Forums: Discussions for entrepreneurs and small business.

It has been a long time passion and dream to own and operate a co-ed fitness gym.

I love the Anytime Fitness Franchise idea. The area I am looking at will be perfect for this type of business.

The big problem is I do not have the funds for startup. Personnel credit was ok until about a year ago when there were some medical issues with my wife. I have been playing catch up with the bills for some time.

What would be the best way to approach a potential investor/partner/angel?

There is a local gym already established and the price is ok. It already has 600-800 members. So getting an established business will that be easier?

 

 

Buying an established business may not necessarily be to your advantage.  In some cases, a prospective lender will treat you as a new business. 

Having said that, you may be able to borrow against some of the existing assets of the business to fund a portion of the acquisition.  Unencumbered equipment may provide an opportunity to borrow funds, but with a challenged credit profile you might not find many interested lenders.  In addition, there are lenders who will buy the gym membership contracts with remaining terms of up to 36 months with up front cash equal to 65-70% of the value of the contracts.  Also, to the extent the business has a track record of regular credit card revenues, there are lenders who will provide you with an advance.  The cost of each of these funding options varies - the latter two can generate effective interest rates in excess of 30% per annum.  Expensive, but cheaper than equity.

Now all you have to do is come up with the equity to complete the purchase...

In order to do the cash advance I would have to already own the business. Either borrow against the memberships or against the equipment from what I understand only the owner can do that.

The curent owner will hold not for $100,000

Leaves $199,000 to come up with.

Equipment is around $180,000

Much like buying a home, all of the approvals would be to be obtained in advance and the money put into escrow.  You would have to arrange any loans in advance on the assumption that you would close everything on the same day that ownership transfers through escrow. 

So assuming he gets an advance on the sales from credit cards or invoices which is around $340,000 in sales per year. (80% of customers are electronic payment) He would only be able to get the most of 70% of that which is $230,000. He said he could hold a note the remaining amount. Which is $69,000 ($299,000 purchase price) and I can pay that out over 3years at 9%.