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Small business opportunity. What ya'll think?

1K views 14 replies 9 participants last post by  TurboS10 
#1 ·
Hey all,

I have been approached about a business venture and have been thinking about it very seriously.

The business is my local fitness center, which I would have never thought about unless it would have been offered. The business is an established business that is running at a 20% operating profit with alot of room to grow with some good managment and planning. Currently, the manager runs the place and the owners have no involvement at all.

The business makes enough money to pay for a 100% finance loan and then some more. That is actually only counting on taking out 50% of the profit for the loan payment. The price of the business is 3.5 times the annual profit dallars which is very cheap from what I have found.

Another plus is that they are paying a huge amount of rent on a building and there is enough money in the operating budget to build about a $300,000 dallar facility without changing op profit. So, that would probably be a priority in the near future.

Another thing is that I can buy half or the entire business. Both options have obvious ups and downs. The other partner is someone that I have known for several years and is a very good guy that is pretty hands off since this is not his primary business.

Give me any thoughts you have. I am pretty excited about the opportunity and I have been waiting for something like this to come along. Any input is welcome.

Chris
 
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#3 ·
I think in business relationships are key. If you have good people working with you, and you can communicate well and directly as well as efficiently, I think you could probably make it work. I think you'd better have somebody with some serious business and marketing experience sign on. There's a statistic about small businesses failing etc etc. But bear in mind these data include all those who went in without a business plan, proper funds and backup plans, as well as business experience.

Do you have time to be as involved as you may need to be?

K
 
#4 ·
Not going to post the price, but PM me if you really care to know. Business and hobby expenditures are two different ball games.

The funny thing is that this business has made it for over 10 years with terrible management and most recently did better with good managment and owners that never even go in the place. I dont have a ton of time to invest, but a little has got to be better than none.

I have been in industry for about 5 years and have alot of ideas about business managment from experience and things I have seen and done in my regular job. I also have a minor in business administration so I am not completely uneducated in the deal. My sister is an accountant to boot so that is nice. She went over the books with me and thinks it is a good deal. She just said it needs some better money managment, which I had already concluded. To give you an idea, the current owner handed me the year end reports from his accountant and said " I dont know what any of this means, but you can look at it. Maybe my partner can explain some of it."

When I looked through it, I understood 90% of it and my sister cleared up the rest.

I would also add that my wife and I already work out there 4 times a week so I am very familiar with the business and I have seen it grow over the last 3 years.

Chris
 
#5 ·
Turbo,

Take time to do a 5 and 10 year business plan looking at all the operating and expense (insurance, etc) budgets and break/even prognosis. Remember that you will still spend a lot of time there for the first couple years to get the staff, and ideas rolling in place.

How much competition is around the area, do a comprehensive study of the market and competition. Look to see what the others have that you don't or do. Don't make a Baileys high glizty place. I walked into one of them and felt like I was in a John Travolta movie.

If your abilites and money match, go into it alone. My brother had a partner in his buisness and what ever the partner does will effect the total buisness. Unwise spending habits of one partner will take the other to bankruptcy quickly. If you go in with a partner, ensure the books, agreement with operating and expenditures are all laid out the best for both of you to agree on. Get everthing in writing and signed. He might be your friend, but you have to protect yourself and your family.

Is the business going to be Incorporated? Check all the requirments on the different status of ownership.

Sounds like a great opportunity with room to grow. Do your research and good luck.

Dutch
 
#6 ·
Dutchman,

Thanks for the input.

I will definately do a business plan and perhaps get a professional involved in that. The only competition for the gym right now is a small gym at the local college. The college is building a rec center in the next few years, but I believe there will always be a need for another place to workout in town. Most people dont want to work out with a bunch of loud mouth college kids. I know that I dont and I am close to that age.

My ideas definately dont include any glitz. Basically, we would just need a building the size of the one being rented now and room to add racketball courts.

If I do the partnership, everything will be covered in writing. We will have a lawyer do all the paperwork to make sure everyone is protected. The business is already incorporated and pays divedends on a monthly basis to the owners. I plan on checking to see if an S Corp or an LLC would be better suited for the business. I already talked to the partner who is staying in the business if I dont buy it all and he is checking into the same thing.

Chris
 
#7 ·
Chris,
I'm only trying to help, so I want to give you some negative feedback for you to sort out.
I own two different businesses, one is a 7 million a year business and the other 26-million and there are just some things you said that make no sence to me.

The business your looking at is a very competitive business, they seem to close up as fast as they open. So with ownership at arms length and bad management, how is there a profit being made??
Are the books cooked? Few businesses today can handle the above scenario and stay in business.

What does the owners know that you don't?
If I was doing no work in a business that made money, would I sell? Hell no.
Bad management? So what! If your making money you offer $20,000 more a year to hire a top notch manager and it will make you more money.

Could it be?
They just found out there next years insurance will not be renewed? or go up 5 times in price with less coverage? Could be! and this is a major problem today for business.
Could it be?
They have herd of plans for a chain to come to town?
Could it be they are planning to build a new building and open a chain one?
Could it be?
The equipment they have now is at the end of its life span and now a major investment will need to be made?

Such a good deal, the owners don't have relatives that they like enough to sell a business like this to?

Just some things to think about.
 
#8 ·
When I lived in Austin, Tx, I bought into a Racquet Ball/fitness center as an investment and unlimited play opportunity. It was three years old, full about 18 hours a day and looked to be a thriving business. After about a year, there was a stock holders meeting to break the bad news. The mortgage on the place was a Prime +2 interest and this was in the early 80s when Prime went to above 20 %. We were in trouble!! With in 3 months, we were looking into a $2500 "contribution" from all share holders to keep the doors open and that was not going to fly. Ended up, one of the better heeled investors assumed the mortgage, refinanced, and sold the business, leaving the rest of us with out a dime. Like Barry, use caution!!

Trees
 
#9 ·
First question that comes to my mind is why would they want somebody to go in with them if it is an already established business that is making a profit? If it was a business starting out I could see asking for a partnership. But for a place already established it makes no real sense to share the profits with someone else when it is running fine. I would do a considerable amount of research before you say yay or nay.
 
#10 ·
Chris,

If you do it, my only suggestion would be to not have a partner. In my experience it will very rarely work. One of my friends got me for a large amount of money, needless to say we no longer talk. He is a nice guy, he just thought that he deserved the money and I didnt, so he took it anyway and there was nothing I could do, and it ruined a good friendship.

John
 
#11 ·
propaniac said:
Chris,

If you do it, my only suggestion would be to not have a partner. In my experience it will very rarely work. One of my friends got me for a large amount of money, needless to say we no longer talk. He is a nice guy, he just thought that he deserved the money and I didnt, so he took it anyway and there was nothing I could do, and it ruined a good friendship.

John
**********************************************
Partnerships:

Same thing as being married to two people at once, except one don't give you any!
With that in mind, how long will the marriage last?
 
#12 ·
Chris-
#1 Rule: Partners SUCK. People change their minds like the wind.
Scenario:
The guy who was "out of the picture" may get a divorce and all assetts must be liquidated to settle. Forcing you to buy him out or sell to other concern, or liquidate. Your stuck either way.

Have you had an ACCOUNTANT verify the books, or going on heresay?

Any lifetime Memberships just get bought? That revenue is lost forever. Constant turnover of members? Influx of cash is mandatory.

Just be careful walking into a business. There are many trip ups. Hire an accountant and a lawyer to go over every detail. Even if you waste 3 grand, it will be worth it.

NO and I mean NO verbal agreements. PAPER is the only thing recognized in court.


#2 Rule
Plan for the worst, hope for the best.

#3 Rule
Don't get a big head. Even of the business works well for you, don't buy ANYTHING on credit. Only after you have cash in hand, AFTER TAX. I've seen guys buy a business from their Dad, go out and get a Lexus the following year. The Next year, the Lexus was being sold off with the companies assets.


If you decide to pursue this, I wish you luck. Just being prepared for the worst will help in 99% of the situations.

Jeff
 
#13 ·
I have been through the general ledger for the business and the accountants report for the last three years. If they are cooking the books, I dont see how.

The reason that the guy wants to sell his half is because he just built a new house that has cost him alot more than he planned. He said that he needs cash in hand to get some things paid for. He owns three other therapy clinics that is his main business. This fitness center was bought by him and a doctor with plans of integrating it into his existing business. In three years it has not happened and he is just looking to get the money back out and move on. He said he just does not have the time on top of his clinics.

The guys that own the fitness center and the clinics are my wifes bosses. This is a guy that paid my wife for three months when she was off having our son and staying at home with him. And the same guy who gives her time off to go to chemotherapy with her father, who is dieing of cancer, and then does not charge it to her paid time off. He is not a guy who is looking to screw us over as far as I can see. The guy who would be staying in as a partner is the other partner and my wifes other boss.

I really cant explain why the numbers dont make sense, but I cant find anything that does not make sense. The guy who would stay in as a partner just bought the other half a few months ago. He has told me the same thing that the guy selling it has told me as far as the books. He said he has gotten enough out to pay his payment on a 100% loan for his half.

I plan on going to talk to the bank and to the accountant that has been doing the books for the fitness center. If everything at the bank lines up to make it a go, I will definately be doing more digging and spend time combing through things to make sure all is as stated.

Thanks for all the input, and keep it coming. I want to hear the bad now before it is a problem.

Chris
 
#14 ·
I plan on going to talk to the bank and to the accountant that has been doing the books for the fitness center. If everything at the bank lines up to make it a go, I will definitely be doing more digging and spend time combing through things to make sure all is as stated.
Also make sure that you talk to a lawyer and if you decide to do it have your lawyer make up a contract. That way if the partner does not like it then something is not quite right. You have to cover your butt any way you can. There was a lawyer in the next town up that had lived there for as long as I can remember. He was investing money for people. In the middle of the night he just packed his belongings and went. Long story short for years he was telling them their money was doing good. He cleaned them out. Another lawyer in my town (I just read this the other day in the paper) is in a little hot water because an employee was juggling the books somewhat. Seems she was buying Longaberger Baskets with other peoples money. $14,000 from one person and $29,000.00 from another. I'm just saying that don't just look at the books yourself, but have a lawyer one your side in your back pocket that will work for you instead of 5 people on the other guys side telling you everything is just fantastic. Look at everything with skepticism to a degree. If you tear it apart to every last nut and bolt and everything is fine not only will you feel better but your partner will feel better also that you are that thorough of a person and not a risk taker.
 
#15 ·
Kevin,

I will definately get a lawyer involved before we do this thing. To be honest, I am not sure what all needs to happen. I have a friend who is a lawyer and one that is president of a bank. I am going to talk to them before this deal goes down. Likely, I will get a local lawyer to draw everthing up as well.

I am certainly not wanting to take a risk.....at least not an uncalculated one.

Chris
 
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