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Loan Types
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Finance for a gym franchise
What you need to know about financing a gym franchise.
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Australia's fitness industry is worth about $2 billion and there are lots of heavy-hitting franchises in the market. From 24-hour gyms such as Anytime Fitness, Jetts and Plus Fitness, the more tailored gym options such as Fernwood or your gym staples such as Fitness First, you'll be able to find a gym franchise that suits your budget and needs.
If you're looking to buy into a gym franchise and need finance to do it, this guide will take you through what you need to know.
Costs and profitability
How much does a gym franchise cost?
Gym franchises vary depending on the brand, but the total investment will likely be between $200,000 and $600,000. Here's an outline of the costs to expect:
- Franchise fee. You'll need to pay a franchise fee which gives you the right to use the franchise's brand, trademark and other similar things. Typical gym franchise fees are between $50,000 and $70,000.
- Fitout and purchasing equipment. The cost of a gym fit-out can range from $50,000 to $300,000 depending on your chosen location. Equipment is also a significant cost to consider but will vary greatly depending on the fitness experience the franchise provides and the size of your gym.
- Ongoing costs. This will work in one of two ways: regular fees or as a percentage of your turnover. How it will work will depend on the franchise you buy into.
What other costs do I need to consider?
There is also various fees and costs to consider outside of the standard franchise costs.
- Franchisor's legal costs. You may be responsible for the cost of preparing legal documentation and/or leasing documents. Discuss this with the franchise beforehand so you are prepared for these costs and also look at how much you should expect to pay.
- GST. This is something that will leave you out of pocket for a couple of months until you can recover it by lodging your first Business Activity Statement. The GST you will likely have to pay will be 10% of the franchise cost.
- Security deposit. While you've likely taken the cost of rent and fit-out into account, you also need to consider the security deposit that you'll need to pay for leased premises. This is normally three months' rent.
- Working capital. The amount of working capital you'll need will depend largely on how long it will take for you to drum up business and customers. The franchise you're buying into should be able to shed some light on this timeframe based on similar franchisees' experiences.
How profitable is a gym franchise?
The profitability depends on a variety of factors, including:
- Location. Where is your gym going to be located? Do you know the area? Research the demographics of the area as well as functional aspects such as traffic and parking to see if it will be viable.
- Setup time. Gym franchises will have various setup times ranging from around one month to up to six. This does not include your own research time and can be affected by choosing a location, negotiating rental terms, etc.
- Competition. Once your location is settled you need to investigate the competition in the area. If there are any other gyms nearby, what is the point of difference you are offering? Are there differences in price points?
- Your experience. Do you have experience running a business? Are you a trained fitness instructor? See where your skills are lacking and ensure you have a reliable team that will be able to complement your skills.
- Convenience. Convenience is a massive driving factor for people to join gyms, whether it be that the gym is located near their home or work or that it be open at convenient hours. Consider how convenient your gym will be to your target market.
- Reputation of the club. Do some research on your own franchise. What are the opinions of people in online forums? There will be no point buying into a franchise if it has a terrible reputation.
Finding finance
What options do you have to finance a gym franchise?
There are a few financing options to consider, with the right one depending on what situation you're in:
- If you don't have security. You can consider an unsecured business loan. While these tend not to be offered by major banks (a notable exception being NAB's Quick Biz Loan) you can find a range of unsecured business loans offered by smaller alternative lenders. To buy a gym you will be able to apply for up to 70-80% of the business costs and will usually have up to two years to repay. You can also consider a peer-to-peer business lender for an unsecured loan.
- If you have a residential or commercial property. If you are willing to use your property as security you can consider a secured business loan. You will have a better chance of being approved if you have security and you will have access to a wider range of lenders. You will also generally be able to borrow 100% of the business costs if you have property as security.
- If you want continuing access to credit. Not sure how much you need to borrow or want access to funds as you grow your business? A business line of credit might suit your needs. This involves you being approved for a credit limit which you can then draw on as and when you need. You only pay interest on what you borrow and there are no set repayment periods. Your repayment term is also ongoing.
Compare options for financing a gym franchise
What should I consider when comparing my financing options?
Here is what to keep in mind when comparing your business finance options:
- Fees. You may be charged upfront fees such as loan origination or establishment fees as well as ongoing fees such as monthly or even daily fees. Check what fees you'll be charged and whether this will make the loan unaffordable.
- Repayment flexibility. How are the repayments structured? Are they flexible to suit your cash flow or is there no leeway? Have a look to see what fees you will be charged to change repayments, if repayments can be changed and if you can make additional repayments or repay the loan early.
- Suitability for your business. Not all business loans are suited to every business. For example, a loan may be structured in a way that it doesn't suit a new business or one in a particular industry. Consider how the loan will work for your gym franchise.
How do I get approved for finance?
Generally, you will need the following to be approved for gym franchise finance:
- 2 years personal financial or business statements (this depends on your previous experience)
- You may need to provide evidence of prior experience managing a gym or previous business management experience
- If you're purchasing an existing gym you will need financial and business statements
- Clean credit history
- A business plan with cash flow projections and revenue forecasts
- Evidence of working capital
Summing up
- Gyms are a booming business in Australia and can be a good business to buy into
- Total investment is between $200,000 and$600,000
- You have a range of secured and unsecured business finance options
- Do your due diligence to find the right gym franchise for you
Pictures: Shutterstock
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