Selling A Pilates Studio
Pilates is a popular form of exercise that focuses on core strength, flexibility, and overall health. In South Florida, many pilates instructors own individual studios where they may or may not serve as an active instructor. Other studios have multiple locations and frequently acquire individually owned studios. Pilates instructors are typically certified by differing organizations such as the Pilates Methods Alliance and American Fitness Professionals and Associates. Certifications may involve up to 450 hours of training and coursework. Pilate studios with highly trained and effective instructors, a growing and loyal customer base, upgraded equipment, and an attractive location will sell for a premium valuation.
Valuing Pilates Studios
When it come time to sell a pilates studio, owners should try to make the studio less owner-dependent, obtain an accurate set of historical financial records and current physical asset list, and hire an experienced business broker who knows how to emphasize staff and client retention as valuable components of the sale. The value of a pilates studio primarily depends on its adjusted owner benefit or the true economic profits derived by a working owner. Pilate studios may sell for anywhere between 2-4 x (or more) its annual adjusted owner benefit. The valuation range is primarily a function of the growth of the studio, favorable occupancy costs, condition and value of equipment, and the owner’s role including the transferability of clients and staff to the buyer after the sale.
Owner’s Role
A key component in the valuation of a pilates studio is the role of the owner. A pilate studio with staff or customers who depend on the owner as an instructor will receive a lower valuation compare to a studio with a more passive owner in an absentee or managerial role. The owner’s salary is properly included within the adjusted owner benefit, but the valuation multiple assigned to the adjusted owner benefit must factor in the owner’s replacement cost to the buyer. The replacement costs may be the buyer’s own ‘sweat equity’ in working the same level of hours as the previous owner. The replacement costs may also be salary needed to replace the previous owner with one or more similarly qualified pilates instructors.
Customer Base
No matter the role of the owner, it is imperative from the buyer’s point of view that the customer base transfers after the sale. This largely depends on the role of the owner. A customer base that is only loyal to the owner’s skills or personality will probably not fully transfer to a buyer after the sale. In such a situation, the seller will not realize full value for their pilates studio. A pilates studio owner contemplating selling their business should de-emphasize their own role in the business. Replacing themselves with other pilates studio instructors over time is the best way they can increase the valuation of their studio. The instructional staff should be sufficiently paid and motivated to stay after the sale as well, which will ease the transferability of the customer base.
Upgraded Equipment
The physical or tangible assets of a pilates studio is an important aspect of its valuation. A studio with up to date equipment that will accommodate an expanded customer base will sell for a higher valuation. It can cost about $100-200K or more to equip a fully functioning pilates studio. Costs depend on the size of the studio and the quality of equipment. Pilate studio owners should know that equipment is typically conveyed debt-free at closing to the buyer. The asking price always exceeds the value of the equipment, unless the sale is an ‘asset sale’ where no intangible assets (such as a customer base) are conveyed. Buyers give more value to equipment which is upgraded and modern that will last several years. This way, the buyer will not need to incur capital equipment costs in the near term after the sale.
Location/Lease
A desirable location and lease of a pilates studio is of paramount importance to its valuation. Most buyers of pilates studios will want the studio to have a long term lease of at least three years. This prevents the possibility of the landlord effectively shutting down the business (at least in its present location) too soon after the sale. Rent should be less than ten percent of overall sales of the studio, as is the case with most retail-related businesses. A preferred location of a pilates studio may be in a downtown area near younger people interested in health and fitness or a more upscale suburban location near people with a high amount of discretionary income. Since its customers usually go to the studio one or more times per week, a nearby and convenient location next to its clientele is especially critical.
The sale of pilates studios should be a confidential process so that staff members, customers, and competitors are unaware of the sale. All buyers should be properly qualified by a professional business broker prior to learning about the identity of the pilates studio being sold. This way, the studio will remain undisturbed during the sales process, and the value of the studio will be retained. Pilates studio with a large but transferable customer base, trained staff, upgraded equipment, and favorable lease and location will sell for a premium valuation.
Give Martin at Five Star Business Brokers of Palm Beach County a call today at 561-827-1181 for a FREE evaluation of your business.