Insights by Scott McKenzie
Scott McKenzie (Director at Velocity Legal) is the Chairperson of the Fitness Australia Industry Council. The following article was published on the Fitness Australia website on 25 June 2018. Here is the link to the original post.
BUYING A FITNESS BUSINESS: WHAT YOU NEED TO KNOW
Buying a fitness business is a major financial outlay, so you want to ensure you make a smart purchase that delivers what was promised, without any unpleasant surprises down the track. Follow these tips from Scott McKenzie, director of Velocity Legal, to ensure your purchase is regret-free.
- Check for skeletons in the closet
The last thing you want when you buy a business is to encounter an unexpected drama, such as claims that the branding infringes someone else’s trademark or discovering there’s a bikie headquarters just across the road. “You can definitely ask the seller if any potential issues have been disclosed before purchasing the business, but people won’t necessarily be very forthcoming with information that might dissuade a potential buyer,” says McKenzie. “What you should do is have that chat verbally and make sure it’s backed up by appropriate ‘warranties’ in the contract which protect you in case the business ends up being different from expected.”
- Ensure that appropriate restraint of trade obligations are in place
Restraint of trade obligations are clauses in a sale contract which ensure the seller promises to step away and not interfere with the business once the ownership changes hands. “Interference can be in a couple of ways, for instance they could set up a competing business down the road, they could try to poach staff or contact members and try to get them to transition to another business,” explains McKenzie.
- Establish exactly what you’re buying
When purchasing a fitness business, you need clarity on precisely what you are buying rather than assuming everything is included. “If it’s a gym that’s fitted out with amazing equipment that may seem fantastic, but that equipment may not be owned outright by the vendor, which would all of a sudden change how much you’re willing to pay,” says McKenzie. Knowing exactly what you’re acquiring goes right down to things like the social media accounts and website, which you should ensure are transitioned across.
- Know the terms of the premises lease
Rent is one of the most significant costs in operating a fitness business, so it pays to be up to speed on the terms of the lease that’s being transferred to you. “The lease might include things like a fixed increase of 5% every year or there might be obligations to pay broad outgoings, for instance if it’s a gym within a shopping centre, so as a buyer you need proper visibility of those terms,” explains McKenzie. The good news is that buying a business presents the opportunity to negotiate variations to the existing lease. “You might decide you’re not happy about the 5% annual increase to rent for instance, and then request a variation is made,” says McKenzie.