Zeb, looks like you are in good hands so far. Everyone is giving excellent advice, almost all of which I would have said too. I will try to address some things not brought up yet.
I’ve been in the business for a long time (11 years in my current facility so far). I like the advice others have given because it is realistic. Don’t go into this business with any illusions of it being easy and making tons of money. Not to say that you can’t do well, but I always tell people that they should only go into this business if they truly have passion for fitness. For those who are just interested in making money, go into the money business. It will be a lot easier to sell if you love it, because people will be motivated and inspired by your energy. Think of the people you have (or have not) purchased things from in the past. If they were excited about what they were selling it may have gotten you excited about buying it. If someone is just a dull order taker or an apathetic college student then you don’t feel as complelled to part with your money.
Seems he has three things that he is basing his sale price on: 1. Value of building. 2. Value of equipment. 3. Value of customer base.
Have you written a business plan yet? I would start one and start putting together the numbers on A) buying his place, or B) building your own.
His building may be in a great location, but you may have a location that works better for you or that may get better access to your members. Also, maybe purchasing the building is overkill. I don’t know how fast commercial property in your area sells, but if you don’t have a really good market, you may want to lease the property to give yourself some flexibility in case you want to move later down the road. What is your population base in that area, and who is your biggest market? Is is residential or is it business? My personal business is in the financial district, so I cater primarily to a business clientele. The needs are very similar to a residential in terms of building a base of members, but your busiest hours and your offerings may be a lot different. The good part about buying the building is that you will have something material for a bank to have as collateral. Memberships aren’t really a tangeable thing. They are important for YOU as accounts receivable, but banks don’t do loans based on that for the most part.
How old is the equipment? Usually that stuff depreciates over 4-7 years (cardio equipment depreciates much faster than weights obviously). It may still be useable, but in terms of actual value may not be worth anything. You may and probably will want to put in all brand new stuff and make sure you get what you want. You may also work the deal to where you don’t pay nearly as much for the equipment as he is asking for it if he thinks that you don’t really want it. He doesn’t want to take it with him to try to sell it seperately, I guarantee you! He just wants to unload that stuff and he will probably practically give it away with the facility if you follow through on the purchase. All that is assuming that it isn’t really current and fancy equipment.
Probably THE most important thing that you are really purchasing is the membership base. How many members does he have to start off with. Have you had a chance to look at the cash flow of the business? Would you be able to step right in and immediately be able to pay all the bills or is he still in a deficit situation. If he’s in a deficit (if his membership revenue is lower than the break-even point and you have to make up the difference with ancillary sales like personal training or proshop), then you may not want to buy the place because there might be a reason he has not been able to pull enough base sales to keep the place afloat. Maybe the location? Prices? Atmosphere? Staff problems? Who knows. Where this might benifit you if he is in a deficit is that he might be in a fire sale and willing to unload for pennies on the dollar. If his base is pretty solid then his price is probably based on a year’s revenues, which isn’t bad if all the other factors we talked about line up the way you want them to.
Back to an earlier point though. If you love this business and you aren’t comforatable with his set-up, what’s stopping you from doing it on your own? If you pursue it like that it will put more power in your hands in the negotiation process (if he wants out he sure as hell doesn’t want you as competition, nor does he want to have to try to sell it if there is competition in the area because he will have an even harder time finding a buyer). Look at commercial property all over the place (buy or lease), price out equipment (I can email you the numbers to a ton of distributors I have used in the past that I trust), and do a little market study in your area to see just how big of an opening there really is for your fitness center.
However it goes, good luck with it. I will continue to add to this thread as ideas hit me. If you need any other assistance feel free to PM me and I will give you my personal contact info.