Florida man buys Jim infested with pythons for 2 million. That's not quite right. Wait. Oh, Florida man. Selling Jim , that's literally on fire at slight discount. Uh , that , that's closer. But Nick, you are an actual Florida man. Can you give me a headline? Yeah.
Uh , Florida Man Doesn't Buy Bad Gym .
Aha . That might actually help some of our listeners. So let's dig into that today. When should you not buy another gym? We'll discuss that today with mentor and gym owner Nick Hach . This is Run a Profitable Gym. I'm your host, Mike Warton. Please hit subscribe so you do not miss a show. You want to get them all so that you can build your business and retire wealthy.
My guest Nick, he runs Shark Bite Fitness and Nutrition Cape Coral, Florida. And he, like I said, he's an actual Florida man, and he is bought and sold several gyms. So we're gonna dig into it and tell you when should you not buy something that might be a milestone around your neck. So, Nick, let's start at the top. What's your experience when you're buying or selling gyms? Like what have you done?
What's happened to you?
Yeah, Mike. So I, I've been around for about 10 years now. We opened our first gym in 2014, originally a a CrossFit affiliate. Um, I've had the, the joy of buying quite a few locations. I've had the joy of avoiding buying quite a few locations. Yeah . And I've , I've had the joy of getting rid of a few locations. We, we bought our first gym , uh, I I guess I bought my business partners out in 2017.
So that's basically like buying a gym
That, that exactly. Is that Yep .
Yep . Bought another gym earlier that year to absorb into that gym. Uh, and then bought another location in , uh, in 2020 exactly. One week before the pandemic shut us all down.
Ooh . There's a probably a good story about that, that we'll get into it on another one, but , it sounds like, so you've got experience with this, and I'm sure along the way you've seen some offers to buy and said, ah , that smells a bit funny. Am I right?
Yeah, for sure. I've, I've turned down way more than I bought, that's for sure.
Now that's, and that's probably why you're on our mentor team, because you don't wanna buy everything that comes up for sale, no matter how good a deal it , uh, it goes. So, let's talk, do you have any horror stories from the buy sell world? Like, what's, what's some of the stuff out there that we really wanna avoid and what's nasty?
Yeah, I, there there are a ton. Um, I think one of the really important things to remember is that, while this may not be fun to hear, most gyms are not profitable.
Mm-Hmm. ,
Right? So the , the vast majority of gyms that exist are not actually making money. And, you know, you can verify this by speaking to most gym owners that are in two brand most profitable gyms are not looking to sell. So, right .
If you have access to buying, there's a strong chance that unless there's some other motivation involved, like a retirement or, or somebody moving on to a new career, that gym that you can buy is probably not something you should buy.
Yeah. It's interesting. You know, I, I've never been in the market really for looking at gyms, but a few have come up for sale and I've kind of poked around, even looked at some financials and, you know, there was one that I looked at and I looked at their financials and it was like a black hole. It was one of the worst things that I'd ever seen.
And I, I literally said to my wife, I was like, I wouldn't take this gym off their hands if they paid me $50,000. Right. Like, it wasn't even worth the price of equipment because it was just gonna be disaster. Like, have you seen anything that bad or other instances where it's just like, this thing needs to end or this is not a good thing to buy?
Yeah, I've seen a lot of 'em , you know, there , there's an uncomfortable cycle that happens in gym ownership is , until you start treating it like a business and professionalizing it, like a lot of us have done in most of the gym world, the cycle is this, somebody's extremely passionate about helping others. So they open up a gym, they run that gym for some amount of years, they get incredibly burnt out.
They sell it to some new person who is incredibly passionate but also doesn't know how to run a business. They run it for a couple years, they get incredibly burnt out cycle, repeat cycle, repeat cycle repeats.
So I , uh, in a lot of the p and ls I've seen oftentimes the, the owner had this idea that I can fix the problem that that was done before, or maybe even worse, didn't really address the problem and just thought like, I am incredibly passionate about this, I can make this work.
But then that cycle just repeated and repeated and repeated, and now doubling down or tripling down, you've got members who've been there for four or 5, 6, 7, 8 years who are used to not paying affordable rates or , or , or appropriate rates. And the culture is such that making money is not an important factor . So the new owner has to deal with that as well. Um , I think that's a really, really common trend.
Yeah. And you know, it's interesting because there are gym owners out there, they're rare, but I have interviewed them on this show who will actually look for gyms and they'll do their due diligence and say, I can turn this around.
And they actually have a track record of doing so, and they know how to do it, and they put a timeline in place and they do it, and then they have valuable assets that they can either sell or hold and profit from. But that's super rare. You know, what's more common is exactly what you've laid out where it's like, oh man, owning a gym is awesome. I'm gonna crush it, and then I'm burned out.
And then the next person says the same thing and it just goes over and over again. And along the way one of these things happens is that you see owners, owner operators who are super invested in their business, they overvalue what they've built, right? Because they've got tons of sweat equity they put in all these times, like scraping, like gum off the rower seats and stuff like that.
And they know that like, man, I put in a ton of work and they say, well , my gym's worth a hundred grand. And it's like, it's not, you know? So when you've looked at these PNLs and you look at the, the , the state , the numbers there, what, when you see what they think it's valued at, what do you see, like, what's often there in your mind and are you seeing mistakes or inflated values?
Definitely mistakes and inflated values. And like you said, you know, we, we tend to overvalue things that are important to us, right? So this is, this is important to me, therefore it must be valuable to others. And you can see why somebody would make that mistake, right?
Someone who's put in 2, 3, 4, 6, 10 years of their life into something, it's, it's almost impossible to put a, a a true like financial number as to what that means to them, right? But if we, if we're looking at this from a p and l standpoint, if the net owner benefit times three is inappropriate, then it's not worth that number, right?
So oftentimes, I , I think the most recent one I looked at was probably four years ago. Uh, I have to be careful about some of the numbers here because I signed an NDA , but , they were asking for a number that was six figures, and the owner hadn't taken home more than two or $3,000 a year for the last five years, and they weren't paying the coaches.
So there's no profit essentially.
There was none there . There was absolutely none. You know, and the factor in the fact that some of those members would probably be lost on, on any kind of change that happened culturally, you would immediately go to unprofitable and , and like profit is even there being a , a vague word because there is no profit if nobody's being paid.
Yep . And I, I built that, that was the gym that I built because it was, my, my gym was a hobby when I started and I didn't pay myself and the , the on paper, the gym showed a profit at the end of the year, but I didn't take a salary. So all the money or the work that I put in was unpaid.
If you had paid me, and again, two brain recommends as an owner that you pay yourself for every role and task that you do for exactly this reason. If I had done that, the business would've been unprofitable, but on paper it's like, oh, it's making, you know, a modest profit at the end of the year, but it wasn't worth a three x multiple on that because there was no profit. So, I mean, I'll point that out. Delicious.
I'm not a financial expert, but if you see that an owner is not making any money and their gym is not profitable, it's not worth a lot. Right? Like, you're at that point, Nick , would you ever buy a gym that was unprofitable personally?
Yeah. I think there's reasons that you could do that, right? So for example, one of the ones that, that I bought back when I had business partners was it was unprofitable. We , we bought an unprofitable gym. It came with assets though that we couldn't otherwise attain.
Now that's a different story.
Yeah, totally. Right? So one was a ton of undervalued equipment. Uh, we, we didn't have a lot of equipment. They didn't want to be a gym owner anymore. It worked out really, really well for us. We were able to almost double our equipment at nowhere near the cost that it would've been to, to buy those . That's a new , so that's a , yeah. Yep .
Another one was , um, we, we acquired a new location, like a physical location, a bigger space at a really affordable rent number that made it worth buying the technically unprofitable business just to get that. But neither of those reasons were to acquire that gym necessarily. We , we , we shut that gym down immediately. It didn't exist as soon as we bought it.
No . So you bought assets essentially in a building, right? Like, or whatever you wanna call it.
Exactly. Yeah. It , it was, it was that, even though it sounded like a gym buy Mm-Hmm , . But if , if you were gonna buy a , a , an unprofitable business or a non-profitable gym, I mean, you would have to look for ways that you could very easily change that on profitability, right?
So if I was looking at something that had an extremely low arm or average revenue for member, see , do they have the ability to raise this? And if, if I do, then could I change the profitability pretty quickly? It does that Jim have incredible staff members who are looking for opportunities . Um, if so, maybe I would do that Honestly, though, without those I would probably not do that.
Yeah. 'cause there , I mean, you've been in the game long enough and as a mentor, you know, in our , in our toolkit, the things that you can do to improve a gym really fast. So it's like, you know, yes, I could get rid of all the legacy rates and I could increase rates by this much, and I'll do my math and find out from a great staff member, these many people, this many people will leave.
This many people will stay. I'm going to be positive. I can get to profitability here. This staff member sucks. I get a fire . Like there's all this stuff that you, you can do, but here's the thing to ask. I'll ask you this. Like, would it be better to just start another gym at that point with the help of a mentor potentially and not have all those knots done Tangled ?
Yeah. Right. Like, that's, that's the calculus that has to be done. I mean, it is the startup cost of a new location gonna save you more money than it would be to potentially burn cash as you change this gym over, right? I mean, I , I think that that's the, the other really important thing to look at here too is how much money are you paying for this gym?
You know, if you can get the gym for free, if you can effectively pay nothing for it, then it might make sense to buy a non-profitable gym and fix the issues there. But if you're gonna put down 50, a hundred, 150, $200,000 to do that, like you said, it might make more sense to just start fresh with no bad habits and no bad issues,
Right? Like you could, Chris Cooper's put this together, but you, you could start a gym and we even have a start a gym course. You could start a gym for like, if you're really clever in a small space, like four or 500 square feet with like two barbells, a ply box and a couple of dumbbells, and you might be all in for like 15 grand or something like that, maybe if you're really clever about it.
And then you can expand and scale up as you see success. And if you have the help of a mentor, you're gonna avoid all the huge monstrous mistakes. I'm not saying you shouldn't buy a gym, but if you wanna start a second one, there are easier paths and faster paths to success than untangling all these horrible knots.
Because I, I've heard some stories and you probably have to, if someone buys a gym and there's just like this deep wrought , and it's in the , it's in the clients, it's in the staff, it's just horrible. And to rip it out, you almost have to gut the place to the studs. And at that point, you might as well just started with your own building, right?
Yeah. Yeah . That's a real thing, right? If you, the the same way that somebody values their own gym, maybe overvalues their own gym, there is just history associated with that gym that you may or may not be privy to that may not be beneficial, that may not match with your culture.
One of the ones we took over for about eight months, the owner hadn't been coming to the gym and his wife was opening the doors and then letting people work out and then leaving. And that was their, their version of coaching, right? And I, I think that people could look at that and say, Hey, area of opportunity, like I can, I can attack this, I could do better.
Maybe those members had become very accustomed to that culture. So you come in and you say, this isn't the way we do things, all of a sudden they don't wanna be there anymore .
And then there's the other thing to think about. If you have a very successful gym, and let's say you're a , you're a top two brain gym owner, maybe you're in the Tinker or Tinker group and you've got like, this gym is running a one, you've got a great general manager.
You put in maybe four hours a week just meeting with staff, but you're doing other stuff and you wanna maybe open a second gym, you then have a replicatable model that you can just say, I could just take this that's working, put it over there, build it again, rather than buy someone else's problems. Right?
Like you could just rubber stamp your success and do it there again, faster in a mar in a thing that you already know, right? Like, you know how to build a gym doing a second one works, untangling knots can be just brutal. You know? Would you, would you look at something like that?
Like if you, again, you're not in the market right now necessarily, but if you were gonna do that, would you think about replicating your gym and just starting another one?
Yeah, I would say that if, if I had the appropriate staff member who wanted to grow and replicate that with me, I would do that. There you go. Otherwise, no. Yeah . But I like what you just said, the the, the deep rod or , or the, the, the behaviors associated with that gym. When you buy the gym, you buy those two, when you start your own, there's no expectations other than the ones you set.
Yep . And if you're a good gym owner, especially if you've had mentorship and you've built something that's solid and you're at the tinker level, which is our upper level gym owners who don't necessarily work very much on their gyms, you are good entrepreneur, you know how to cut a lot of corners and get a lot of speed and just like, I'm not gonna make that mistake.
Like, for example, in my second gym, I'm not gonna just set my rates at $150 for an unlimited group membership because that doesn't indicate the value that my coaching provides. I'm gonna set them at exactly this number plus my hybrid option and my a RM is gonna be 2 85 right outta the gate.
I'm gonna run two Brains Founders club and I'm gonna start with 58 members on day one who are paying, I'm gonna be profitable within two weeks and I'm gonna expand . Like that plan sounds to me pretty good, right? Mm-Hmm.
. Mm-Hmm. a whole lot easier. Yeah.
Yeah. So talk to me about this. So when you're looking at, when you look at p and ls and stuff, whether, you know, you've seen this stuff, gym owners have potentially inflated these sale numbers. So how does someone like start looking at this and saying, what's, when do you, when do you know that a sale number is kind of legit or kind of outta whack? What do you think?
Yeah, I think an important thing to do is, is to gain access to a p and l and to also gain access to the billing software that they use.
Mm-Hmm . . Mm-Hmm. , have you done that? Like, can you ask for that in a sale? Yeah,
You totally can. Yes . Once , once you , oftentimes when a sale's happening, they'll ask you to sign an NDAA non-disclosure agreement. And as long as you're willing to sign that, they'll usually start giving you access to whatever you need to get access to.
I've never gotten so far with any, I didn't buy that I had to get to like, bank accounts or anything, but the reason I say you wanna see the PL and the billing software is that oftentimes they don't line up,
Oh , tell me , yeah , talk about this. You
Know , when they don't line up, that's a clear sign that you're gonna run into a problem. Right? So , um, I think it's more common that somebody's willing to share the billing software information. Mm-Hmm . . And, you know, if you know any of the popular billing softwares, it's also very easy to have like a billing issue with one of those.
Or maybe you think they're billing monthly, but they're actually billing bimonthly or they're supposed to be billing weekly, or that somebody's membership has been comped and nobody realizes how many members have been comped at that point.
I sold a paid in full to 10 people and they never pay again. Hmm .
I got a story about that one. We'll hit that in a second.
Let's here finish your thought and then tell me that one. Let's just go to both ,
But it's very important that we see that those numbers are at least relatively near each other, right. And whichever one they showed me first, I would want to see the other one too. So whatever they wanted to show me, I'd wanna ask for the other one,
Because that's true. Like I've seen in my own billing software, this number. But you know, there's tax included there, there's a whole bunch of other stuff. And then I look at other stuff, the p and l, there's all the expenses that eat into that number, and sometimes the oh , $25,000 in Zen plan or whatever equals about like 18 and your expenses are 22 mm-Hmm.
. Yeah . Super, super important. We've already talked about this one, but I think just staffing cost is really important, right? If you want to create a professional staff, you're probably gonna have to pay them something. I know that in the recreational fitness space, it is not wildly uncommon for some coaches to work for free or maybe to work for, you know, under undervalued prices.
But if , if you, or excuse me, undervalued wages, but if you want to grow this business, that staff is probably not going to grow this business. So somebody will need to get paid here. If, if it turns out that there's two or $3,000 a month in profit, but there's no staff pay and there's no owner pay, you start paying those staff that two or $3,000 goes away immediately.
Yep . That's a big one. I'll balance that with another thing that I've seen where sometimes there are too many staff members and they're overpaid. And that's a different problem altogether too, where if you look at a p and l and you're like, wow, my revenues here, my staff costs are way up there, and three of them are terrible. Like, you might have a different problem there because sunrise , these things crop up.
And uh, interestingly enough, I interviewed Ben Bergeron a little while ago, and he was talking about the earlier of across in New England where, you know, he looked at his staff, he's like, this does , this doesn't quite work here. And he had to make some cuts. He made a whole a big change and sat everyone down and said like, I think it was called the official picnic table conversation.
It became known as in cf any lo and he just said like, some of you're not gonna be here anymore because we're making a change and you didn't sign up for that. So like, let's discuss and go forward.
So you look at that, there are sometimes staff members embedded in there that are like, maybe they're old school, maybe they're dug in deep, maybe they're not very good, maybe they're pulling down too much money for what they're giving.
Yeah, I, I had exactly that scenario when I bought my third buy, but second location , um, I had a meeting with all the staff members. I, I luckily the , the previous owner and I are friends, so I got, I was able to get very deep into, into what was available. I got real numbers on everything.
We had a big staff meeting and I spoke to everybody and I said, I , you know , you guys have been doing things a certain way and I'm, I'm happy for you and I'm proud of you for that. We're gonna be changing things a lot. This is gonna change a lot. Here's the expectations that are gonna be going forward. I understand that some of you are not gonna wanna do that.
Here's your understanding of what's going to be happening. So you need to make a decision about what you want to do. And honestly, I think we had four out of 12 of them stay with us after that meeting. And it was better for both parties because of it.
Yeah . Way better. And like, good for you for being clear about it. But that's the kind of like, you know, fire sale you have to, you remember , uh, entourage when , uh, Ari went through with a paintball gun and , and shot everyone and he was being fired, you know, and that's like, you might have to do that in some of these scenarios because they didn't sign up for that.
And if you're making a U-turn, you can't force people onto that bus with you and they shouldn't be there, you know? Tell me about that paid in full situation. What do you have there?
Yeah, so the , the gym, the gym that we acquired , uh, so that we can get the , the better space and the equipment, we made a , uh, a handshake deal, an agreement on an amount of money between then and the signing of the deal, that owner decided to sell like 30 or 40 paid in full memberships in cash Oh wow . To the current members , .
So in like six months, eight months, nine months, 12 months, basically whatever everybody would say yes to at just wild, wildly discounted numbers. We didn't find out about that until after the paperwork. So we had almost none of their members now paying a month in membership.
What did you do?
We went back and forth on this a lot. I , I don't know if this is exactly how I would've handled it. Now we're talking like 2016 or 2017 now. Yeah, yeah. We honored the, the amounts that they paid, but unsurprisingly, you know, they were, they were basically paying like the average of like 70 bucks a month or 80 bucks a month.
So at the time, our membership was like one 30 a month, and I think we were already the most expensive in the area by a lot. Not surprisingly, not many of those people wanted to pay that when it was time to re-up. So we, we were, we were in a poor situation there.
Wow. So that's, I mean, that that , that'd be a tough one like that , that I imagine like you just, you, you expect something and you look and you're like, what has this person done on exit? And now I'm screwed. So like, I mean, that would be a major red flag that you'd have to keep your eyes open for, but you might not know what's happening. Yeah.
I mean, as simple as saying like, Hey, you can't do this, you know, or don't be a scumbag, like put that in the handshake agreement, you know?
Yeah. Wow. But, and so even in addition to that, like you might have, like there are gyms out there that have done all sorts of legacy stuff and we know discounts like are brutal in gyms. Like it's just, it's, it does not support a profitable gym for the , you know, for the most part. And you'll see these gyms , uh, people will have 50 people who are at 17 different rates and they're all too low.
And this is like 40 or 50% of their client base. And if you acquire this, what do you do with those people? And like, I'll put it this to you as a mentor, let's say I'm that gym owner and I come to you and you're my mentor, and I say, Nick , what do I do? Like, what would you say in that scenario? Yeah,
Right. Like what you're saying right there is why I think it's so important. And you see both the p and l and the billing software, right? Because for example, if, if I see unlimited membership times a hundred, it's very easy to make the mistake and think that that one 50 times a hundred equals that amount of money, right?
But if we've got discount A through discount Z layered into those things, we don't really know how much money's coming in. And not all the billing softwares we're we'll very easily lay out who's paying one 50 and who's paying 86, right? Yeah. Yeah. Given the opportunity, I would want to get the income statements as well, right? I would want to get the bank account actual income to try and match up with what we have.
I know that seems like, like monotonous work, but it's worth it to know what you're really paying for. But like as a mentor, if you came to me in this situation, I would , I would wanna see where we were in this. And funny enough, I did just work a gym in Alaska through this about a year ago. Bought a gym. That gym had every amount of rates you could think of.
Um, the , the fact is that like if , if we wanna keep these people, we probably can't fix this problem right now, right ? But we can create a plan where over time we level people out appropriately, right? If you're, you know, we , we generally teach it to your brain not to raise anybody more than 15% at one time, right ?
There's a , a serious like emotional and psychological situation that happens when you do that, right? Uh , but we can get everybody where they need to get over time . So I would say we would look at what amounts are appropriate, like what do we actually want to be at? What do we believe is our right number?
And we have a whole, you know, this, but we have a whole system of how we decide what the correct rates are for a gym. Once we get to that number, we see how far we are from that. We create like, you know , maybe a 1, 2, 3 year plan to get everybody to that level.
And I'll balance you by saying, if I'm that gym owner and I'm like, oh my God, this is a a three year plan, it would be great to hit the rewind button and maybe not buy that gym in the first place and say, you know what, Nick, I wanna start a second gym . Can you help me set my rates at a market value that's gonna equal profitability within the first three weeks?
And you'd be like, yeah, dude, let's look at your expenses. Let's look at this. Let's look at your value. Let's put this number together using math, and then let's sell it and I'll teach you how to sell it and market your gym and we'll fill it with founder's club program and we'll start with profitability.
And I'd be like, that sounds a lot better than a three year stepwise increase on a bunch of people that probably don't wanna pay another dime, you know,
, right? And that's not their fault , right? The other gyms set that standard. No , you gotta deal with it. Yeah. No,
And I'm not, I'm not trying to be down on buying gyms, but like this point of the show is to say, when should you not buy a gym ? So we're going over the horror stories. There are good times, like we said, but you know, I'll give you another one that I think is interesting, and you pointed this out looking at big numbers. You , you gotta dig in. For example, average revenue per member.
Let's say someone has that number and says, my average revenue member is 2 0 5. And you're like, well that's not bad.
Like, and you're thinking about it, but then you start looking and you're like, this is based on a couple of really big sales, a really big retail order went in, specialty program went in, this was the biggest month of a year, and the actual rate down the line, if I go to the next month is going to be one 40 . Like, there's a problem there.
So when you start looking at these big numbers and averages, I, I'd go with you Nick , look, dig into them, like really dig in and say, where do these numbers come from? What's the breakdown that equals this? Like, what am I adding up to get this average?
And then I would also encourage people look like not just at one month's financial statement or like a , a balance sheet for a business, start digging into like a bunch of them . Like, has this thing been profitable for a while or was it profitable last month and now we're selling, right?
Because like, have you seen stuff like that where it's like the financials are just in the red, in the red, in the red and the buckets for sale?
Yeah. I , I think that that's not wildly uncommon. I I , I think that most people, if you're, if you're in the market for buying a new jam , especially if you're in the two brain ecosystem or something similar, you got , I , I think you gotta look back and remember where you were prior to joining two brainin or joining something like this, and think about where your business understanding was, right?
That's probably the level of business understanding of the people selling to you.
And it wasn't good for me. It was bad.
Yeah. I mine either, you know, I, I didn't, I wasn't, I was barely tracking how much income we made, let alone any other metric that was important, right? So I would just operate with that understanding and that they probably don't know what they're talking about. So even if they say they're in the black right now, they may not be reporting numbers correctly. I know I wasn't at that time. Yep .
What would you wanna see in metrics? What , what are the , like, I'll give you like two big numbers. Like what would you wanna see two numbers that would convince you that a gym might be sustainable that you might wanna purchase? Like are there any numbers that really stand out for you that you would, you would really put a star beside ? Yeah.
I , I mean the first one I think, and this isn't super sexy, but it's really important, is I don't wanna see really low expenses, really low recurring expenses.
You wanna see low expenses, right ? Because
Yep . Right? Because you can change a lot of things, but I can't change your $9,000 a month rent, right? I mean, maybe you can, there are rare exceptions, but odds are you cannot, and you're locked into that number, right? So like I, it's way easier for me to make a gym profitable if the recurring expenses are $6,000 or less than it is if they're $14,000. So that for sure, that's the number one.
Um, next I would probably look for like a low arm , a lower average revenue per member, right? Because there's opportunities to fix that. So for example, bringing in, and it doesn't necessarily have to be raising prices, at least not right away. It could be something like just instituting new services.
So bringing in say, nutrition coaching or personal training or semi-private or a barbell club or kids or something, right ? There's an opportunity to raise that arm up a little bit. But may , I would probably, the number one thing I would look for right now is like net cash flow .
What is , regardless of whether it's actually like hashtag profitable, whether the owner is taking pay or not taking pay, I would want to see like how much money is left at the end of the month. Because that gives me like a , a very understandable amount of what can I do, what changes can I make right now with no other changes having been made.
You bring up an interesting point. I'm gonna plug jim lawyers.com , our friend Matthew Becker there , uh, he reviews leases and so forth. You would wanna take a look at the lease of a gym that you're buying and see if there is any horrible stuff in there, because sometimes there is, and sometimes you will be tied to that lease that you didn't sign that's coming your way. So that's a huge part of the business.
And Nick pointed out, you might have in certain businesses, like you can't fix them. Like if you, for example, took this glorious, beautiful retail storefront in downtown Manhattan and pay your rent as just some ridiculous number, you may never be able to sell enough memberships. Like it may be unfixable. And you gotta look at that and I would, you know, encourage you to look at a track record of profitability.
Like if I saw something at the stage where I'm at, I would wanna see a business that's profitable and is working well and shows like it's gonna profit $4,000 a month or whatever it is. And it's been doing that for two years. At that point, you can start saying, oh, this is worth a multiple of this and I'm willing to invest that to get this and that works.
But I would be very frightened if I saw the ups and downs and extreme revenue things and problems like that. Have you seen some ex extent expenses that have just been crazy on a balance sheet where you're like, what is that?
Yeah, for sure. And the one I keep going back to is rent, because that is it. Like you, it's very possible that you, you can't fix this business. I know it's not fun to say this and everybody wants to believe that if they work hard enough, they can solve any problem. But where I live, if your rent is $12,000 a month, it's not happening. You can't do that. That is not an option.
You cannot sell enough memberships at the size needed to make that work. That would be, I've seen that on multiple , uh, uh, PNLs . And I've also seen a couple where they're about to kick into an extension that may or may not be in the lease. And the owners are aware that like, oh no, we've never shown we can do this. I don't wanna lock into three or five more years of this, so I better get rid of this now.
Yeah. And sometimes in those leases there are like annual, you know, in increases that pop up or, or build , you know, build back fees. I think in the end , uh, triple net I think is the US term is a different one up in Canada, whatever it is. Uh, but I've seen people where all of a sudden what you are paying is now extreme. And so you , you really gotta dig into that one.
And so Nick's done a good job of pointing that out. If you're looking at buying a gym, like, don't, don't stop at the p and l, take a look at that lease and see what's in there. Because you might be, you might really be tying yourself to a cannonball going overboard. Talk about temptations. So what are some of the temptations?
Because like I remember back in the day , uh, this was like maybe 2010 or something like that, and I was at a business conference and people were talking about buying second gyms and it was sexy. Like , like this was the thing where if you had a CrossFit gym, it's like , I wanna be the guy with two CrossFit gyms.
What are some of the temptations in 2024 for people who are looking like, what really starts getting them to get the checkbook out?
Yeah, I was that guy. So I understand temptation is the fact that you've done this successfully once, why not go ahead and do it again? Right? And just 'cause you can do something doesn't mean you necessarily should do something that doesn't necessarily mean that that is the right use of your time and energy and emotion .
So, you know, if we go back to like founder farmer , tinker Thief , you should not be looking to acquire anything new until you're at least in the Tinker Fiz, right? Because if you can't take your attention off your current thing, you should not be looking for a new thing. You should be working on your current thing,
Which is going to be great .
Be yeah, right? Like, and , and to be, to be less like theoretical and more tactical. If you can't step away from sales and coaching at your gym, you should not go get another gym. If you're still the , the person doing sales and coaching at your gym, you should not full stop. Should not go acquire another gym.
If you can successfully replace yourself in those and successfully replace yourself in say, the management of that gym, the management of the dayday operations, then maybe start looking. But if not, don't right Now, assuming you can do those things, looking to acquire another gym immediately puts you back into founder phase .
So all those hard days at the beginning of your gym where you were there in the morning and there at night and you were talking to people about why they shouldn't spill chalk everywhere and why it's not okay to throw kettlebells at the wall welcome back , or how they have to wear a deodorant or they shouldn't come to the gym. Like any number of these things, welcome back to that phase.
And is that the best use of your time when you just worked so hard to get it so that you're not there when not in talking, one of my mentees through this process, my recommendation was they don't do it. And , and they didn't. Thankfully their goal was to make like an extra $4,000 a month. Okay, let's do that without acquiring $16,000 a month in expenses. Let's do that . Our current business .
Yeah. Right, right, right, right.
Yeah. So I mean, I'll summarize what you're saying there. Like, there's ego. I think ego is a temptation where you wanna be the person who's got multiple locations, you know, like you're that guy or the girl that's an issue. I think the other one is like the temptation to like glorious financial success where you're like, oh, if I've got one and it does this, I've got two, it's gonna double that.
But like two gyms is not twice the work. It's more than twice the work because way more than that . Yeah . Sudden your attention is like, you're , you're not split, you're like split in five different ways because you've got a bad problem staff member there and you've got one on this side, now you've got two.
And they're , you know, like , it just, it spirals and all your multiple, the more clients you have, the more bad clients you have in that mix, right? So all of a sudden you're multiplying stuff. And you made a great point, and this is something people think about.
If you are, if you wanna make more money, you might be able to do that at your current business really easily with the help of a mentor who just says, dude, you just need to do this. And you're like, oh, okay, I didn't see that. Right? So that's a definite concern for people where they can just do something better at their current location.
And Nick mentioned the tinker level, basic summary of the tinker level is that you have a gym, it is running very well. It does not take up a lot of your time. It is paying you about a hundred thousand dollars a year or more, and you are on your way to a $1 million net worth at that point. You've got a little more money than you need.
You've got a little more time than you need and you can now invest this in something else. But I'll tell you this, just because you can do 30 muscle ups for time does not mean you should do that workout every day. You should say, what is the most effective thing that I should do? And you might say, maybe I wanna open a distillery.
We had a two brain gym owner who did that and thought it was a great idea and he is doing an awesome thing. We've had other gym owners who have gone into Airbnbs, we've had other gym owners who have done multiple locations. There are all different things that you can do, but it's like, you can't do all of them. What are you going to do? And how will you stop it from sucking, you know, killing your golden goose.
That's the other thing, right? Like, have you seen that one where someone's like, I got a great gym, I'm gonna buy another gym. And all of a sudden both gyms suck. Has that happened?
I I've seen that so many times. So many times. So , so, so, so, so I work with a lot of the multi-location gym owners and two brands . And I've seen that so many times and it makes sense, right? Because you don't realize how vital you are to your gym.
You cannot replicate yourself.
Exactly. And , and I know we teach people that you brain not to, not to run into like the icon problem where it's Nick's gym or Mike's gym, but there is a level of that that you can't really get away from at our size and style of gyms . And you are the only thing that can't be replicated, right? Like you can only look in one direction at once. You cannot look into it's impossible.
Um, so when, when people make that leap a little earlier than they should, and you know, little transparency, I made that leap little earlier than I probably should have . You start to notice that the place that you used to have all your attention on is just not doing as well
The spinning plates.
Exactly. For me, my, my first gym was, was our cash cow. That was the thing that was supporting everything else. I was so focused on our second gym and then opening up the third gym that the first gym started to struggle. That's a So you had that experience . That's a really common story. Yeah.
Mm-Hmm, . Yep . And it's just because your focus is elsewhere. And that's not to say like there are some entrepreneurs that are so good at this that they can actually do that, but it wasn't, it isn't me. It wasn't you. And maybe it is you now, but you still don't want to, you know? So it's interesting and like Chris has talked this so many times, don't kill the golden goose, right? Yeah .
So there's that thing like you start looking out and up instead of down and in and you start, you know, you lose your focus and all of a sudden the thing that was great is now terrible. You're bleeding members at two locations. Like, so what did you do when you had that situation? Did you just un start unloading gyms and refocus or what'd you do? How'd you fix it?
Yeah, that's exactly what I did . I just killed the third gym . I said, it's not worth it. This is , this is not, it's not worth to risk what we built with these other locations just for this new sexy idea that I had. Let's kill that. Let's refocus.
Did you sell it or did you just shut it down?
I just shut that one down.
Yep . So there you go. And then what happened to your other gyms? So
We, we ran them successfully for three more years. Great. I I closed the second one down last year, December of last
Year . And did that increase your focus on your other tasks?
Oh yeah. Yeah. I mean, un unsurprisingly, the first gym became significantly more profitable again.
And there you go. You know, so it's really interesting thing. So let's, let's close this out. I'll ask you this as a summary for people. What are some of , just like the , the bullet points, when should a gym owner absolutely not buy another gym ? And I'll tell you this, so I'm gonna start it off with one thing that I harp on on the show every time to get it started.
If you do not have a concise set of standard operating procedures in your current business, and I'm talking rock solid SOPs, that every role and task is assigned and the performance levels are indicated and reviewed regularly. If you do not have all this laid out and your business is not formalized and out of your head on paper, you should not look at buying another gym. Nick , what else have you got?
I love that one. If I can't, if I can't come to your gym and read your staff playbook and do your job, you shouldn't start a new gym. And
I'll take you one further. I'll even say if you don't see a playbook in another gym, you might not wanna buy it, but it may be , but that's just me. But anyways, go ahead .
I would say that if you don't have a very large cash reserve or access to a very large cash reserve, you should not buy another gym.
And there are ways to get that, but also know that debt comes with, you know, interest payments.
And I would just tell you, if you're not ready to completely leave your first gym alone, don't buy another gym.
That's the hit by a bus test, right? So that means that like if you can't leave your gym for like a month and it doesn't, and it's you come back as on fire, you should not be looking at another gym, your gym. And that goes back to kinda my SOPs, but you, it has to be running like a machine where if you're gone, it still goes.
If it, if you need to be there steering it constantly, why would you want another, you know, another ship to pilot? You can't do that.
Yeah, I , I would say the last thing is that if there's honestly anything else you want to be doing and is important to you, , yeah. Don't open up another gym 'cause it's gonna stop you from doing any of those other things.
Yeah. And I'll, I'll reiterate what I think was a great point that you made and I think people will forget this. If you are an upper level , tinker level gym owner and you decide to buy a second gym, you are now a founder again. So you have to go right back to the beginning. If that doesn't interest, you don't do it.
If it does and you're like, I like un uncoiling things and I like building and I like getting dirty and getting some, you know, stuff under my nails, do that. But if you don't, you should definitely not do that.
There's something else you can do, you know, and like some of our top gym owners , uh, one of the things that Chris has talked about is like if, you know, have a plan for your spare time and your free time and do something that you know, it really engages you. It might not be building another gym, it might be spending more time with your kids. It might be opening a distillery, it might be something else.
So, you know, really decide like, do I want to get back in the muck up to my knees? . Alright Nick, I wanna thank you so much for giving us some info here and opening , uh, your horror stories from , uh, from, you know, the past, but also cool for you for getting through some of that, that and noticing it, pulling it back and now refocusing because you know, now you can help other gym owners do that.
So when you work with , uh, the gym owners that you know that they're looking at other gyms, do you feel like you can give them the advice they need to make smart decisions fast?
Yeah, most definitely. I mean , I , I put my 10,000 hours in there. Yeah,
So exactly. So guys, we do have mentors that can help you with this kind of stuff. And if you're looking book or call and we can talk about mentorship and can help you guys figure out what should I do right now, it might be buying Jim , it might not, but there is all sorts of resources that can be applied to your situation.
So Nick , thanks so much and we'll talk to you again next time from , uh, the Heart of Florida. Thank
You.
All right , that was Nick Habits . This is Run a Profitable Gym. This is where the world's best gym owners tell you exactly what they're doing so that you can have the same success. And our mentors are constantly on here giving you all the info you need to help you run a better business. Please hit subscribe on your way out. And now here's Chris Cooper with a final word .
Hey, it's two Brain founder Chris Cooper. With a quick note . We created the Gym Owners United Facebook group to help you run a profitable gym. Thousands of gym owners, just like you have already joined in the group. We share sound advice about the business of fitness. Every day I answer questions, I run free webinars and I give away all kinds of great resources to help you grow your gym.
I'd love to have you in that group. It's Gym Owners United on Facebook, or go to gym owners united.com to join. Do it today.