You’d like to make your move to ownership and the financial rewards it can bring. What should you do to prepare? We all know the challenges:
• You don’t have enough equity saved up.
• You don’t want your boss to know you’re looking.
• You never hear about clubs for sale until after someone else buys them.
• You’ve never gotten an acquisition loan before and don’t know if you can qualify.
• You need some help in areas, but you need to be sure that whoever you talk to won’t have a conflict of interest.
As someone who has helped numerous first-time buyers make their move to ownership, I can offer you a few pointers.
GET READY
You will need between 15- and 33- percent of the total deal amount in the form of equity. Get this into liquid form, and in a place where you can document that you have it and how you accumulated it. If you have investors or family contributors, line them up ahead of time, if possible.
Document your track record in the club business and include copies of reports showing results, summary budgets, pictures of capital improvements, multiyear comparative financial statements for clubs you managed, etc. This can really help in getting the debt financing you need, including seller financing if it comes to that.
If you’ve never worked in the club business before, get a job working for a well-run club. Many lenders won’t lend acquisition financing to a person who doesn’t have at least a year’s experience in the field they are planning to go into.
START GETTING A FEEL FOR WHAT’S OUT THERE
Visit listing services on the Web and talk to brokers to find clubs for sale that match your interests. Just as you would never buy the first house you looked at, it helps to look at a number of available clubs to get a feel for what you like and don’t like.
PUT YOUR PROFESSIONAL TEAM TOGETHER
Start thinking about the people you will need on your team to make a deal happen. If this is your first time owning a business, ask around to get referrals. Professionals all have different strengths, personality types, price points, etc. It takes a while to find team members with whom you are comfortable and who are ready to kick into gear when you find your deal.
You will need an accountant you are comfortable with to help set up your chart of accounts, train you in a simple small business accounting package (e.g. Quickbooks), and do your corporate tax returns. If you don’t have a bookkeeper, an accountant can also teach you how to file your sales and use tax returns, and may steer you to a payroll service, which in turn will file your payroll tax returns. In addition, an accountant can be helpful in pointing out the pros and cons of corporate structures (S Corp, LLC, partnership, proprietorship) and in answering questions like whether the seller’s proposed allocation of the purchase price is acceptable.
You will need an attorney, and most novice buyers wait too long to find one. NEVER rely on the seller’s attorney for deal advice. NEVER let the seller’s attorney provide the purchase and sale agreement either. Attorneys rely on form books and there is no form that covers the typical aspects of a club deal. Lastly, don’t expect an attorney to “make” the deal. Attorneys are good at drafting a deal that has been negotiated, and are indispensable for incorporating your company, closing your bank loan, and dealing with everyday legal issues. But they are notorious deal-killers due to their training to advocate for their client (only), due to their pointing out all the things that can go wrong, and typically due to their lack of entrepreneurship.
Lastly, you may want a deal consultant to help you put the deal together. A consultant can figure out what the constraints of your deal are, how much acquisition financing you can get, what terms you should hold out for from the seller, what problems stand in the way of closing, and typically will bring 25 or more years of experience to bear in making sure you get your business off to a solid start. Many a deal that has gotten stuck has been helped through to completion by a seasoned deal-maker.
Owning your own business is the American way and a great adventure, so if you’ve been thinking about making your move to ownership, do the things you need to do to get ready. As a famous man once said, “Luck is when preparation meets opportunity.”
Peter Kroon is the Owner of Fitness Alliance. He can be contacted at 860.305.2203, or by email atpbkroon@fitnessalliance.com, or visit www.fitnessalliance.com.
