Business Ownership, Starting Up

How to Find and Buy a 2nd Generation Fitness Studio for Little or No Money Down

18
Mar

And Using BizBuySell: The Internet’s Largest Business for Sale Marketplace

 

No, this isn’t a terrible car commercial. And yes, you can really buy an existing fitness studio for little or no money down.

If you are thinking about building out your own fitness studio from scratch, hold on for a moment and read this guide. It’s possible for you to save a whole bunch of time and money by finding what we call a “2nd generation space”. When you are thinking about leasing a commercial space for your fitness business you really have two options: You can build it out from scratch, or you can find what we call a “2nd generation space.”

You certainly CAN build-out a brand new lease space, but a brand new space, in a brand new center, in the best spot in town, doesn’t equal success. The experience you offer your members equals success.

Building out a new fitness studio is a massive undertaking. New construction often consumes 6-12 months of time and effort, potentially hundreds of thousands of dollars in capital, and cumbersome licensing, permitting, architecture and contracting details. Here at The Fitness CPA, we’ve seen many calm, cool, and collected owners become frustrated and discouraged by the demanding construction process. So while having a studio that is perfectly yours is well, perfect, it takes a resolute individual with deep financial backing to survive the process.

What Is a 2nd Generation Lease?

When a commercial retail space has had a prior tenant, there are significant building improvements that are reusable by the new tenant. That new tenant could be you! This is called a “2nd generation space.”

A 2nd generation lease is already built out and has critical items such as ceilings, walls, electrical, lighting, plumbing, heating, air conditioning, bathrooms. A 2nd generation space may even have extra items such as equipment, fitness flooring, mirrors, and even décor that you can use.

This is where 2nd generation fitness spaces can help save you time, money, and lots of headaches. Yes, you can lease and refurbish a 2nd generation space for a fraction of the money it takes to build-out a new space from scratch.

Who is a 2nd Generation Space Right For?

Have you dreamed of owning your own fitness space but wondered how you can afford the massive leasehold improvements required to get the new studio space just right? A 2nd generation space may help your dream to become a reality because a 2nd generation space can cost less than half of a 1st generation space.

Even if you have the funding to build-out a new space, you could save time and money by finding the right space that was built out previously. And any money saved can be reinvested into other things that make businesses successful like marketing, branding and a strong team to help grow your business. Oh, and you’ll want to hire a good accountant, too.

A client of ours was able to financially fund a brand-new studio buy out but instead worked hard to find an existing location to lease. The new owner still invested a sizable $170,000 to build-out the space according to the franchisor’s specs and to provide curb appeal but it was significantly less than another franchisee build-out that was happening at the exact same time. The other franchisee invested $375,000 into their build-out for a space approximately the same size only five miles away. This is just one example, but in this instance, the 2nd generation space saved the studio owner over $200,000 in build-out costs.

But a 2nd generation space isn’t without its own problems, so read until the end of the article to get the full scoop.

So How Do You Find a 2nd Generation Fitness Space?

You may be surprised to learn your network of friends and colleagues may know about a 2nd generation fitness location available for sale. Often, is how locations are found that have not yet been listed publically. Think about it: who hears first that another fitness business is closing? Usually, it’s employees, instructors, members and those in the often close-knit fitness community.

So who is in your network? Your network includes:

  • Fitness Owners and Instructors: This group is the best and most valuable source of knowledge about your local market. Few are more in-tune with the fitness marketspace as those who work in it. Think about the fitness concepts you’ve attended. Most Crossfitters know the owner of their Box. Your fitness instructor for yoga, Barre, Pilates, and personal training has connections as well. And if you are a fitness instructor then you’re already one step ahead as you’ll know a fair number of people in the fitness industry. If you’re looking for a potential 2nd generation space, start asking around today.
  • Business Owners: The 2nd most helpful group are current business owners. They love to see entrepreneurs succeed. The business owner does not necessarily have to be in the fitness industry. Talk to your local café, car wash, or restaurant owner about your aspirations to find the right commercial space for lease. And if you already know the fitness business you’d like to buy, contact the owner directly and ask if they may be interested in selling.
  • Professional Colleagues: Anyone who has ever tried to connect with you on LinkedIn is a good starting place. A few examples include attorneys, accountants, business brokers, commercial real estate brokers, financial planners, insurance brokers, business coaches, marketers, vendors, suppliers, clients, current or former coworkers, even former bosses.
  • Professional Organizations: An alumni association, chamber of commerce, community services groups, and professional organizations from all types of industries often have federal, state and local chapters.
  • Friends and Acquaintances: Your family, friends, neighbors, churchgoers and other religious groups, peers in volunteer groups, former schoolmates, social media connections and especially the friends you see working out.

Here at The Fitness CPA, we have a growing network of colleagues in the fitness industry and we strive to connect buyers and sellers whenever possible. If you’re interested in connecting with us and our network of fitness businesses, get in touch by connecting with us via Facebook, Linkedin or drop us a direct message.

Using Business Brokers To Buy Your Fitness Studio

Many purchasers opt to work with a local business broker to find existing fitness businesses for sale. A business broker is a lot like a real estate agent who helps business sellers match up with business buyers. They are paid a commission for their efforts, but if you’re buying don’t worry as the commission will come from the seller. A business broker should be familiar with your local market and hopefully be familiar with the fitness industry though it is not guaranteed. When at all possible, we recommend working with vendors who already have extensive experience in the fast-moving and quickly changing fitness market.

We recommend using a certified business broker such as one from the International Business Brokers Association (IBBA) or a comparable state association. You can find brokers with the IBBA here.

Be sure to seek the input of your Fitness CPA, attorney and other advisors too. The right team of advisors will ensure you find not just a good deal, but also the right deal. There’s nothing worse than getting a good deal on a bad location.

A word of caution: Asking a business broker’s opinion on a space is like asking the fox to guard the hen house. They are in the business of leasing spaces and brokers are motivated to sell and they may not have your best interests in mind. You may want to double check and bring in other experts to verify anything the business broker says.

Finding and Buying a Fitness Studio Online with www.BizBuySell.com

Many business owners and brokers list businesses for sale on websites like www.BizBuySell.com. It’s a lot like shopping for a used car online. There is a description of the business, photos and contact information for the seller. You can browse BizBuySell for free. Full membership is just $10/month.

An Example Search Using BizBuySell.com

Let’s go through the search process on BizBuySell so you can start browsing potential 2nd generation spaces now.

Go to www.BizBuySell.com:

BizBuySell homepage for 2nd Generation Lease

At the top left next to the BizBuySell logo, click “Buy a Business” then “Established Business” and then “Select Categories.”

How to Use BizBuySell Search Menu for 2nd Generation Lease

Under Choose a Category you’ll want to select the options to see “Dance, Pilates and Yoga” and “Gyms and Fitness Centers” options.

How To Pick Category BizBuySell for 2nd Generation Lease

A search across the entire United States turned up over 750 fitness related listings as of writing this article. Of those, 91 were listed to buy at less than $50,000. With a bit of negotiation prowess, you can often negotiate a price lower than the list price.

Below are real listings we found in our search. While existing franchises are sold on BizBuySell, be mindful of the franchise advertisements within the regular search results. These are exactly like the ‘ad results’ from a Google search. An example is noted below.

 

An Example Fitness Studio Listing on www.BizBuySell.com

Here is a 2nd generation space selling for just $40,000 with $0 down. This means the seller would finance the purchase price and accept payments over time much like a lender would. In our experience, a studio space selling at anything below $150,000 is a motivated seller. In our opinion, it is very likely you could negotiate a lower price on any listing and/or with terms more favorable such as you would with any online platform such as Craigslist. We recently had a client purchase an existing yoga studio with over 200 members for $1.

Actual BizBuySell.com listing of a 2nd Generation Lease

So far we have been focused on buying from the sale rack. What if you want to buy an existing fitness business that is generating a healthy profit? There are many profitable fitness businesses available for sale as well, but you’ll need to be ready to pay more than bargain basement prices. Fortunately, as mentioned above, there are some sellers who would consider “Seller Financing”, in which you would make monthly payments to the seller. This can be another fantastic strategy to becoming a fitness studio owner with little to no money down.

As a recap, here are the three ways to locate 2nd generation fitness spaces

 

So What’s The Bad News About 2nd Generation Leases? Part I: Design Layout

Saving money, less upfront funding, this all sounds too good to be true, right? Of course, there are a few considerations when looking at 2nd generation spaces.

The 1st drawback is that the 2nd generation spaces are not always designed exactly how you’d like it to be. Most spaces will almost certainly need a fresh coat of paint, minor to moderate repairs, and your preferred fitness equipment, however, there is often more work required to get your new space just right.

As an example, an existing space with an open floor plan would be perfect for Crossfit Box or a gym, but yoga, Barre, Pilates, or cycling studio may need to construct walls and drop the ceiling down. On the flip side, a floor plan divided into separate rooms may be perfect for a yoga, Barre, Pilates, or cycling studio. Yet, a Crossfit Box or gym would need to remove dividing walls and remove a drop ceiling to open up the space.

The same client, above, who saved $200,000 on their build-out also had issues with the retrofitted humidity system which required closing one of their two studio rooms to allow for repairs.

Additional examples of potential repairs and modifications that 2nd generation spaces may need upon lease or at some point in your initial lease term:

  • Replacing existing HVAC units
  • Adding/replacing humidification systems (especially for hot yoga)
  • Repairing plumbing leaks
  • Adding electrical or plumbing lines to support additional electric and/or water needs.
  • Repairing water damage
  • Replacing flooring
  • Bringing an existing space up to local building codes, the Americans with Disabilities Act or fire mitigation systems which can be very costly.

The above isn’t meant to be an exhaustive checklist. In a future companion article, we will go more in depth about whether you should lease an existing studio space and it has a checklist of items to ask of the seller before you sign on the dotted line.

So What’s The Bad News About 2nd Generation Leases? Part II: You’re Buying a Space, Not a Business

Spaces leasing for little or no money down are not producing profits and may even be losing money each month. And that can be okay if you are going to repurpose and revitalize it for your own yoga, Barre, Pilates, cycling, gym, or Crossfit space. The existing owner is also hoping you will see potential in the space, take over monthly lease payments, and that you will be more successful than them in the space.

But we need to be clear here: if you’re buying a space for little or no money then you are not buying a business, you are buying a space and potentially some equipment. Few members from the old business, if any, will be paying members at your new fitness business. In fact, we’ve even seen 2nd generation owners have to overcome the not-so-great reputation of the prior tenant.

But, just because the prior tenant didn’t have success in their space doesn’t mean that you won’t. We have a client who has recently purchased an existing fitness business because the prior owner was pulled back into their corporate line of work. Each month the new owner is growing the business more and more despite the prior owner’s not-so-good track record.

With the right ownership, a strong team, and top-notch class offerings your business can be anything you want it to be, as long as you’re willing to put in the work.

Recap of The Pros and Cons of Leasing a 2nd Generation Fitness Space.

Pros                                                                              

  • Less Money.
  • Build-Out Already Completed.
  • Shorter timeline to open.
  • Likely to acquire furniture, fixtures, and equipment.

Cons

  • Older space not exactly to your specifications.
  • Repairs and maintenance may be required.
  • Buying a currently struggling business.
  • Possibly overcoming the reputation of the old fitness space.

As you can see, you can own your own fitness space with little or no money down. If you’re looking to buy or sell a fitness studio we’d love to help you understand each step of the process and navigate your unique circumstances. Click here to schedule a chat with one of our Fitness CPAs.

Latest posts by Eric Killian (see all)
Eric Killian

[ultimate_heading main_heading="Get the best fitness accounting know how delivered right into your inbox" main_heading_color="#ffffff" sub_heading_color="#ffffff" alignment="left" main_heading_style="font-style:italic;font-weight:800;" main_heading_font_size="desktop:32px;" sub_heading_font_size="desktop:36px;" main_heading_font_family="font_family:Raleway|font_call:Raleway|variant:800italic" sub_heading_style="font-style:italic;"][/ultimate_heading]
[gravityform id="4" title="false" description="false" ajax="false"]

2 thoughts on “How to Find and Buy a 2nd Generation Fitness Studio for Little or No Money Down”

  1. Pingback: 10 Tips For Your Fitness Retail Space - The Fitness CPA

  2. Pingback: Are Gyms Required to Buy Labor Law Posters? - The Fitness CPA

Leave a Reply

Your email address will not be published. Required fields are marked *