Sunday, November 6, 2016

How To Sell A Boot Camp Business

I received an email the other day from a personal trainer and owner of a boot camp business, similar to the ones I created. I keep his name and contact info private, just in case.

Hi Jesse,
I hope you're well.
My name is R. and I read your great book 'How to Build You Own Fitness Bootcamp' which was a great read and resource.
I wanted to ask your opinion about selling a bootcamp business.
I've been running my bootcamp business for 8 years and over that time had some good highs and some big lows. I am at a point now where I just want to sell or move on from the business as it is underperforming and barely breaking even each month - has been for the last two years. I've tried different things, put a lot of money into it as well, and realized now more than anything that my heart just isn't in it anymore and it is time to move on.

I have 4 locations that I run and have trainers running those locations as contractors (paid per session). Average size is about 10-15 members at each location. Each location has one trainer who runs all the sessions there and has built the rapport with the members there.
I wanted to ask your ideas on approaching selling my business to my trainers based on the number of members in the group and anything else.
I've never done this before, but want to make sure the members are in good hands and taken care of after I go.
Any help or feedback would be greatly appreciated.
Kind regards,
R.

I really had to think about this one since I rarely get this question. I debated for awhile whether to even post it here, since many of my readers are simply looking to get started or improve their existing business and haven't even gotten close to the point of selling.

I realize now, however, that having an exit strategy is a very important part of the process. Therefore, I will include the entire dialogue for your education and curiosity. I know there will be value for you in "listening in" on the conversation. Enjoy.


Hi R.,

Thank you for contacting me and trusting me enough to ask my advice on this very important issue in your life. I respect the fact that you look to me as someone who can give advice. I was going to respond very quickly when I first saw the email come in, but instead I chose to take a walk and ponder this for awhile.

It sounds like we have been running boot camps for around the same amount of time, and your journey even sounds like it parallels my own. I very much can empathize with your "good highs and some big lows."

I don't know anything about you, but from the sound of your email, you are just exhausted by your business and no longer inspired.

The first thing I would look at very closely is your own personal goals and mission statement in life. I have learned from experience that as much as you want to just dump the whole thing and leave it behind, you have some things to consider first. I know that the urge is to leave something in the past and move on. You are probably right about that, as there are seasons in our lives and everything happens for a reason, and sometimes that reason and purpose has served it's purpose and continuing on that same path feels like dwelling in the past. We all want to be forward thinking, but sometimes we try to do it while we are facing backward.

Another way of saying all this is that sometimes we want to run from something we don't like before we have determined what thing we like that we want to run to.

Don't take this the wrong way. I am not saying you haven't thought about this, but since you made no mention of your future plans and aspirations, I can only assume you aren't completely clear on what you want to do next.

With this in mind, here are a few questions to ponder:
  1. Do you even want to stay in the fitness industry?
  2. If so, what is the very best result you can imagine for your fitness career?
  3. If not, what other vision are you attracted to now?
  4. What is the very best result you can think of for your life and your vision for the future?
  5. Have you written a personal vision statement? If not, go get AndyAndrews.com guide for free. He is one of my favorite authors and a mentor to me.
I ask these questions first, because it will make a major difference in how you approach your next steps, and may alter your decisions in a number of areas.

For example, if you really love fitness and would prefer to stay in the fitness industry, I would slow down and consider the idea of abandoning ship very carefully and seriously a bit longer. I would advise you not to sell, but instead creating a brand franchise or licensing program so that you can continue earning revenue from the camps while also giving the trainers ownership (more on that at the end of this email).

If you just hate the whole thing altogether, then I think you are very wise in selling each location to that specific trainer.

Another option, which I usually don't recommend, but which I am bringing up just to cover all basis, is to find a single buyer for the whole business. This is what I did, and made my exit from my original business that way. The plus side of that approach is that the business is already structured for a single ownership (since you are the owner), and therefore you don't have to make any changes. The downside is that you have to entice someone to buy the whole thing and show the potential value and cash flow. From your email, it sounds like there isn't much profit, which makes it harder to sell.

Yet another option is to walk away entirely and simply cut your losses. This is the easiest thing to do. You just help the trainers create their own business and take over the clients. Then, you make a deal with them that you stay on as their consultant for a few months until they are on their feet. You do this for a fee, and get it in writing. Perhaps you earn a flat rate per month or your take a percentage of profits for a few months, or something along those lines. In this way, you are "selling" them the business, but you aren't having to argue as much over the value of the clients, since you are essentially just offering them a service during the transition, in lieu of sale. So you sell for $1 or something, and then charge them a fee during the transition. This option may sound a little odd, but it happens all the time in business and may sound more appealing to the trainers as buyers. Of course, this is essentially the same as selling at a fixed price and then hanging around to help them take over, but it is more palatable to the trainer usually, since they feel like they are getting the business for free. In either case, you could make the same amount of money, depending on the dollar values in the transaction.

A traditional way of selling each part of the business would be to take the profit per month of each camp and sell it at a multiple of that profit. For example, if a camp profits $3000 per month, you could sell the business at $3000 x 12, or $36,000. You would then divide that into payments over a year or two. This is a very simplified method of how other traditional businesses are bought and sold. The problem here is that this isn't a big business, since the profit is usually eaten up entirely by the sole proprietor (the trainer) in the form of salary. A trainer is not likely to work hard for $3000 a month and then pay you the $3000 a month for a year. That's why this system is not desirable for small self-employed operations like this. It works for people with money to invest on a stable business where they are looking for returns on their investment over time. They would essentially be buying the future value of the asset down the road and take the cost of investing as a sunk cost that they recoup over time and make their profit that way. To make anything like this work here, you have to decrease what you are asking for. For example, you would take the $3,000 per month, and ask for a smaller percentage, like say $300 per month. So you would potentially ask for $300 a month for 6 months or a year, or whatever you could get away with asking for. I would give you an average or a good number, but I would be making it up, since in these very small businesses, it is wide open to interpretation and negotiation and it's like the wild west of deals.


When I sold, I was in a very particular dilemma involving discord and unscrupulous employees. I was therefore in a hurry to sell to a single buyer. If I could go back I would absolutely not be in such a hurry, but that is all in the past. What I have done now, which I wish I had done then, was to build my own franchise (kind of like Fit Body Boot Camp). Mine is called Action Fitness Camp. Anyone can buy the rights to it for very little money, and then open their own. Or, if they build a camp, they can convert it into an Action Fitness Camp and then sell it off to a trainer, who would then own the business outright as a stand-alone location. If I had this figured out back when I was selling, I simply would have offered this to all my trainers, walked away, and collected a small monthly fee. You might create something like this, or you could use my deal to help you make money. Now, let me stop myself here to make sure you know that I am at risk of sounding self-serving by even bringing this up, and I hesitate quite a bit because I don't want you to think I wrote this email to sell you on my services. I sincerely just want to help, and the information here is just to give you a more complete picture. You certainly don't need to use my stuff or get involved in my thing in any way. Just do what seems the best for you.

What I provide in the Action Fitness Camp licensing program, is the cohesive identity that a franchise offers, without the costs. I help a trainer with business training, structuring their business, websites, billing, and marketing. I also do their weekly newsletters and private facebook group content. In other words, I do a lot of the business stuff they don't want to do and don't have time to do and might not even know how to do, so that they can spend their time just training and growing their business. You could do the same and then charge them a monthly fee. Rather than sell them the business, let them just take it over and keep all the profit and you simply charge for the services you provide.

Or, you might consider partnering with me and making an arrangement to either sell the business at the same time (making it more attractive to them), or charging a fee to them and then paying a very tiny fee to my company. For example, you could convert them to Action Fitness Camps (it doesn't matter if they change their name, but it might help since they are going under new ownership anyway), and charge them $100 per month. You then pay my company $50 and keep $50. That doesn't sound like much, but that is what I am offering to keep things extremely and ridiculously low cost.

Again, let me reiterate that I am simply illustrating this to you because A) It gives you a bigger picture of all your options and gives you more options than you had before, and B) because it is something that I do as a service to help business owners like you. You can take it or leave it and it doesn't hurt my feelings one bit.


OK, let's get back to the main points and wrap this long answer up :)

  1. Make sure you have a plan for what you are running TO before you start running FROM something. You are more successful by a factor of at least 10 if you have something that is inspiring you.
  2. If you decide you want to do something else, try to get that going before you jump ship from the previous opportunity (or at least have money saved up while you are in transition).
  3. If you do indeed decide to sell, make sure you look at all your options and weigh each one carefully in regards to your individual situation and circumstances.
  4. Once you decide what you are doing, be sure to finish the job entirely and leave on a good note. Don't burn bridges, because you never know if or when you want to work with these people in the future. Do what you say you are going to do and do it well.

I hope that helps!

Jesse

-----------------------------------

Hi Jesse,

I hope you're well.

I firstly have to say a huge, huge thank you for taking the time to reply to my email with such consideration. It is greatly appreciated to get your insight from someone who has walked my path before.

I will do my best to let you know a bit more about where I am at this stage in relation to your email. I have pasted parts of your email in blue.

Yes - you are completely correct that I am exhausted and over my business. The last 3 years I've felt more lows than highs, and to be honest, have stayed with my business purely out of pride, stubbornness and fear.

I've felt like a boxer in the 10th round on the ropes for many years now and it has taken its toll on me.



The first thing I would look at very closely is your own personal goals and mission statement in life. I have learned from experience that as much as you want to just dump the whole thing and leave it behind, you have some things to consider first. I know that the urge is to leave something in the past and move on. You are probably right about that, as there are seasons in our lives and everything happens for a reason, and sometimes that reason and purpose has served it's purpose and continuing on that same path feels like dwelling in the past. We all want to be forward thinking, but sometimes we try to do it while we are facing backward.


I love basketball. I've been coaching kids and running profitable holiday camps for the last year and this has been great, but I now actually want to go into a niche of helping basketball coaches learn how to start and grow their own basketball coaching business. I know this is quite a niche :) I know there are some strong similarities between the problems and frustrations they have, and what personal trainers have. I also want to do this via online coaching and a membership site, as I really want to keep things remote where I can help people from any country and anywhere. 

I'd love your thoughts on pursuing this niche.


With this in mind, here are a few questions to ponder:

  1. Do you even want to stay in the fitness industry? To be honest, not really. Maybe in the future, but I feel like I'm over it from the toll my business has taken on me emotionally
  2. If so, what is the very best result you can imagine for your fitness career? Getting out of it, at least for a few years to try something fresh in a different industry
  3. If not, what other vision are you attracted to now? What I mentioned above about the basketball coaching industry
  4. What is the very best result you can think of for your life and your vision for the future? To take care of my emotional and mental health first. To be truly happy in my business by being focused and having my current business off my shoulders to do so
  5. Have you written a personal vision statement? If not, go get AndyAndrews.com guide for free. He is one of my favorite authors and a mentor to me. I don't have one written down, only in pieces. I will check this out for sure

For example, if you really love fitness and would prefer to stay in the fitness industry, I would slow down and consider the idea of abandoning ship very carefully and seriously a bit longer. I would advise you not selling, but instead creating a brand franchise or licensing program so that you can continue earning revenue from the camps while also giving the trainers ownership (more on that at the end of this email).



I've tried franchising/licensing in the past and it worked, I actually have 4 trainers who are licensees at the moment, but I didn't really give the best support to my trainers. I was still running my locations and get members and trying to help them at the same time, but since my own locations were struggling especially during winters, I also didn't provide them with great help. I think I also got frustrated at times with customer service issues and bad performing trainers who didn't do any marketing efforts themselves. Similar to yours it was a very low cost license model option.



If you just hate the whole thing altogether, then I think you are very wise in selling each location to that specific trainer.


Unfortunately it has gotten to that point, BUT, I am still flip flopping between wanting to just walk away with the cut-off date at the end of this year (Dec 24th would be the official date as we don't run bootcamps over Christmas and New Year for a few weeks) and trying the license model again because I have so many resources from this, and cos I feel a sense of shame or failure in closing and walking away from the business. I know I shouldn't because I've built a very good business that has helped a lot of people change their lives, and I've employed a lot of trainers as well, it has also had some very profitable periods and has taught me a lot to carry over to any other venture. 

I feel that if I don't break ties completely, I will never be able to move on to the next chapter of my life and I will always still be dragged in, and won't be able to focus entirely on my next venture which will mean it will be less likely to succeed as well.

I think everything you've done with Action Fitness Camp is incredible, and I completely see the strength in that model. As I mentioned above, I went down this path and keep thinking about jumping back into it. But I know my reasons aren't from an area of passion, they are only for money and because I am still working through giving myself permission to move on from my bootcamp business and a personal trainer and reinvent myself.



A traditional way of selling each part of the business would be to take the profit per month of each camp and sell it at a multiple of that profit. For example, if a camp profits $3000 per month, you could sell the business at $3000 x 12, or $36,000. You would then divide that into payments over a year or two. This is a very simplified method of how other traditional businesses are bought and sold. The problem here is that this isn't a big business, since the profit is usually eaten up entirely by the sole proprietor (the trainer) in the form of salary. A trainer is not likely to work hard for $3000 a month and then pay you the $3000 a month for a year. That's why this system is not desirable for small self-employed operations like this. It works for people with money to invest on a stable business where they are looking for returns on their investment over time. They would essentially be buying the future value of the asset down the road and take the cost of investing as a sunk cost that they recoup over time and make their profit that way. To make anything like this work here, you have to decrease what you are asking for. For example, you would take the $3,000 per month, and ask for a smaller percentage, like say $300 per month. So you would potentially ask for $300 a month for 6 months or a year, or whatever you could get away with asking for. I would give you an average or a good number, but I would be making it up, since in these very small businesses, it is wide open to interpretation and negotiation and it's like the wild west of deals.


If you were working this number out, in your example, is this profit of $3,000 what your camp is making taking into account that you are the one running the sessions? or if there is a trainer running them. What I mean is, say for example:
- Bootcamp revenue = $3,000 p/m
- Trainer pay = $1,000 p/m
Profit to me when hiring a trainer = $2,000
Obviously, $3,000 profit if I do the sessions myself

When selling, do I do my numbers based on a profit of $2,000 or $3,000?




Yet another option is to walk away entirely and simply cut your losses. This is the easiest thing to do. You just help the trainers create their own business and take over the clients. Then, you make a deal with them that you stay on as their consultant for a few months until they are on their feet. You do this for a fee, and get it in writing. Perhaps you earn a flat rate per month or your take a percentage of profits for a few months, or something along those lines. In this way, you are "selling" them the business, but you aren't having to argue as much over the value of the clients, since you are essentially just offering them a service during the transition, in lieu of sale. So you sell for $1 or something, and then charge them a fee during the transition. This option may sound a little odd, but it happens all the time in business and may sound more appealing to the trainers as buyers. Of course, this is essentially the same as selling at a fixed price and then hanging around to help them take over, but it is more palatable to the trainer usually, since they feel like they are getting the business for free. In either case, you could make the same amount of money, depending on the dollar values in the transaction.


This is the option that appeals to me the most to be honest. I think it will be very hard to find one of my trainers to buy the whole business, and you pointed out some excellent points about it being very difficult to sell based on it being a very small business with small profits.

Here are the numbers for the 4 locations I have - none of them have me running the sessions myself:

Location 1
Members: 13
Monthly Revenue: $1,900
Trainer Costs: $1,000
Profit: $900

Location 2:
Members: 22
Monthly Revenue: $2,800
Trainer Costs: $1,300
Profit: $1,500

Location 3:
Members: 9
Monthly Revenue: $1,210
Trainer Costs: $480
Profit: $730

Location 4:
Members: 15
Monthly Revenue: $1840 
Trainer Costs: $1,160
Profit: $680

I want to approach each trainer about the walking away option and telling them they get the business and the members, but based on the number of members and the revenue it is generating, they pay me $XXX per month for X months for the members and also as a consultant to get their business transition off the ground.

I'd love your help with the numbers and feedback on this. I understand that you don't know my situation exactly, but even just to know what you would do if you were in my situation with these numbers above and the type of figure you would propose to them to pay you each month and for how many months will be unbelievably helpful.

Once again I want to thank you for your reply to my email and assistance.

Kind regards,

R.
----------------------------------

R.
Ok here's an idea:


Take the profit (after trainer expense, as listed) and use that as your investment requirement for 6 months. For example, camp one has a $900 profit per month. So you will sell the camp for $5,400.

Now, it is very important to educate the trainers how your deal is a good one, since they usually have no business experience and might not realize a good deal if it fell on their head. So, you need to preface the whole thing with something like:

"How would you like to own my business? Normally, when someone buys a business, they have to bring cash to the table. We can do that, or I can offer a way for you to just work it off and own it free and clear."

Then you offer two options: buy it for $5,400 up front (a discount), or pay $900 for 9 months (or twelve if you want).

The reason I think they will pick the $900 a month is because they won't feel the pain of it, since it essentially is what they are already paying you anyway. So that way, they just keep doing what they are doing and making the same amount, but eventually they own the business.

I'm the meantime, you make them owners and just consult them. You give them the responsibility that you now have so it is no longer on your shoulders. You do need to make sure they take all the work on themselves, otherwise it isn't a good deal for you since you already get the $900 without having to give up your business.

Essentially, what you need is that they now do ALL the work, but you still get hour $900 for awhile anyway, which is your reward for working so hard for so long and building this thing.

Make sure you stipulate that if they quit or leave your arrangement early, they own nothing. They have to fulfill the term or buy you out, or they own zero equity.

As far as consulting, make sure to limit your time and do your best to get them self-sufficient as much as possible. Find that healthy balance between genuininely helping them, while enabling them to be independent fast and not enable their tendencies to slip back into employee-mentality.
-Jesse



This conversation is continued in How To Sell A Boot Camp Business, PART II

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