Buy an Existing Gym Business or Open a New Site

Should I Buy an Existing Gym or Start a New One?

In a competitive industry such as the fitness industry, the question for any new entrant to the business of whether to buy or open a new site is nearly always entertained. This decision however is not so simple to answer, it involves financial considerations, personal passion, operational readiness, and market analysis, opportunities available and more. I have done both and here’s my take on the pros, cons, and considerations you should take into account.

Purchase an Existing Gym

Pros:

- Existing Income: Purchasing an existing club means you will have an existing income and existing membership base. You can evaluate its current position and know what you are getting financially, within reason.

- Current Brand and Goodwill: With the purchase, unless you are rebranding you will take on the goodwill, and brand of the current club which comes with member retention, and community knowledge.

- Operational Systems: The club will be turn key ready to step in and operate, including equipment, possibly staff, fitout, IT systems and payment systems.

- Reduced Risk: As you will have been able to assess the viability of the business, there is the likely benefit of less risk involved as you know what member base is achievable and the income currently being generated.

Cons:

- Inherent situations : Similar to taking over positives such as income, you also take on any negatives such as upgrade requirements, possibility of underlying issues with the property, location, staff, or competition. You are also taking on the previous owners reputation in the market.

- Purchase Price: Quality existing clubs come with a price. The better the club the higher the price. Some clubs may come at a discount but that will include challenges such as poor income, upgrade requirements, lease issues, increased competition.

- Current Model: Depending on the purchase you may find yourself restricted with what you can change in the club, particularly if a franchise. You may also have other restrictions depending on finance, of lease options, size, upgrades that can be completed, legislative limitations.

Opening a New Club

Pros:

- Club Design and Position: You can make decisions on all factors such as location, size, equipment, layout, market position and operations to ensure you have the club you think will best serve your market.

- Club Niche and Brand: Starting new allows you to target current or emerging market needs or niches that you have identified opportunity within. This also allows you to establish the brand position from day one which can set the tone for the long term.

- Operational Policy: There is no legacy policies, you can decide on pricing, policy, trading hours, classes, and operational systems to suit the model you want to develop. Changing with existing members can be problematic.

Cons:

- Membership Growth: Starting new means growing your membership base from zero, so pre sales, larger marketing spend, and initial cash flow restrictions.

- Capital investment: Opening a new site requires initial capital on fitout requirements not only equipment but the tenancy. This can sometimes be harder to finance without business cashflow so can be restrictive.

- Business Uncertainty: While all planning and analysis can be completed for any new site, there is always an element of uncertainty that the market will take to a new club within a market.

Key Factors for Decision Time

- Finance: Assess your finances available and borrowing capacity for both situations. Good clubs come at a price but may be easier to finance with cash flow of an existing business. While new sites may have a hefty price to set up it will be new, what upgrades would the existing site require.

- Market Research: Understand the market you are planning on operating in both existing and new. Does the existing club serve the market or would you need to change it. Is there the need for a new club in a market place if opening a new site or would an existing site be only viable option.

- Location and Lease: An existing club will already have a site, is this a good site, is the lease commercial and long term. With new sites you can choose, maybe there is a better site, better lease terms available for the club you want to build.

- Operational systems: Do you have experience in setting up operational systems and procedures? While you will need to learn these in an existing site they will be set up, however some systems may be insufficient or poor and need replacing or cost too much.

- Brand: Consider what good will you are buying into, is it worth the price you are paying or will you change the business outlook. New sites mean you can target you brand position. Buying into a franchise means this is already in place.

- Reason for sale: All business is for sale for a reason, it may have problems, inefficient to run or they are cashing in. You need to understand the reason as underlying reasons may be cost you longer term, or is there opportunity in the purchase.

The decision of buying an existing gym or starting a new one isn't just about the cost; it's ensuring either way it fits with the analysis you conduct of that market place including location, services and opportunity. Buying may be the easier option initially but does this fit with your long term vision, what delayed costs will you have. Alternatively is there a need for a new club pitched at a new market or in a new building, can you out compete what is currently available.

Ultimately, the decision should be informed by thorough due diligence, and your business goals in the Fitness Industry, both financially and visionary. Remember, success in the fitness industry hinges on many factors, location, services but also its position in the community and member culture.