Opening A Gym Requirement #2) FINANCING
The average cost of starting a small gym is between $50,000-100,000. This range is not the limit as many large gyms with world-class amenities can cost over $1M to start. If you want to spend the least, you could probably get away with spending as little as $10,000 on equipment. Many factors can offset the total price.
One example is renting a space vs. purchasing a facility. If you own your facility and you don’t have to pay rent, you only have to buy the equipment and insurance.
If you don’t own your own space, you’ll have to rent, which could rack up your monthly expenses to the tune of thousands of dollars. The decision is whether you want your costs to be front-loaded as capital expenditure or monthly as operational expenses.
In general, there are two ways to finance a gym: Self-financing and commercial borrowing.
Self-Financing
Most gym owners start by self-financing the gym. I love self-financing and bootstrapping, and I always tend to bootstrap my businesses.
If you’re starting a small gym, you might not need a bank loan because you can cover the amount yourself. Tap into your savings or ask for a loan from relatives, and you’ll quickly have the minimal amount necessary to start a gym.
You’ll have to cover expenses such as licensing costs, treadmills, dumbbells, machines, merchandise, and marketing, but this is all achievable if you save up for a year or two on your own.
The financial requirements are not as rigid as people think, and there is a lot of leeway around small gyms. Anything between $10,000-20,000 is a good start for a small private gym.
Self-financing is the way to go because even in the event your gym doesn’t produce ROI, you can always sell off the equipment and make your money back. You’ll be in a lot more trouble if you finance a $300K gym on a mortgage and have to shut down and declare bankruptcy.
If you feel that you’re 6-12 months away from starting your gym, my main advice is to start saving money. If your dream is to own a gym, you could have the finances available in as little as a year of saving.
Commercial Borrowing
Commercial borrowing is the way to go if you’re starting a mid-sized or large gym, and you need over $50,000. In many cases, you can even borrow small amounts such as $10,000 or $20,000 for your gym.
Lenders are eager to help out small businesses as it means more clients for them. Also, the perception of gyms is that they are relatively “safe” investments compared to innovative companies that carry risk.
This differentiation is because the requirements for starting a gym are low, and the equipment preserves its value over the long term (commercial gym equipment is always in demand). The gym will always have assets on its books, unlike innovative internet companies.
Business Plan for Commercial Borrowing for A Gym
If you decide to opt for the borrowing route, expect each bank to require a business plan. Writing a business plan is a straight-forward process, and all you have to do is cover necessary information about your business:
Name. The name of the gym, including any taglines or promotional words/taglines that you own associated with the brand of the gym.
Location. Include the exact location of the gym. Also, explain the location’s benefits in terms of access to a client base. Lenders want to see this to ensure the gym will be profitable.
Cost Requirements. Make a list of all the equipment you have to purchase, the rental costs, the licensing, and the marketing budget. List the total costs.
Marketing Strategy. Write down how you’ll attract customers, whether it’s local promos or digital marketing.
Expected Turnover. Investors want to know how much money you’ll be making to guarantee you’ll repay your loan in due time. List your projected revenue based on the number of members you expect to join the gym.
Business Software. The gym will require Gym Management Software, so gym software is another expense you’ll have.
Membership Structure. List all the membership structures, the sign-up fees, the specialized training offers, and any other promos you offer at the gym.
Target Audience. Make a list of all the people you expect will be coming to your gym. Are you opening a traditional gym that caters to everyone, or do you plan to attract a particular type of body-builder?
Alternative: Franchising
If you want to avoid opening and branding your own gym, some popular brands will let you use their name and operate independently. They will let you run as part of their brand as long as you pay an initial licensing fee and a percentage of revenues or profits.
In some instances, the franchise company will cover the expenses of opening the gym and buying the equipment as long as the entrepreneur convinces them they’ll make a profit in that particular location. However, in this case, the parent company also retains a large portion of the profits.
The benefit of franchising is that you go with an established brand that already has recognition, connections, and can offer you support throughout the set-up process. Licensing for franchises is also a lot more affordable than people assume.
However, there are no guarantees the gym will be successful – similar to opening your own gym. You have to account for the location and the appeal to the client base if you want to ensure your franchise ends up becoming successful.
Recommended Franchise - Osteostrong