Back To List “What is my club worth?”, is the first question Sellers ask themselves. Outlined below in simple basic terms is a common way to calculate the value of a club business. THE BASICS A club is worth what a buyer is willing to pay, adequately advertised on the open market at a price a Seller is willing to sell. The following analysis below is only meant to be helpful in setting the asking price. Sellers should consult with a business appraiser or a CPA before setting a listing price THE MOST COMMON CALCULATION - Use a multiple of the adjusted EBTIDA. What is EBTIDA? EBITDA stands for “Earnings before Interest, Taxes, Depreciation and Amortization”. Recent sales suggest a “3 to 5” times multiple for a club business that is leasing space. A multiplier of “5 to 7” times if the club business owns the real estate and plans to sell the real estate along with the business as part of the asking price. How to calculate the EBITDA. It is highly recommended that you consult with a business appraiser or CPA to assist you iin making the ADJUSTMENTS and formulating the EBITDA. Seller’s compensation. Estimate what it would cost to hire someone to do the job functions you do. Adjust EBITDA up or down by the difference between that and what you actually paid yourself. Non-Recurring Cost. Perhaps you’ve purchased new equipment or installed a new air conditioning unit, and expensed through the maintenance category in your P&L. The air conditioning unit in not going to be a normal reoccurring cost for the buyer each year. This figure needs to be adjusted accordingly. Seller’s discretionary expenses. Add back any expenses you can document that are un-related to the business, such as travel, cell phones, meals, car payments, personal insurance, etc. Un-reported Cash. If you do not claim all of your income and deposit it into your business account, you can not expect it to be calculated into the value of the business. It’s a double edged sword. If you “steel” from you business, you will not get the real value on the sale. OTHER FACTORS THAT AFFECT VALUE Deferred maintenance. If you have not adequately maintained the furniture, fixtures, equipment and done basic house cleaning of the business, it can reduce the value your business. From a buyers point of view, they will have to outlay the capital to bring the club back up to par to run successfully operate the business. Most clubs keep a capital reserve of 3-5% of the revenue on an annual basis to maintain all aspects of the business. Prepaid memberships are a liability. If you’ve cashed out more than 20% percent of your membership accounts, a buyer could ask to knock the excess prepaid membership liability off the purchase price. Competition. Its understood by club operators, that when a new competitor enters the market, the existing clubs often take an financial hit, and later stabilize and slowly recover. However, buyers don’t like the uncertainty and instability that is precieved and may ask to discount the purchase price. USEFUL CHECKS Once you’ve come up with your basic estimate of value, you need to cross check it against two other valuation methods: Replacement Cost. Generally, if the club has been in business for three years or longer, replacement cost is irrelevant. Once the club’s cash flows have had a chance to mature, the value is a function of its cash generating ability. Comparables. In the club world, there are few transactions and the details are generally not reported. A good appraiser or listing service, however, may have comps that a club owner can’t get.

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