Sell a Business Podcast, where every week we talk to the subject matter experts, advisors, and those around the deal table about how to sell at maximum value. Every business will go to sell one day. It’s only a matter of when. We’re glad you’re here. The podcast starts now.
Ed Mysogland: [00:00:36] I’m your host, Ed Mysogland. I teach business owners how to value and identify and remove risks in their business, so one day they can sell their business at maximum value when they want, how they want, and to who they want.
Ed Mysogland: [00:00:51] You know, today is a special day. I’ve had no hiccups in all of my episodes with exception of one, my man, Jim Thomas of Fitness Management and Consulting. We recorded, and for whatever reason, he didn’t record. And what a gentleman to come back on the show and rerecord with me. And I am 100 percent certain that you are going to have just an unbelievable amount of value nuggets that he shares. So, Jim, welcome to the show again.
Jim Thomas: [00:01:27] Well, once again, I am thrilled to be here. Appreciate it.
Ed Mysogland: [00:01:31] Well, before the show started, I kind of gave an overview of you and what you’ve been into. But do you mind talking a little bit about Fitness Management and Consulting?
Jim Thomas: [00:01:40] Yeah, sure. Absolutely. And just in the big picture of things, one of the things that I think that really makes us unique and me unique in terms of the services provide, is, I’m a former gym owner. I owned eight of them, had four of them that I started from scratch, four of them that were acquired. And one of the unique things I tell folks all the time, you know, I’m qualified to go clean your bathroom and I can go at the same time do a review of your P&L statement and kind of everything in the middle, because that job of ownership is the folks out there listening that are in that role, boy, it changes moment by moment.
Ed Mysogland: [00:02:19] Well, it’s funny you say that, because in our practice, we talk more people out of business than into business. You know, when they realize, not only am I the CEO, but also head janitor, that changes the dynamics of don’t we pay somebody to do this? Well, yeah. But for every dollar you do, that’s a dollar out of your pocket. So, pick your poison. What would you prefer?
Jim Thomas: [00:02:44] That’s it. That’s it.
Ed Mysogland: [00:02:45] Right. So, my first question is how complicated the gym business is. I mean, it’s not just an assemblage of assets and build it and they will come. There are many silos, little profit centers all working together to make that gym profitable, or marketable, or however you choose. So, can you just tell me a little bit about the gym business and where do you find the profit.
Jim Thomas: [00:03:22] Okay. And so, you know, it’s interesting because folks that want to get into the business, there is a tendency a little bit to oversimplify this, that, if you build it, they will come mindset kind of hops in there. But in terms of profitability, I’ll give you some things that we look at here, particularly with something that’s new. And then, if it’s already existing, we have to work to kind of reach these numbers.
Jim Thomas: [00:03:47] But we want to be able to negotiate a lease that at maturity – I’ll call that a year – that lease represents on a monthly basis 15 percent of our revenue. We want to be controlling our payroll to the extent that that’s going to be at 40 percent. And so, this being a very fixed cost business, we keep our rent in line, negotiate it right – and that’s a challenge for some folks that have not done it. They need to get help – and then keep our payroll in line. Now, we’ve got to run and shot.
Jim Thomas: [00:04:23] You know, I get some of these that are turnaround situations and that rent at 40 percent or 50 percent, we can many times fix it, but there’s some challenges in there. So, you want to make sure you start off right.
Ed Mysogland: [00:04:36] So, with the rent, I’ve always thought that gyms are a destination location, so it’s not necessarily you need a lot of frontage. Is that true or not?
Jim Thomas: [00:04:48] You know, I would agree with that. You know, when we look at locations, the way I like to look at this, you’ve got an A location, which is that prime spot, prime street corner, all these great things, but you pay big money for it. What I’ve always liked, and what I suggest to many folks, is, let’s look at a B location. Maybe it’s pulling from that same demographic area, but because it’s a B location half mile down the road, maybe even a mile, the rent is substantially lower.
Jim Thomas: [00:05:18] Now, here’s the key, though, you have to be good at marketing. You have to be good at getting the word out. And if you’re good at that, that B location is perfect.
Ed Mysogland: [00:05:28] So, the radius that you’re talking about, if I remember right, it’s, like, three or four miles is where you’re pulling your constituents or your members. Is that right or not?
Jim Thomas: [00:05:44] Yeah. Yeah.
Ed Mysogland: [00:05:45] Okay. So – I’m sorry. Go ahead.
Jim Thomas: [00:05:47] What I was going to say there is, generally, it’s going to be about a 15 minute drive time, which is about a three mile radius. But here’s the thing for folks to think about when they’re doing this, the greater job that a gym owner does of creating differentiation, you know, providing a different product than what everybody else in the market is providing, this will expand that pull radius, you’ll pull further distance. So, there’s a lot of things we’re going to be thinking about here.
Ed Mysogland: [00:06:21] So, when you say that, though, the differentiators, are you talking different types of exercise? Like, you have your normal bodybuilder types that are just using free weights, machines, kettlebells. And then, you have CrossFit, you have Pilates. I mean, what other, I suppose, fitness silos are we talking about?
Jim Thomas: [00:06:53] Yeah. When you start looking at differentiation, I can use some things you see out there right now without kind of naming names necessarily. There’s products out there that’ll charge $10 a month. And you mention their name and everybody knows it’s $10 a month. And that’s a massive differentiation compared to most folks.
Jim Thomas: [00:07:16] You’ve got others, maybe they’re running a women’s only operation. That is a significant differentiation because there’s a lot of women that don’t want to be in that coed environment or won’t even go in given that. You’ve got some that are open 24/7, you can workout at 2:00 in the morning if you want to. And where you have hospitals or maybe auto manufacturers, those are some good places for those. Those are some more of the obvious points of differentiation.
Ed Mysogland: [00:07:48] So, I know one of the challenges that gym owners face is trying to create a community within the pool of members that everybody kind of gets along, and everybody is taking the same classes, and they go out for beers afterwards, and that kind of thing. How does an independent create that? I know CrossFit kind of has that vibe where you see the same people over and over again and we’re all in this together. But how do you make that inviting atmosphere, because that makes a sticky client, you know?
Jim Thomas: [00:08:37] Absolutely. It’s a fabulous question. Maybe the question of the day, because it gets back to attrition and how do you retain your customers. And what you’re looking for – you used this word – that sense of community. And in very simplistic terms, here’s what I would suggest that any club owner want to look at. Are you treating your members like they are consumers? Or is it a sense of community? Are we providing something, we’re doing it for free, we’re doing it to help, we’re doing it to benefit them, we’re a resource center to them? Or are they simply consumers?
Jim Thomas: [00:09:20] Because the big mistake that I see is we say we want a sense of community where we’re going to provide all this. But the reality is we’re really looking at them like they’re consumers. Now, that’s not to say we’re not going to sell them something. We’re going to have all that available. But there’s a big mindset shift right there in terms of how you view your customer.
Ed Mysogland: [00:09:42] Right. And one of the nuggets that you shared last time was the proactive manner in which you red flag your clients or your members that are perhaps flight risks and you do some outreach to retain them. So, can you circle back and talk a little bit about that?
Jim Thomas: [00:10:09] Yeah. So, in terms of retention and in keeping our members, you know, when a customer comes in – and I get asked this question a lot – “Hey Jim. What should you say when somebody wants to cancel?” Well, let’s try to not be in that situation, first of all. And so, what we suggest that any club does is, every day when you come in, you want to pull a member usage report.
Jim Thomas: [00:10:38] And depending on where you’re at – every club’s a little bit different – let’s just say, we’re going to identify being an inactive member as coming in four times or less the previous 30 days. And so, every day I’m pulling a memory usage report of folks that have been in four times or less, and I’m going to start making phone calls. And this is a brand new kind of CRM category. I’m going to call and I’m calling the idea to nurture, to help maintain interest, maintain desire, be a resource center, be a servant. Because the data tells us every interaction we have with that inactive member, they’re now 20 percent more likely to come back in. And it’s highly effective if we’ll do it.
Ed Mysogland: [00:11:25] Yeah. I was going to say, I’ll bet it is. Because if I got a call from my gym saying, “Hey, we haven’t seen you in a while, you may want to think about getting your butt back to the gym,” that’s certainly a differentiator. In all my years, I have not known anyone, any gym owner, to have that type of outreach. I mean, that’s not a regular thing, right?
Jim Thomas: [00:11:54] So many folks don’t do it. And I would say, you know, the lion’s share of the folks that I talk to, me coming in are not doing it. And it’s one of the things that we encourage because all the time and effort and money that goes to acquire a new customer to not have a similar system on the back end to save that customer is kind of crazy. Because, ultimately, what you’re trying to create is this member experience that keeps them wanting to stick around.
Ed Mysogland: [00:12:25] Well, you made mention of something I wanted to ask, the customer acquisition cost. I mean, and I know it probably varies between markets, but I mean what should it cost for you to acquire a customer?
Jim Thomas: [00:12:41] You know, it could be expensive if you’re not careful. And here’s what happens, most gyms, what they will do, they’ll set up, like, Google AdWords and maybe it’s a $300 budget. And now one of the problems you have sometimes is we’re not tracking that so we don’t know. And then, we’ll do some kind of a digital marketing program. And these digital campaigns, not including the actual advertising, they could cost you $1,000, $1,500 a month, and maybe you get 50 good leads, and maybe 25 of those you get to talk to, and maybe you sign up 12. So, it can get expensive if that’s all you’re doing.
Jim Thomas: [00:13:32] But, see, that’s where really you have to understand all the moving parts here because there’s a lot of things that are going to cost you little or nothing, member referral programs, former member programs that I call alumni. I’ll give you an interesting stat, Ed. There’s currently more former members in the U.S. than there are current members, and that’s not really pandemic related. It was that way before the pandemic. There’s just that much of a churn. But the beauty of it is, most folks will look at them and kind of ignore it, but that former member is like your number two source of new members behind referrals.
Ed Mysogland: [00:14:11] I had no idea.
Jim Thomas: [00:14:12] And so, you want to have both of this. You want to have – what I call – that boots on the ground, that guerilla marketing. And then, you want to have your paid marketing. You want to get that acquisition cost down.
Ed Mysogland: [00:14:22] Well, I’ll tell you, if a gym owner can calculate and identify where their customers are coming from and how much it costs to acquire them, I can tell you they’re miles ahead of the next guy because they’ll survive.
Jim Thomas: [00:14:37] You know what happens on that a little bit, is, on some of this, because we don’t understand the sales process, there’s a tendency to charge very little to get started. And maybe it’s just month to month, where it’s easy to kind of leave. And you could literally have situations, if you’re not careful, if you’re not monitoring this on all ends in how you’re doing it, is, you actually don’t make money until month number four in some cases.
Ed Mysogland: [00:15:10] Yeah, and that hurt.
Jim Thomas: [00:15:12] I got involved with the club one time. They were losing maybe 20,000 a month and they were doing big enrollments and they could not understand it. I went in and did the math on it. It turns out they were losing money upfront every time they sign somebody up. And we had to cut out certain things they were doing. Their dollar volume dropped, but the profit margin went up.
Ed Mysogland: [00:15:37] Yeah. And that’s funny, I was getting ready to ask you, because we fight that a lot, you know, I really don’t care about the top line. I really care about your bottom line. So, however you make your machine profitable and if it’s repeatable, pal, you’ve got a sellable business all day long.
Jim Thomas: [00:16:00] Yes, absolutely.
Ed Mysogland: [00:16:02] So, who are the typical buyers buying gyms these days?
Jim Thomas: [00:16:08] You know, we did one recently. It was a gentleman who was living in the Midwest. I think he was an insurance agent and he was freezing cold up there. And he bought a gym down in Florida.
Ed Mysogland: [00:16:22] So, it’s a lifestyle business. I mean, we view it as you have financial buyers that are basically replacing the ownership and they’re going to sleep, eat, and breathe it as a lifestyle. And then, you start moving into people that are looking at this as more of an investment. So, in your practice, I mean, what are you seeing more of, the guys that are looking to buy it as an investment and have somebody run it or somebody that’s kind of changing gears and moving more into a lifestyle?
Jim Thomas: [00:16:55] Yeah. Nine times out of ten, it’s someone who’s going to buy it and run it themselves. And, of course, we’ll help direct them a bit where you don’t want to get anchored to what you’re doing there. But more often than not, that’s really the buyer that we’re talking to.
Ed Mysogland: [00:17:12] I got it. So, with that type of buyer, and we spoke about it before – this is a layup for it – where are you finding those buyers?
Jim Thomas: [00:17:27] You know, many times they’ll find us in a sense, in terms of going to our websites, and hearing me speak, and hearing me talk, and existing operations. I’ll tell you what’s interesting, our broker division, how that originally got started. We’ve been doing it for quite some time. But how it originally got started was clients would say to me, “Hey, Jim. I think it’s time to sell.” And I wasn’t really involved in doing that at the time. And I said, “Well, yeah. We need to find you a broker if that’s what you want to do.” And they said, “Oh, no, no, no. Jim, we know you, we trust you, we want you to do it.”
Ed Mysogland: [00:18:04] Good for them.
Jim Thomas: [00:18:05] And that’s really how it led to that. So, existing clients, people that will search us out, they’ll find us. I mean, we do our own email marketing, social media marketing, things like that. We’ll get folks that, “Hey, Jim. I don’t know if you remember me, but we talked about two years ago.”
Ed Mysogland: [00:18:25] A hundred percent. I get the same. So, what’s the success ratio? I mean, for example, the industry average on all businesses is about a 20 to 25 percent success ratio to sell their business, which, to me, is absolutely dismal. And there can be a number of reasons why deals don’t go together, but I know size matters. The more sophistication, the more likelihood that the seller will withstand any kind of financial scrutiny in due diligence. But, I mean, what are you seeing as far as the likelihood of transitioning a gym?
Jim Thomas: [00:19:15] I think your numbers are pretty dead on. I find that at least half the gyms never sell.
Ed Mysogland: [00:19:23] Okay.
Jim Thomas: [00:19:25] They don’t even get off the launching pad. And in large part it’s because they’re overpriced. The owner has not valued it properly. They put value into blood, sweat, and tears, and they can’t come to grasp the reality it’s about cashflow.
Ed Mysogland: [00:19:44] Yeah. And, again, it’s across all industries. Valuation is always the challenge. I have been called the Grim Reaper of business valuation. And I get it, I mean, you don’t want to hear that perhaps what you’ve worked and sacrificed for is not as appealing as you might think to a third party. So, how are you coaching them to make more of a saleable business?
Jim Thomas: [00:20:22] Well, there’s a few things, and we actually just took on a recent client like this. They were looking to sell. They wanted to kind of get out. But we didn’t even really do a valuation. We could look at the numbers pretty quick and we could pretty well tell them this was not going to be a successful attempt at doing this. It was pretty significant.
Jim Thomas: [00:20:44] And we had a few conversations, and so what are we in the process of doing? We’re in the process of growing the sales. We’re in the process of growing the revenue. We’re in the process of training the staff. It depends on where you’re at financially, but we want to keep the gym looking as new today as the day that it opened. And so, if you’re short on funds, maybe we’ll put out some new carpet, we’ll paint some walls, we’ll do some different things.
Jim Thomas: [00:21:12] But we’re trying to bring this thing back up because if your sales are trending up and you’ve got good staff in place, I kind of jokingly tell folks, this is how you sell your business for more than it’s worth, because you’re trending up and there’s opportunity here. You know, you couldn’t even give the darn thing away if it’s losing money.
Ed Mysogland: [00:21:34] So, a lot of challenges that the business owner faces when you bring in like, “Hey, if you have the runway and you’re willing to give me a year or two years or whatever, I’m telling you, you can make another turn on your multiple.” So, I guess my question is, when someone hires you – and I know it depends on the scope of what you’re doing – how quickly can you start seeing a return on that investment? Because I know that’s probably real hard for, especially, gyms that are struggling. You know, it’s hard to take what they are making and plow it back into consulting. You know what I mean?
Jim Thomas: [00:22:25] Yeah. It’s an interesting question, because it’s not as difficult as you might think to start seeing results quickly. And there’s a couple of reasons for it. Number one is, a lot of these folks when the business is trending down, they’re not maybe doing everything they should or could be doing to make it work.
Jim Thomas: [00:22:48] And one of the common things that I’ll do in nearly every situation is, we’ll do an analysis of the existing assets, the website, how you answer the phone, your sales process, your referral process. These are things they’re already spending money on, so we’re not spending more money, we’re just doing a better job with what they already have. I mean, something as simple as putting Facebook Messenger on their website can get you a sale a day.
Ed Mysogland: [00:23:18] Yeah. I remember you saying that. I could not believe that that was the low lying fruit you’re talking about, that Facebook Messenger. I can totally see it, you know. I asked you, “What in the world is someone going to ask on Facebook Messenger?” And you’re like, “Well, that’s a real easy one. What are your hours? What’s the pricing structure? What’s the classes,” and so on and so forth. And once you said it, I totally understood it. But I’m with you. I think you’re right that there is a lot of opportunity with little to no expense outside of the consulting cost because you’re not adding layers. You’re just fixing what’s broke.
Jim Thomas: [00:24:14] That’s it. And there’s one simple secret to it. For these folks that we talk to, they have to be ready to make a change.
Ed Mysogland: [00:24:23] And that’s always —
Jim Thomas: [00:24:25] That’s the one simple key to it. If that’s in place, really, sky is the limit. And you can almost start having some results day one, believe it or not. Just because it’s simplistic kind of things. Things like getting a referral or maybe putting out a press release. Does the media even know you’re there? And none of these things is costing you.
Ed Mysogland: [00:24:49] No, that’s right. That’s – I don’t want to say a funny one, but that’s interesting that it can go that quick if you have – I don’t want to say if you just believe, but if you’re willing to buy in or give it 30, 60 days, you can recoup that cost associated with the consulting. I get it.
Ed Mysogland: [00:25:20] I don’t think I asked you last time, but what’s easier to run and operate, a coed gym or an all women gym?
Jim Thomas: [00:25:29] Oh, you know, from a process standpoint and everything you look at, they’re identical. I think the key is, where is your passion? I’ve owned both of them, actually. I’ve owned women only facilities —
Ed Mysogland: [00:25:41] That’s why I’m asking.
Jim Thomas: [00:25:42] … and I’ve had coed facilities. I found them no different. Now, I will say this, in the co-ed facility, your cost is a little higher because your equipment cost is higher, because you’re having to buy heavier equipment, because the guys are lifting some real heavy stuff, because the women aren’t really lifting at that level of weight training, and things like that.
Jim Thomas: [00:26:04] But, to me, they’re identical. I think it’s where your passion is and what you like. I’m personally a fan of the women’s only business. I’m a little surprised you don’t see more of it out there. I think it really would open up a marketplace to a lot of folks that are not currently attending facilities.
Ed Mysogland: [00:26:21] Well, I don’t know if it was in your neck of the woods, but we had Curves. They kind of evaporated. And I don’t know what happened to them. But I know that kind of was in your same bailiwick of that women-owned or businesses that are geared toward women would be successful. So, I don’t know what exactly happened.
Jim Thomas: [00:26:56] You know, it’s interesting on those guys – and I was never really involved with them. They were just south of where I’m at here a little bit – in large part, a lot of that growth on that type of operation, it came in these communities that were maybe under 200,000 people where it was easy to get a low rent, it was easy to advertise, easy to market. And a lot of those places, you know, 100 members, maybe 200 members in it worked. And as they started hitting, “Okay. We’re kind of full. We need to expand.” And now all of a sudden we’re going to go into Los Angeles and Dallas and Atlanta, the rents were much higher. You had much more competition. And it didn’t lend itself to who their customer was at franchisor. That wasn’t who it was.
Ed Mysogland: [00:27:44] I get it. Well, since I brought up the franchise, we talked men and coeds, so franchise versus independent – I don’t want to say which is better, but, I mean, in your consulting, what are you seeing as the superior? Is there that much difference, I guess, is where I’m going.
Jim Thomas: [00:28:07] Well, I try to actually compete against those franchises. Actually, that’s part of my marketing, no franchise fees, no long term contracts, no royalties. Because bring a consultant on just pay for what you need and you stay in control of your business. Whereas, the franchise are going to dictate a little bit to you.
Jim Thomas: [00:28:29] So, now, we worked with a lot of franchises, but the folks that come to me, by and large, they want to maintain control. And they’ll just say, “Hey, Jim. Teach me how to do it and I’ll go out there and do it.” They’re all good. And one of the things, if you’re doing something really big, the franchises are nice because SBA likes those kind of things because they’ve got that kind of seal of approval that it’s a proven system on it.
Ed Mysogland: [00:28:54] Yeah. But, again, it’s back to the system. You know what I mean? I don’t mean to imply that it’s not complex, but after you get the system, what’s left other than just add gas or revenue, it just seems that – you know, I don’t want to say I don’t see the value. I just don’t see the long term value.
Jim Thomas: [00:29:28] Yeah. I mean, it’s like anything that you’re doing, everything has to evolve. I mean, everything is going to change. When I was building them to what they are now, heck, I can look at my consulting business and what it is today and what it was ten years ago. I mean, it’s night and day difference. You know, the business has to evolve, but it can’t just be membership revenue. Whatever those other ancillary sources are going to be, personal training, supplementation, retail, your whole online component, there’s really no shortage of growth.
Jim Thomas: [00:30:03] And just kind of Business 101, you know, the three things you look at is, we have to acquire more members, more clients, make more sales, we have to get more money per customer, and we have to get them to buy more often. What amounts to everybody in our marketplace has to know who we are. And if we don’t do that, we’re going to struggle. But when everyone knows who we are, what a great competitive advantage.
Ed Mysogland: [00:30:29] Sure.
Jim Thomas: [00:30:30] And, now, you’re dominating. And that’s what you’re trying to do. You’re not trying to compete.
Ed Mysogland: [00:30:35] You know, it’s funny, my wife was talking about what appeals to her at a gym. And the funny thing is that her and her little group, it’s about the cleanliness of the facility. Not necessarily the hours. I mean, it’s nice that they have equipment and this, that, and the other. But it’s the cleanliness. Is this a dump to go into the bathrooms? Which, to me, is another – I don’t want to say low lying fruit, but the funny thing is, if you look at Google Reviews or some of the other review sites, one of the primary complaints you see has to do with cleanliness and hygiene and things like that. So, I think that’s another area to consider low lying fruit. You know what I mean?
Jim Thomas: [00:31:33] You know, it’s interesting when we’re opening new facilities, probably 80 percent of your finish out dollars to finish that new facility, 80 percent of it is going to go into your front desk reception area and into your locker rooms. And from a selling perspective, we want that front desk to have that wow factor when they walk in because that’s what’s going to grab them.
Jim Thomas: [00:32:00] But to your point on cleanliness, that locker room, it needs to be pristine. It needs to be as clean as what you have at home. Because that locker room, from a cleanliness standpoint, is one of the number one things that’s going to affect your member attrition.
Ed Mysogland: [00:32:16] Yeah. I mean, it totally makes sense. You know, you pay attention when it’s not clean and you don’t give any thought to it when it is.
Ed Mysogland: [00:32:30] Well, switching gears, we’ve got some businesses that just aren’t going to make it. And some of it is self-inflicted, some of it is competition. So, how does a business owner wind down the business and make as much as they can on the way out, knowing that perhaps there’s a personal guarantee on that lease, perhaps there’s some leases on the equipment. You know, I don’t want to eat cheese, but I want another trap. How do I do that?
Jim Thomas: [00:33:15] You know, we’ve used these strategies. We used them heavily during the pandemic for existing operators. And I want to answer this a couple of different ways, because the rub there a little bit is that personal guarantee on that lease. Now, some of this will depend on that relationship we have with the landlord, whether you filed bankruptcy or not. There are some things in there that can have some effect on that.
Jim Thomas: [00:33:42] But with that said, we’ve had a lot of situations where we’ve helped club owners unwind. They’re getting out of the lease and they’re simply, “Hey, I’m just going to go ahead and shut it down.”
Jim Thomas: [00:33:54] Well, here’s the reality. Number one, they can and should sell that member base to a local club. And it’s really a simple process. It’s a three way agreement between the two owners and whoever the building company is. It’s a pretty simple process. And for the club that’s acquiring it, it can be done for no money out of pocket. And so, you want to sell that. But there’s other assets that you have. You might have some equipment. If it’s not on a lease, you might have some equipment.
Jim Thomas: [00:34:24] But what you have also, you’ve got website URLs that likely have some SEO attached to them. Someone’s following that. Point those to yours. One of the great ones that I’ve always loved is, “Hey, we want the phone number. We’re going to point that phone number over to our place. We want member lists, renewal lists, guest lists, former member lists. We want all that. We want social media. We want your YouTube channel.” There’s value in all this. And there’s so much of a tendency because they don’t know how to do it just to walk away from all that.
Ed Mysogland: [00:34:58] But I’m the business owner, I’m like, “All right. I follow all that. These are a great list. How do I value that?” I’m not a fan of rules of thumb at all, but I’m putting myself in the shoes of the business owner and I’m like, “All right. Jim, that’s great. But, you know, what’s my website worth? What’s that URL?”
Jim Thomas: [00:35:30] And usually URLs, phone numbers, member lists, that’s going to push the multiple up or down. And so, for example – let me grab a calculator here – let’s just say, I’ve got a facility and I’ve got $20,000 a month coming in, in recurring fees. Generally speaking, I want to just take that times three, and that’s the value of that, $60,000.
Ed Mysogland: [00:36:03] And how you allocate – I’m sorry.
Jim Thomas: [00:36:06] And then, we’ll work the deal right now. However, I did it on a multiple of three. But you know what? If I’ve got a good URL, if I can get their phone number, if there’s some good reviews out there that I can grab on, Google my business or I can grab member list, maybe I take out multiple to four, maybe I take it to five. Maybe there’s some good personnel that might come along with it. Maybe there’s personal training that might come along with it. This will all do that, but I would start it at three.
Ed Mysogland: [00:36:36] I got three.
Jim Thomas: [00:36:37] And then, kind of go up or down depending on circumstances.
Ed Mysogland: [00:36:41] All right. So, that addresses the goodwill and the intangible assets. Or does that include the equipment that’s in the facility?
Jim Thomas: [00:36:56] Yeah. That would generally include everything. At least that’s where we would start. For the most part, used fitness equipment does not have significant value.
Ed Mysogland: [00:37:07] That’s where I was going with it, because I’m certain some of the people are like, “Yeah. I don’t need another Smith machine in the facility. But I am interested in your customers and guest lists and the intangibles.” So, that three multiple really could be just for the intangible assets. And then, if you’re picking up equipment, it can go up higher.
Ed Mysogland: [00:37:40] I think I’m putting words in your mouth and let me back that up a little bit, because you said the three typically includes equipment, and I get it. So, I’m sorry about that. I didn’t mean to [inaudible].
Jim Thomas: [00:37:56] It varies. I mean, over the years, you know, I don’t know if any one deal has ever been the same. They’re all a little bit different. So, it just depends on circumstances. There are some folks that they just can’t wait to cut the deals. They can get the heck out of the room. And there’s others that, “No. We need to figure this out.”
Ed Mysogland: [00:38:15] I get you. So, one of the things that struck me in one of our original conversations was that you were doing deals, financing and sourcing. So, that’s a different animal. I mean, from the lenders that I’ve worked with, I don’t want to say that they aren’t stoked about getting a gym on the banks portfolio. But that takes a real special bank or special lender to get their arms around what all is going on, especially when you’re talking about the recurring revenue and the attrition of members. I mean, there’s some risk to the bank. So, can you talk a little bit about that financing and structuring and how are you doing it?
Jim Thomas: [00:39:01] Yeah. Let me give you the two ways that we do it, we look at it from a new gym startup and then from an existing operation. And so, from a new gym startup, it’s simply personal financing. As long as they have a credit score of 680 or better in all three bureaus, and as long as they have a minimum income of 50,000 per year – and there’s going to be some other underlying things, but those are the key criteria – they can get funding for up to $400,000 to start a new business. And for the lion’s share of new businesses being started in the fitness industry, that’s more than enough. They may only need half that. So, that works.
Jim Thomas: [00:39:44] Now, for existing operations, of course, they have to improve their business. But the way that works – it’s a simple process – is we need to see the most recent 90-day bank statements. And it’s simply, “Hey, what’s the differential in there between the revenue that’s coming in and what the expenses are? And can you afford a new payment? What would that payment look like?” And – gosh – they could get funding for up to $2 million if that spread was big enough.
Jim Thomas: [00:40:15] And so, it’s not necessarily the industry. It’s more just about we want to see history of revenue. The longer the history, the better.” And we want to see that it’s working for you.
Ed Mysogland: [00:40:27] So, if I’m buying a gym, what’s my down stroke? Is there a percentage or no?
Jim Thomas: [00:40:33] Well, not necessarily if you can finance it all out. Say, I’m going to go buy something and I’m not in business, and so I’m going to go get a personal loan and I’ve got a place over here and I can buy it for $300,000. And I go out here and I qualify for 300,000, I buy it and I make my payments back, and everybody’s happy.
Ed Mysogland: [00:40:53] So, you can do it without any equity out of your own pocket?
Jim Thomas: [00:41:00] You can. You can.
Ed Mysogland: [00:41:02] And so, this isn’t falling under the SBA. This is just sources that you have. Yes?
Jim Thomas: [00:41:07] Yeah, that’s it. That’s it. The challenge is, SBA is a great source, but sometimes it can take a long time and there’s a lot of paperwork. And we’re looking for short time and not much paperwork.
Ed Mysogland: [00:41:19] Aren’t we all? What is the turnaround time? So, I submit, you know, here’s my purchase agreement. Here’s three years of tax returns. You’re going to run my credit. Now, what happens?
Jim Thomas: [00:41:31] Oh, if you’re buying a brand new deal and everything really checks out, I need to see your FICO scores – the higher the better, by the way – and I’ve got U.S. tax returns, you could probably be funded within a week.
Ed Mysogland: [00:41:46] Really? Because in my world, time kills all deals. Well, you know that. You’re in the same –
Jim Thomas: [00:41:53] Time kills deals, absolutely. It’s one of the all time great truisms.
Ed Mysogland: [00:41:58] All right. So, you can do no money down, assuming you have a great credit score, and it would take a week to fund.
Jim Thomas: [00:42:10] And here’s the thing, too, anyone who’s looking to sell, say, you have someone who wants to buy and, say, they’re struggling doing that, they don’t have the credit score, then they can’t qualify, so you’ve got a problem. But for a forward thinking seller, maybe do some kind of a down payment, do some owner financing, and then maybe a balloon in six months. Give that buyer a chance to get his credit score up and come back in here and take you out.
Ed Mysogland: [00:42:38] Oh, that’s a good idea. So, what I heard you say is, go ahead and do the deal. So, basically, you’re talking about refinancing them out for doing the deal. I guess if I’m a seller, though, I’m sitting here going, “Boy, you know, what’s going to induce this guy to refinance?” I guess you could structure it as painful as possible.
Jim Thomas: [00:43:10] Yeah, it’s a balloon. I mean, balloon in six months, you got to refinance. But (A) if you’ve got a good buyer, circumstances can’t do it. But here’s a couple of things that we suggest here, (A) Whoever your billing company is – this is to get another one of those three way [00:43:29] agreements – [00:43:30]say, that new owner is going to make you a payment every month of, let’s just say, it’s four grand a month, we’re going to have the billing company send it directly to you at the beginning of the month.
Ed Mysogland: [00:43:40] I got it.
Jim Thomas: [00:43:41] We’re not going to have it pass through the new buyer. It’s going to go straight to you so you make sure that you get it. Plus, we want to see that new owner’s P&L statements every single month until they refinance us and take me out.
Ed Mysogland: [00:43:55] Nice. Yeah.
Jim Thomas: [00:43:56] So, we’re going to stay on it. Because if I did have to take it over – which, hopefully, that didn’t happen – at least we know where we’re at and we can go in there and put our foot on the accelerator and make this thing work.
Ed Mysogland: [00:44:07] So, are you doing a lot of deals as far as the financing side?
Jim Thomas: [00:44:13] Oh, gosh. With financing deals, it’s a regular thing.
Ed Mysogland: [00:44:17] And anybody can use you or do you have to be a consulting client?
Jim Thomas: [00:44:24] No. Anybody as long as they have U.S. credit scores and U.S. tax returns. That’s the thing. And, you know, just to tease a little bit, we’ve got some more stuff coming up. So, maybe if you and I talk down the road, we’ve got even some bigger news coming up on some of this financing.
Ed Mysogland: [00:44:40] Awesome. Well, I’ll tell you what, some of the alternative financing sources are going to make a small fortune especially if the economy turns on us.
Jim Thomas: [00:44:52] You bet. And I tell you, one of the challenges, you know, it’s interesting when I talk to people about this, because most of them, they’ve been looking around trying to do things and they just can’t understand it, can’t figure it out. And just when they engage with with me or somebody like me, that can really simplify it, here’s exactly how it works, they can get that trust in there. It can happen so quick and so easily for folks and they don’t have to really be fretting over it.
Ed Mysogland: [00:45:21] Yeah. Well, I look forward to seeing what else is up your sleeve because, you know, you’ve been a leader in this industry for so many years. And if you do any kind of research, your name just keeps on coming up. So, I look forward to it.
Jim Thomas: [00:45:40] You bet.
Ed Mysogland: [00:45:41] All right. So, not only have I made you record twice, I’m going to ask you the same question that we concluded with the last time and see if it changed. So, I conclude every interview with what’s the one piece of advice that you could give listeners that would have the most immediate impact on their business? What would it be?
Jim Thomas: [00:46:04] The number one problem that I see in the fitness industry is a failure to properly understand and implement sales and marketing. And nothing else is even close. Coming up right behind is that issue of retention, but we can’t retain them if we don’t get them. So, sales and marketing is the biggest problem across the board.
Ed Mysogland: [00:46:30] Okay. So, what is the best way people can find you? I mean, I can tell you, as a guy that found you, I can assure you it is pretty easy to find you. You’re at the top in pretty much all the searches.
Jim Thomas: [00:46:45] Yeah. You Google Fitness Management and Consulting, Jim Thomas, you should find us. But go to our website, fmconsulting.net and there’s a host of information, a lot of free information there for you to help you grow your business.
Ed Mysogland: [00:47:01] Yeah. And you have a really robust YouTube channel. And we’ll have all of this in the show notes. So, don’t worry about if you were unable to take notes, it’ll be there. And, Jim, boy, times two, I appreciate so much of your time. And as always, it was awesome. Great value nuggets.
Jim Thomas: [00:47:27] You bet. I appreciate being here and I look forward to doing it again sometime.
Ed Mysogland: [00:47:32] Well, this time I think we recorded. So, we’ll do it in a few months. We’ll do a follow up when the new financing packages come out.
Jim Thomas: [00:47:42] Oh, I’ll keep you posted. We’re day-to-day on getting that done.
Ed Mysogland: [00:47:45] All rightm buddy. I look forward to it. Thanks so much, Jim.
Jim Thomas: [00:47:48] Thank you. I appreciate it.
Outro: [00:47:50] Thank you for joining us today on the How to Sell Your Business Podcast. If you want more episodes packed with strategies to help sell your business for the maximum value, visit howtosellabusinesspodcast.com for tips and best practices to make your exit life changing. Better yet, subscribe now so you never miss future episodes. This program is copyrighted by Myso Inc. All rights reserved.