We recently made a guest appearance over on the popular podcast, All Things Franchising, where we shared our insight on opening a gym in 2021 and the future of the fitness industry.

If you haven’t tuned in yet, All Things Franchising is hosted by Linda Ballesteros of Mpower Franchise Consulting, a consulting company that helps new business owners through the process of researching, choosing, and opening a franchise best fit for them.

You can check out their podcast series here & the full podcast interview with The Fitness CPA, here. We recommend giving it a listen, as we won’t be able to encapsulate everything here.

However, I thought many of you would find the questions and answers useful, so I’ve summarized the best questions and recommendations in a two-part blog post.

Let’s dive into Part I, where we’ll cover the research phase of buying a gym franchise.

In this post, we’ll cover:

• What should you look for when opening a gym franchise?

• How bad were gyms and fitness studios hit in 2020?

• How stable is the fitness industry now?

What should you look for when opening a gym franchise?

This is a great question and one we receive quite a lot.

The most important trait you can look for when opening a gym franchise is passion. How passionate are the brand owners about what they do?

The last franchise you want to join is one that is selling something just to sell something.

We recommend approaching the search for a franchise like you approach your search for friends. It’s important to find “your people.” Are they building a brand that you admire? Can you see yourself in the same lifestyle?

At the end of the day, you may be running a business, but that business will soon become part of the family. So, this is the time to be picky. Make sure your operation and communication styles match before diving into further research.

On the flipside, as the budding franchise owner, you should also have a similar passion burning inside of you somewhere.

If you approach opening a gym purely as a business opportunity – void of any passion – you may be setting yourself up to fail.

What changes did The Fitness CPA see for franchises and independent gym owners in the past year and how has the industry changed?

2020 was brutal for every fitness business – not just franchises. There were massive shifts in how the industry and its players operated.  And on an individual business level, some businesses did well and even saw growth while others closed down for good.

So, what were the differentiating factors?

For many business owners, it boiled down to the flexibility and leadership of the owner(s).

I’ll give you tangible examples.

Among our clients, we saw three very distinct groups of franchise owners.

The first group – we’ll call the ‘A-Team’ – have always generally done quite well. This group of owners usually net profits around $100,000 – $300,00/year per location in normal times and was able to remain profitable throughout COVID-19. They were adaptable and had the teams already in place to make quick pivots work.

These business owners:

• Were adaptable and decisive

• They have the ability to look at the challenges before them – even if they haven’t seen them before – and put their arms around it whole-heartedly.

• When COVID-19 hit back in March 2020, they made the switch to virtual training within the first 1-2 weeks.

• Many moved their successful volume-based class models to smaller, private 1:1 models.

• Others jumped in quickly to renegotiate their lease, lower royalty fees, and negotiate credit terms.

• Rather than worrying or hesitating, they simply made it happen.

These are the gym and fitness studio owners who will be around long after COVID-19 has passed. The ones who are willing to be adaptable, conjure up Plan B, and execute it quickly.

The other two groups of owners struggled more, and maybe even closed completely during the past year.

Group 2 – the owners who earn just enough to make a living, usually $50,000 – $80,000 net profit during normal times – found themselves struggling to take a paycheck over the last 12 months.

They may have had to take out more loans or pile on credit card debt to continue paying themselves and any staff that they kept on.

While this group didn’t have a lot of buffer for emergencies (or global pandemics), we expect them to hold on and make it through to the other side.

However, the last group– the fitness business owners who were already struggling pre-pandemic – will likely not be so lucky.

We’ve found that owners who were operating at a loss or barely breaking even before COVID-19, have struggled the most and have continued to lose money month-on-month.

Unfortunately, these operators were still navigating the basic problems of being a business owner – juggling cashflow, replacing lost memberships, optimizing pricing – when the onslaught of the pandemic hit.

Many of these businesses have already made the decision to close down, or they are on the brink of closing.

And that’s OK.

The fitness industry is a tough industry, and it isn’t for everyone.

We want people to know that sometimes closing your business is the best decision you can make for yourself and your family. We’ve written more about that here.

So… what can we learn about these groups moving forward?

• For us, it’s important to remember that the fitness industry will always be evolving.
• We’ve seen shifts before and we’ll see shifts again. The key is to not be so rigid about what the future holds.
• Make the jump to a hybrid model. Take a risk on quality video & sound equipment.
• Negotiate any new and renegotiate any existing contracts.
• Having a strong leadership team – that encompasses adaptability, decisiveness, and determination – will go a long way in making sure you’re around now and into the future.
• You’re going to need to do everything within your grasp to make the business work.

Is the industry stable enough for those interested in opening a gym or fitness business opportunity now?

Historically, franchisees see more interest and growth in times of recession as compared to independent businesses who need to build everything from the ground up on their own. – and it makes sense.

A franchise comes with a built-in brand name, marketing materials, operating process and so on, limiting your risk for failure.

So, if you’re thinking about opening a gym franchise, now is a great time to lay the groundwork.

Note, I said groundwork. I wouldn’t go sign a franchise agreement, lease or personally guarantee a loan today.

Now is a great time go out and do your due diligence for the opening of a gym franchise in the near future, as there are deals to be made.

Talk to your commercial real estate broker, chat to different franchisor brands, and make sure the financing is there. Those who are first to market now will likely strike more favorable terms with the franchisor when the time does come to buy.

Start getting your ducks in a row, and in 6 to 9 months when we see the light at the end of the tunnel, you’ll be ready to sign on the dotted line. We’re projecting July-September 2021 for the momentum to start swinging back in the favor of fitness business owners and that it will take into 2022 for a full recovery.

Building an independent gym requires all of the above work and much, much more that we will save for another blog post.  But yes, now is the time to start that due diligence, research and laying the groundwork as well.

In summary, the fitness industry will always have shifts. It’s important to have a strong leadership team and nimble mindset in place to handle these shifts with fluidity moving forward.

Stay tuned for Part II next week where we’ll dive into how to negotiate with franchisors upon signing your contract and what you should do before signing on the dotted line.

If you still have doubt or general questions about opening a gym or fitness franchise in the upcoming months, feel free to reach out to our team as we’re always happy to help.

In the meantime, we think you’ll find this article on what it takes to succeed as a fitness business owner helpful, as well as giving the rest of the podcast a listen.

Until next time!

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Eric Killian

CPA & Founder | Accountant, husband, father, mountaineer.
Fitness is such a big part of who I am. Maintaining a healthy lifestyle, eating well (mostly paleo), hiking, backpacking, mountaineering, practicing yoga and Crossfit are all important cornerstones of life. But I love ice cream and cookies too much to say no!
I love helping owners make sense of their business and finding ways to grow it. It’s an honor to help you see situations, scenarios and opportunities from all sides so you can make informed decisions.

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