CrossFit Discussion Board  

Go Back   CrossFit Discussion Board > Community > Running a CrossFit Facility
CrossFit Home Forum Site Rules CrossFit FAQ Search Today's Posts Mark Forums Read

Running a CrossFit Facility Tips and guidance on how to open and operate a CrossFit gym.

Reply
 
Thread Tools
Old 11-27-2012, 08:37 AM   #1
Robert W. Mitchell
Member Robert W. Mitchell is offline
 
Profile:
Join Date: Nov 2012
Location: Allen  TX
Posts: 2
Investing in an existing Crossfit

Does anyone have any experience investing in an existing Crossfit? The box has been up and running for 4 years with great brand recognition. I'm looking for any and all advice and any personal experiences that you can share.
Many thanks in advance.
  Reply With Quote
Old 11-27-2012, 02:53 PM   #2
Dan Dirkx
Affiliate Dan Dirkx is offline
 
Dan Dirkx's Avatar
 
Profile:
Join Date: Nov 2012
Location: Rochester  NY
Posts: 6
Re: Investing in an existing Crossfit

My first question would be why are they looking for investors?
  Reply With Quote
Old 11-27-2012, 04:33 PM   #3
John McPherson
Affiliate John McPherson is offline
 
Profile:
Join Date: Nov 2007
Location: Houston  TX
Posts: 83
Re: Investing in an existing Crossfit



There is only so much that an established gym should need 4 years into it business...
__________________
http://www.p3crossfit.com
  Reply With Quote
Old 11-28-2012, 05:04 AM   #4
Chris Cooper
Affiliate Chris Cooper is offline
 
Profile:
Join Date: Jul 2008
Location: Sault Ste. Marie  ON
Posts: 260
Re: Investing in an existing Crossfit

How do you measure 'brand recognition?'

What are its practices? Can you enter as a new owner and operate as a turnkey? What's the owner's equity? What's the owner's net revenue for the last three years? These are the determinants of a business' value from a fiscal standpoint. If you're buying because you LOVE it, that's different.
__________________
Owner, CrossFit Catalyst
  Reply With Quote
Old 11-28-2012, 06:44 AM   #5
Robert W. Mitchell
Member Robert W. Mitchell is offline
 
Profile:
Join Date: Nov 2012
Location: Allen  TX
Posts: 2
Re: Investing in an existing Crossfit

Quote:
Originally Posted by Chris Cooper View Post
How do you measure 'brand recognition?'

What are its practices? Can you enter as a new owner and operate as a turnkey? What's the owner's equity? What's the owner's net revenue for the last three years? These are the determinants of a business' value from a fiscal standpoint. If you're buying because you LOVE it, that's different.
Chris,
While the box has an average of 250+ monthly members, the current lease and existing debt service is very high, making positive cash flow difficult. I have an opportunity to finance a piece of that debt with some very creative terms that are more beneficial for the box than the existing loan terms. In exchange for that, I would ask for equity in the ownership entity LLC, a guarantee on loan principal, and a pay-back schedule with an aggressive interest rate. While all this seems straight-forward, this type of deal structure is new to me and I'm looking for helpful insight and advice from anyone who has first-hand experience.
  Reply With Quote
Old 11-28-2012, 10:08 AM   #6
Kevin Mueller
Member Kevin Mueller is offline
 
Profile:
Join Date: Oct 2007
Location: Upper Arlington  OH
Posts: 149
Re: Investing in an existing Crossfit

Find an attorney with M&A experience, preferably one with experience buying/selling businesses that are based on personal services. They will help you with structuring the deal AND making sure that you do proper due diligence on the business. Get a good professional business valuation (and one that takes in to account minority ownership/lack of marketability discounts).

You mention financing a piece of debt, implying that other debt will remain. If you take an equity interest you will be buying in to liability for that other debt - will you be required to personally guarantee it? What is the plan for paying down that debt and also paying your "aggressive" interest rate? What collateral will you get for your financing (bear in mind that a typical box's hard assets won't go very far as collateral), and how many other creditors will be ahead of you in line if things go south?

Don't buy in to a business as a hobby unless you don't mind losing the entire investment. I've represented a few clients who've bought in to businesses solely because they liked being a client, or out of a personal relationshp with the owner, and didn't do the proper due diligence despite my objections. All of them have since lost their initial investment.

Good luck
KMM
  Reply With Quote
Old 11-29-2012, 08:30 PM   #7
Eric Love
Affiliate Eric Love is offline
 
Profile:
Join Date: Feb 2009
Location: New York  NY
Posts: 13
Re: Investing in an existing Crossfit

A box w 250 members, but not generating any cash flow to equity must have a fundamentally flawed operating model. Unless you feel you can get in there and make real changes to the business, doesn't make much sense to play in the equity. If you're just after yield and are willing to accept lower yield than the owner's current lenders, then so be it, become a lender. Or structure as some sort of preferred equity. But, I go back to where I started. At 250 members, a gym should be kicking off some serious cash flow.
  Reply With Quote
Old 11-30-2012, 09:28 AM   #8
Steve Loeding
Affiliate Steve Loeding is offline
 
Profile:
Join Date: Dec 2008
Location: Minneapolis  MN
Posts: 464
Re: Investing in an existing Crossfit

wow - 250 members and not making money - something very seriously wrong. Even if it were on the cheap - $100 for unlimited / month - that's $25000 / month !!! They must have taken out a huge loan for equipment and must be renting some prime property
__________________
Steve - Top Gun CrossFit - Mpls MN
  Reply With Quote
Old 11-30-2012, 10:20 AM   #9
Brian Strump
Affiliate Brian Strump is offline
 
Brian Strump's Avatar
 
Profile:
Join Date: Sep 2009
Location: Charlotte  NC
Posts: 2,619
Re: Investing in an existing Crossfit

Knowing that I would take a hard look into not investing in that. Unless they have a very large amount of loans...which would be a warning for how they are going to spend your money. It may be a problem with how they set up rates and memberships with their current members. I wouldn't take something on that will require alot of change on the MEMBERS parts, because they can always leave if there will be alot of changes, especially financially for them.
__________________
Brian Strump, D.C., FMS, NKT
www.crossfitsteelecreek.com/
  Reply With Quote
Old 11-30-2012, 02:02 PM   #10
Kevin Benson
Member Kevin Benson is offline
 
Kevin Benson's Avatar
 
Profile:
Join Date: Oct 2009
Location: Parker  CO
Posts: 253
Re: Investing in an existing Crossfit

Quote:
Originally Posted by Robert W. Mitchell View Post
Chris,
While the box has an average of 250+ monthly members, the current lease and existing debt service is very high, making positive cash flow difficult. I have an opportunity to finance a piece of that debt with some very creative terms that are more beneficial for the box than the existing loan terms. In exchange for that, I would ask for equity in the ownership entity LLC, a guarantee on loan principal, and a pay-back schedule with an aggressive interest rate. While all this seems straight-forward, this type of deal structure is new to me and I'm looking for helpful insight and advice from anyone who has first-hand experience.
Like others have said, you'll need to start with a credible business valuation. Without that you won't know what you dollar investment means in percentage of ownership.

Second, since part of your investment will be debt, you'll have to figure out if you can take any collateral. Having been a lender for a number of years, I'm 99% confident in saying that the exisitng lenders have all the business assets tied up and have personal guarantees from the current owners, and may have gone as far as taking security interests in their personal assets where they could. You'll need to find out if the existing lenders will grant you a shared collateral position in the assets. They have no incentive to do so, but you can always try. Then you need to decide if you're comforatble doing an unsecured loan to the business. Far riskier and you're only 1 step ahead of equity holders in the event of a liquidation. Also, the exisiting loan may prohibit the business from taking on debt without their consent, so that may be a non-starter for the whole deal.

I'm not sure if you've answered this yet, but are looking at this purely as an investment, or will you actively be engaged in the business?
  Reply With Quote
Reply


Thread Tools

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

vB code is On
Smilies are On
[IMG] code is Off
HTML code is Off
Forum Jump

Similar Threads
Thread Thread Starter Forum Replies Last Post
Investing in Crossfit Gym John Willis Running a CrossFit Facility 6 10-28-2012 11:17 PM
Affiliate Tools for new and existing boxes Chris Chalmers Running a CrossFit Facility 0 08-23-2012 07:19 AM
Any existing boxes for sale in SD? Josh Kalefornia Running a CrossFit Facility 1 12-02-2011 12:35 PM
Purchasing an existing box Joe Klein Running a CrossFit Facility 12 11-20-2011 01:52 PM
Co-existing relationship Matt Short Running a CrossFit Facility 6 01-13-2011 09:44 AM


All times are GMT -7. The time now is 06:49 AM.


Powered by vBulletin® Version 3.6.8
Copyright ©2000 - 2017, Jelsoft Enterprises Ltd.
CrossFit is a registered trademark of CrossFit Inc.