Renting a Gymnastics Business

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Melody

Coach
Gymnast
I was wondering if anyone has had any experience renting a gymnastics business. I have the opportunity to rent my former gym. Gym ownership is my ultimate professional goal. I have a Masters degree in Physical Education and Coaching. The business itself has been active for over 20 years. The owner of the business also owns the building it's in. She has offered to rent me the entire business (I'd be responsible for paying the utilities too). Before I talk numbers with her, what should I be looking for in those numbers? Any rule of thumb to help me determine whether or not I can afford this and whether or not it will be worth it. It's a small business with the total coaching hours about equal to what I am currently working somewhere else. I have been a successful program director in the past and feel I am not being used to my potential in my current position. I also see room for growth in this business opportunity (i.e. bringing back their team program). I feel like at this point, renting is really the only option I have as I don't have the credit or money to start from the ground up. Any and all advice would be greatly appreciated. Thanks in advance.
 
Can you really rent someone your business? Seems like a potential IRS nightmare. Incorrectly classifying someone as a contractor rather than an employee has gotten businesses in trouble lately, and it seems like that's essentially what would have to be done. Maybe she should hire you as a manager if she wants to retain ownership but still retire. This is what usually happens.
 
Look for profit/discretionary income that is greater than the rent.
 
I have no idea about tax implications etc, but it does sound a bit odd.
Also, are you saying that you would take on all of the coaching yourself?

As @gymdog suggests, I would ask them to at least initially hire you as a manager for a trial period of say 6 months.
That lets you think about how much money you would be willing to do to this amount of work for, with no real near future potential for this to become 'your' business (as manager or 'renter'). It also forces them to think about how much money the business makes and how much would be left over after hiring you.

If the owner doesn't know these numbers, then this is a bad sign. If the profits are such that the owner can't afford to hire you at a reasonable rate, then you'd need to think about how much work you would need to put in to make it a viable business.

If this works out, then you could suggest possibly buying into the business.
 
While the phrasing sounds funny, this doesn't sound that different from a franchise agreement - you're operating the business top to bottom, and paying someone else a fee or percentage for the use of their brand.
 
While the phrasing sounds funny, this doesn't sound that different from a franchise agreement - you're operating the business top to bottom, and paying someone else a fee or percentage for the use of their brand.

I suppose that's true. It still seems sticky legally though, I'd imagine you'd need to involve lawyers to get everything done.
 
I asked the same question on my Facebook page and the feedback there said to establish myself as an LLC. Does anyone have any experience with that? I don't think I've really come across any gyms that are LLCs (as I understand the LLC part needs to be in the name of the business).

I talked to the owner (who I've known for over 20 years) about just working for her, but, as COz said, she can't afford to hire me as a manager (or coach or what not). When I spoke with her last, she had an enrollment of 75 students and said it was the lowest enrollment she's had in 17 years. She has been doing all the coaching herself (with the assistance of one of her former gymnasts who's in college) and I would be doing the same. If she hired me as a manager, she would still be responsible for utilities and taxes on the property, plus paying me. If she rented it all out to me, she wouldn't have to pay me, and she'd still get some income from the rental to cover the taxes. I understand her husband works and is the real moneymaker of the family so making a lot of profit from the gym isn't a big priority for her.
 
I asked the same question on my Facebook page and the feedback there said to establish myself as an LLC. Does anyone have any experience with that? I don't think I've really come across any gyms that are LLCs (as I understand the LLC part needs to be in the name of the business).
Similar to the posts regarding "ask a doctor", this one is really "ask a lawyer". You should seek the advice of a lawyer and an accountant.

LLC is the official business name, but generally you can get a DBA name (fictitious name).
 
I would be worried that at 75 gymnasts the business is loss making - how long can you afford to live without an income ?
 
Not only that, but you'd be paying her rent, so earning less than she currently is.

Ask her how much she is making. Ask her for a list of expenses.
Do your own quick calculation based on the 75 kids and any other expenses that you know.

Do you have enough time, energy and money to sustain a loss for a year whilst you also do some serious marketing to promote the gym? (People frequently quote 6 months of savings for living expenses for new businesses). It sounds very much like there is very little money coming through. How long has it been struggling? In the 20 years of business it's possible the last 5 or more have been only break even.

Ask her if she is interested in selling the business down the line and perhaps talk to lawyers about this (drawing up some kind of contract saying you have first option to buy the business at some amount in some number of years time if you have been running the business until then).

What other gyms are in the area? Do as much research as if you were starting your own business.

It sounds like you'd like to do this, so I guess having students at all to begin with is a bonus, compared to starting your own business which isn't an option at the moment. I'm concerned that you'd be growing her business to a point where it is worth much more and then would be sold to you or someone else at a much bigger amount. Investing your time/effort/money may not have long term benefits to you unless there is a possibility it will someday become yours.

Do you have a second job? What is your plan to eventually afford your own equipment?

Don't trust that because you've known her a long time that everything will be OK. Sort things out carefully and write things down really clearly.
 
If you 'rented' what would you end up with at the end of the term. I think you should read up on a earnout agreement. It's in very basic terms an owner-financed sale. My will be well served to get an accountant to look at the books to value the business and an attorney to write up the agreement.

Before you even do that figure out why her sales are so low and make a sure it's a fixable problem. Do market research and see what is going on in the area. There is a reason she is selling.
 
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She may have 75 students right now, but there may be a group who are not comfortable with a new coach and drop due to the change. Especially when the business is basically built on this one person doing most of the coaching in recent years. If you lose students, even just a 10% loss, how will that impact your income and how long will it take you to rebuild up to the current level?
 
Since you said there is no team, I just did the math of 75 students at $65 per month (what the normal rec fee is in my area for one class per week). That doesn't even bring in $5,000 per month. Further making assumptions... If those kids are in classes that are an average of 5 students per class, you would only have 15 classes per week, and I'd hope that some of those classes are more than 5 students.

I agree with the previous poster. You need to research. Find out how many gyms are in the area. Why so few students? And rather than straight renting, ask to do more of a rent to own. I just see lots of benefits for the owner and not many for you. Basically, she gets paid no matter how the gym is doing. That rent money comes out of the at best $5,000 per month that there currently is coming in. Then the remainder will be used to pay expenses ( insurance, taxes, business license, etc...). Seems you might be hard pressed not to lose money in the deal. And if , after a lot of work, you start making decent money, she can choose to take it back over.
 
You guys are giving great advice. Thank-you so much for all your thoughtful feedback. I'm pretty sure she has been pretty much breaking even most of the time. I guess that if I were to take on this venture, it would end up being more of a hobby than a career in terms of what I'm putting in and the money I'd be getting out of it. I know I can't afford such a hobby. I like the idea of a rent to own option, but I suppose if I owned it, I'd have at least all the same expenses, if not more (when adding property tax, provided the building is part of the sale).

I am currently a rec coach at another gym about an hour from the gym in question. This is a homecoming for me as I was living out of state for the past ten years. Last year I was the director of a brand new Xcel program at a fairly new (second year) gym that experienced very rapid growth (opening with 100 students in September of 2012 and having over 400 when I left last spring). We had 25 gymnasts in the Xcel program (over three divisions) and ended the season with two state champion teams and two Regional (team) champions in a very competitive area. So, I'm feeling very stagnant in my current position, though I'm not unhappy doing what I'm doing. I just feel like I have a lot of great ideas and the motivation to put them to fruition, but I'm not being utilized to my potential.

As for the other gyms in the area, there is a community center about an hour north of there with rec and both YMCA and USAG girls teams, a small private gym a half hour southeast (where a couple of the former team members ended up) that offers all levels of rec, cheer tumbling and USAG boys and girls teams, then the next closest would be the gym I'm working at now which is about an hour south that is rather huge (for the area, anyway) and offer just about everything (girls and boys USAG teams, all levels of rec, tumbling, preschool and parkour). The area where the gym in question is located is rural and there isn't much money there. Classes are being offered at a very generous rate (ranging from $43 for four preschool classes to $58 for four intermediate classes).

All the points you have brought up lead me to believe that this venture doesn't sound worth it. I wish there was a way to make it work. I'd hate to see the gym dissolve, especially since I have my sights set on gym management/ownership, but at the same time, I would also need to make a living. I guess that's why gyms go out of business sometimes. :(
 
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You really need to talk to a business lawyer in your area to find out how realistic this is. The biggest question I have right now in addition to everything else is who would be responsible for maintaining the insurance. If the owner holds onto that piece, this seems much more workable than if not. But don't give up on the idea before you've talked to an expert! Depending on how the laws work in your area, it may be way more or less feasible than you think.
 
OK-

First when you say "renting" Do you mean you pay rent on the building and its contents, dissolve the existing gym brand, and then set up your business from there? So all gymnasts and coaches are paying/working for your business. Or do you mean you are renting the entire business, retaining her brand, more like a franchise?

It sounds like you may be in a position to do some bargaining if she isn't too bothered by income.

If I were you;

6 months, to a year trial. You pay no rent, but pay utilities/maintenance, and any profit after 6 months is split between you.

After the trial period you can choose to renegotiate agreement (if you think it will work out!). If the current owner chooses to end the agreement (say if you manage to build it up into a good thing) then she must pay you a % of the following year's profit.

Dissolve her existing business, and form your own. Existing Gymnasts of course are welcome to transfer membership.

Rent of the building only. Contents by separate negotiation. Any maintenance to the building must be done by the owner. Inventory the contents, you will replace any worn items but they are then owned by your company.

I have no idea whether any of that will work legally, but it's what I'd take to my business solicitor.
 
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Faith, that's a good idea. It most likely would be similar to the franchise scenario. I still would need to sit down with her and talk details, but as I understand it now, I would pay her rent (which I assume would cover her property tax as she also owns the building) and pay for the utilities, but I would keep any revenue generated by the business, while keeping its current nomenclature.

I know there are great risks associated with any business agreement. One of my biggest risks (other than the obvious financial risks) would be what to do about employment if the arrangement/agreement doesn't work out. Would my current employer be willing to take me back after leaving them to try to run my own gym? Gyms here are really spread out.

I really should sit down with the owner of the gym in question and see what she's willing to do and then do some more thinking and soul searching.
 
I think you'd be better off getting as much local experience at the big gym as you can. They're successful, learn from them. Figure out what they're doing that is making them successful.

Your recent experience, was that exciting on a coaching level? Or were you also involved with the day to day running of that gym?

It would be one thing taking over a gym that was struggling because the owner was incompetent but located in a great area, but what your describing sounds like a nice form of community service. Perfect if you wanted to work part time and had an external source of income, but not something that sounds like it is really worth developing financially unfortunately.

Learn what you can, get known in the area as a great coach who is approachable and knowledgable. Take your time working out where your dream location would be and plan lots before doing anything.
 

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