A common question I get asked a lot by my clients is whether they should acquire a second location. It’s quite common for a gym that is doing well to be offered to buy out a struggling location.
While opening a second location might be a dream for many gym owners, it often ends up being regretted. It can be a great decision only in a couple of scenarios, in the above video and in the below article, we unpack those scenarios so you can make the right decision if faced with the opportunity.
A couple of common questions I pose to a gym owner considering purchasing or opening a second location include:
- Does It Make Sense To Open A Second Location?
- Is This A Good Investment In Expanding And Growing My Gym Business?
- How Will You Fund The Acquisition Of A Second Location?
Does It Make Sense To Open A Second Location?
There are a couple of scenarios where I think a second location could make sense. The first would be if you have an incredible team in place at your first location that could manage the day-to-day operations without you. This would allow you to focus on the new location and get it up and running smoothly.
The second scenario where I think a second location could make sense is if you’re in a rapidly growing market. This could allow you to get ahead of the competition by having a presence in multiple areas.
However, there are also some potential downsides to acquiring or opening a second gym. One of those downsides is that it can be very difficult to manage two locations effectively. If you’re not careful, the quality of your gyms can suffer.
Another potential downside is that it can be very expensive to open or purchase a second location. This could put your first gym at risk if you don’t have the capital to invest.
You need to really consider if you’re able to invest the time necessary in managing two businesses. It’s not uncommon for an owner who acquires a second location and doesn’t give it the attention it needs causing both locations to suffer.
Weigh the pros and cons of acquiring or opening a second gym location. Consider things like staff, funding, market growth potential, and your ability to manage two locations without sacrificing quality. Make the best decision for you and your business.
Is This A Good Investment In Expanding And Growing My Gym Business?
When considering expansion it’s important to think like an investor first. Put away your gym owner and “passion hat” in this part of the decision-making process and look at this like a mergers and acquisitions company would.
If you’re not looking at things from a purely financial perspective, you may be making a huge mistake that could monopolize your capital and your time. You may also miss the biggest opportunity for growth with this new location. Consider what areas of the business could be improved or expanded upon, and think about how you could make those changes without compromising the quality of your product or service.
There may be a reason why the previous owner wants to sell that you aren’t seeing if you’re too excited about the prospect of expansion and don’t do your due diligence.
The key is to make sure that you understand where the business has potential upside, and that you feel confident in your ability to provide the needed systems and support to see that upside play out.
When making the decision to acquire an existing business as a second location, it’s important to view the acquisition from all angles.
This means considering the sales, marketing, operations, and fulfillment processes to identify the business’s strengths and weaknesses. If you feel confident that you can provide the support the business needs in its weak areas, and if you have your first location turn-key, then acquiring the second location may be a good decision.
Some of the best business acquisitions in history are ones where the business was lacking in one of the departments and the acquiring party brought that value to the business. This often results in a high upside opportunity.
If you are a strong salesperson or marketer, and the business is severely lacking in sales or marketing meanwhile it has great infrastructure on the operational end.
This would be a great fit between the business and new ownership because that means the business can scale up to profitability and fund its own staff while yielding profits for the new owner. Especially if the potential location is in an untapped or underserved market.
By thinking like an investor, you’ll be able to make more informed decisions about where to take your business next.
How Will You Fund The Acquisition Of A Second Location?
Once you decide that expansion is a smart move, you’ll need to consider funding options to acquire this second location. This could be in the form of a loan, investment from a partner or private equity firm, or using your own saved-up capital to bootstrap the new location.
Choosing the right type of funding for expanding or acquiring a second location will depend on a number of factors, including the amount of money you need to borrow, the terms of the loan, and your personal financial situation.
If you’re looking for a long-term loan with more flexible terms, a private business loan may be a good option. You can also look into government-backed loans like an SBA loan, which can offer lower interest rates and longer repayment terms.
If you can not or decide not to pursue institutional lending then you can get creative by leveraging your personal assets, like using a home equity line of credit, which allows you to borrow money against the equity you’ve built in your home.
You could also consider private-equity investments, hard money lending, or partnering with a private equity firm to fund your expansion. This type of funding can be more expensive in the long run, and the terms are often not as favorable as these lenders are offering the capital so they can generate a profitable return in as short a time frame as possible for the client in their fund.
Last but not least, you could always fund the acquisition by getting friends and family involved, or sometimes even crowdfunding the capital needed from your current clients. Offering a lifetime deal to existing members generates cash quickly to make the acquisition is another creative way to finance the deal.
By taking these things into account, you’ll be able to make a more informed decision about whether or not expansion is right for your business.
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