WHY PEOPLE SELL THEIR BUSINESS

The decision to sell a business is not always easy; usually it involves a combination of emotion and economics. Selling may be inevitable for most owners; the only questions are to whom, for how much, and when. With us the sale will be carefully planned, and value will be maximized. Members of our team have been directly involved in hundreds of fitness franchise re-sales, and here is what we have found:

“Burnout” is the most common reason cited for selling a fitness center. However, we know that it is the things that cause burnout and the results of burnout that really often times create the desire to sell:

• Overly Aggressive Expansion;
• Inability to manage the business;
• Undercapitalization;
• The loss of a key manager;
• Not good fit with the concept
• Recession and other economic factors

Other than burnout, the most common reasons for selling are what you might expect:
• Retirement;
• Failing health;
• Divorce
• To buy or start a new venture

TODAY’S MARKET

The market today is relatively strong considering the circumstances. With unemployment rising demand for purchasing small businesses actually increases. However the lack of credit is offsetting the demand. Values for a growing business with a top brand name like will be very attractive to many owner operators and investors. The health club industry has seen an average annual growth rate of 8% since 1990 and has proven to be very recession resistant.

THE FRANCHISE BUSINESS VALUE

Obviously, to maximize value, it’s best to sell when the business is doing well, and the reality of business valuation is that it is as much art as science. Price or value is, in part, the result of negotiation and the risk tolerance levels of both buyers and sellers, but you have to have a value known to you before you enter “the market.”

Knowledge of the market, industry, and brand is critical. To be knowledgeable, you have to be in the market every day and really know what is happening with Snap. We know what fitness franchises sell for, because that’s what we do - every day. Unfortunately, there are plenty of myths and misinformation about “appraising” a business’ value.

The price must allow for a reasonable economic return on the investment to buy and the risks associated with buying. Any pricing method must account for these factors.
There are various methods to estimate the value of a business, which all take into account the value of assets being sold and the historically recorded earnings of a business.

All estimated values are limited by time. Any sale price is subject to change as the market conditions change; therefore, the suggested price is only valid for a short time relative to the size and scale of a given business in a given industry

Your business is probably your most important asset; if you really want to know what its worth, get a professional to tell you. Your accountant is not your best choice to perform this function; nor is your lawyer. While neither may appreciate that statement, the fact is:

• They are not in the business of selling businesses; they don’t know the market;

• They may not want you to sell; they lose a client;

• They invariably will overstate value to protect you; the problem is that if the business will not sell because of an owner’s inflated sense of value, they are not accomplishing anything for you.

Furthermore, forget “Rules of Thumb” to value a business; they will not work for you.

Recasting Financial Statements                                                      

One thing that virtually all small business owners do to "dress up" their business before a sale is to recast historical financial statements for the last three to five years, and draw up projected statements that reflect how the business would look with a new owner.

If you're like most small business owners, you've operated your business in a way that's calculated to minimize taxes. You may have given yourself and family members as many perks and benefits as possible, kept your children on the payroll, plowed a lot of profits back into capital improvements, etc. These and other tactics are designed to keep your profits (and your taxes) low, perhaps artificially so.

Now, however, you want to make your company look as profitable as possible. Ideally, you would take steps to improve your actual earnings for several years before putting the company on the block. If time does not permit (or in addition to) this step, you can have your accountant adjust your past income statements to reflect what would have happened if you:

• removed your salary and perks, and those of family members you don't expect to remain with the company
• removed any expenses or income that would not be expected to recur or continue after the sale (for example, income or expenses associated with discontinued products, or gains or losses from the sale of any business assets)
• removed any investment or other nonoperating expenses or income
• removed interest payments on any business loans or lease purchase payments, since you'll be removing such liabilities from the balance sheet.

Furthermore, we can adjust your past balance sheets to:

• Value your remaining balance-sheet assets at current fair market value.
• Write off any accounts receivable that are un-collectable.
• Write off any loans the company made to you.
• Remove other debt that will not be assumed by the buyer.

Your accountant may have some other ideas; for example, you may have expenses some costs that could have been capitalized.

PRESENTING AND MARKETING YOUR HEALTH CLUB

There are some things you will have to do to sell your business.

1. Clean it up! Make it look nice, fix the sign, throw away the junk, dump the obsolete inventory.

2. Clean up the financial statements as well. The easier they are to understand and to identify the money for the owner, the better.

3. If you lease your premises, know if your landlord will do a lease with the buyer.

A buyer will ask for three to five years’ financial history (if available), a copy of the lease, information concerning employees, franchisor FDD, and general questions. Before disclosing this, we qualify prospective purchasers, i.e., they must demonstrate interest and the ability to buy, if they so choose. They must promise - in writing - confidentiality and discretion. Again, we help with this; we ask for buyer financial statements, credit reports, etc., and screen candidates without offending - and know when to ask. (After all we have to make sure they meet the franchisor’s requirements.) We also know when to ask for the offer, can assist with financing, and close the deal.
NEGOTIATIONS

We can’t give a short course here on the art of negotiating; we can, however, give you some important principles:

1. Even though you may pride yourself as an able negotiator, you will find it difficult to negotiate the sale of your own company; your ego will get in the way.
2. Value is an economic term.
3. Business sales (that are completed) are “win-win” negotiations. The sale has to make sense for both sides.
4. Terms make (or break) the sale.
5. Each side must “see” the other side’s perspective to understand it and to respond to it.
6. You have to be ready to walk, and be prepared for the toughest negotiations you ever experienced and to “hang in there”.

USE YOUR ADVISORS

We feel that the best selling “team” is the owner, his/her attorney and accountant, and a competent, experienced broker. Each has a role and while they can overlap, each has to respect the other’s expertise. The seller always retains “top dog” status and makes the final decisions. If your regular attorney or accountants are unfamiliar with the process - for the sale only, hire another one to help you.

IN CLOSING

Entrepreneurs naturally think about doing things themselves. They always have. However, good sense and an appreciation for what is at stake prevent some of us from wiring our own home, doing our own plumbing, or providing medical treatment to ourselves or our loved ones. We’ve found, at times, common sense is forgotten by some people under stressful conditions - like when you sell your business without a knowledgeable intermediary.

We’re specialists in Fitness Resale Brokerage, specializing in Snap, and having a broker who knows and believes in the brand is a major asset. It’s too important. Your brand is what we do. There is no cost or obligation until we are successful in selling your business, and all of our discussions are deemed confidential. If you would like a free price opinion of fair market value, we will need an income statement for the most recent 12 months and a list of equipment and purchase prices. If you have decided to list with us, thank you; and we look forward to working with you.