Selling a gym or fitness studio in Canada

A gym, yoga studio, Pilates studio or cycle studio is really a community of members with a room around it. Buyers pay for the members, the schedule and the people who teach, so most of the work in selling is showing that those will stay after you leave. Here is what to expect and how to prepare.

What buyers look at first

Most fitness buyers ask the same questions early. Have clear answers ready before you list:

• The lease. How many years are left, including renewal options, the rent and costs, and whether the landlord will consent to an assignment.
• Members. How many active members you have, how many join and cancel each month, and how long members usually stay.
• Recurring revenue. Monthly income from memberships on automatic billing, kept separate from drop ins, class packs, personal training and retail.
• Classes. The weekly schedule, average attendance per class and which classes are full or nearly empty.
• Instructors and trainers. Who teaches what, how they are paid and whether they plan to stay.
• Equipment. What is owned or leased, its age and condition, and service records for machines and specialty equipment.

Buyers will check these during due diligence, so it helps to gather them now. Our list of documents needed to sell a business is a good start.

Show the members are real and staying

Your booking or membership software is the best record you have. Pull twelve to twenty four months of reports for active members, new sign ups, cancellations, attendance and revenue by type, and make sure they match your bank deposits and the sales on your tax and GST/HST returns. Buyers generally pay for earnings they can verify. If you pay yourself a wage or run personal costs through the business, list them clearly as add-backs with proof.

Be honest about trends. If attendance dipped this season, say so and show what you have done about it. A buyer who finds a drop on their own will trust the rest of your numbers less. Our guide to selling when sales are down may help.

Many studio owners teach a large share of the classes themselves. If members come for you, a buyer will worry about what happens when you leave. Training other instructors on your most popular classes, writing down opening and closing routines and moving members onto the booking system all help. See making your business run without you.

Prepaid class packs, memberships and gift cards

Fitness businesses are often paid before the class happens. Annual memberships, class packs, intro offers and gift cards are all promises the buyer will be asked to keep. In most sales the buyer agrees to honour them, and because the buyer is delivering classes you were already paid for, you agree a price adjustment on closing for the unused value. Run a report of unused prepaid classes and balances on closing day and write the counting method into the purchase agreement.

In British Columbia, Consumer Protection BC treats punch passes as a type of gift card. A pass for a specific service, such as 10 classes, can have an expiry date, and so can one sold at a discount, as long as that is disclosed when it is sold. A gift card with a dollar value, like a $150 card that can be used for classes or merchandise, is not allowed to expire. A buyer takes on whatever terms you sold them on, so check your terms and receipts before you list. Other provinces have their own rules.

Member data and automatic billing

Your member list, contact details, waivers and billing records are personal information. In British Columbia, section 20 of the Personal Information Protection Act lets a business share personal information about customers and employees with a prospective buyer without consent, but only if it is needed to decide whether to go ahead and the buyer has signed an agreement to use it only for the deal. If the sale does not go ahead, the buyer must return or destroy it. After closing, the information can pass to the buyer if it is used for the same purposes and the members are told the sale happened and their information was disclosed.

In practice, many sellers share totals and anonymous reports first, under a confidentiality agreement, and the full member list only near closing. Ask your software and payment providers early how the account, member profiles and recurring billing move to a new owner. Some setups need members to accept new terms or enter their card again, which can cost you members if it is not planned. Agree with the buyer how and when members are told. Our guide to telling customers when selling covers timing and wording.

Instructors and trainers

Studios often mix employees and contractors, such as a front desk employee, instructors paid per class and personal trainers who rent space or split fees. A buyer will want to know who is who and why, because getting it wrong can mean unpaid payroll deductions later. The CRA looks at the whole working relationship, including control over the work, who supplies the equipment, whether the worker can send a replacement and their chance of profit or loss. If a status is unclear, either side can ask the CRA for a ruling. Have written agreements ready.

Employment law is provincial. In British Columbia, section 97 of the Employment Standards Act says that if all or part of a business is disposed of, an employee's employment is deemed continuous for the purposes of the Act, which can affect vacation and length of service for staff who stay on. Ask your lawyer what you owe on closing and plan when and how to tell the team. See what to tell employees.

The lease and the room

Studios need things that are hard to find: the right floor, high ceilings, showers, sound limits that suit loud classes and parking at peak times. That makes the lease central to most sales. Read your lease for the assignment clause, renewal options, any limits on use or noise, and whether you stay liable after assigning. Landlords often ask for the buyer's financial information and sometimes a personal guarantee. Talk to the landlord early, with your lawyer. Our guide to the commercial lease when selling covers this step by step.

Equipment, software and other contracts

In an asset sale, write a list of the equipment included, such as racks, weights, cardio machines, bikes, reformers, mats, sound systems and front desk hardware, with its condition. Note anything leased or financed, because those agreements need the lender's consent or must be paid out. Retail stock like apparel and drinks is usually counted on closing day. See selling a business with inventory.

Also list the accounts that keep the studio running: the booking and membership software, payment processor, website and domain, social accounts, phone number, email list, music service, cleaning and maintenance contracts and insurance. Our guide to transferring contracts, licences and permits has a checklist. If your studio is a franchise, the franchisor's approval comes first; see selling a franchise business. Selling a salon or barbershop instead? See selling a hair salon or barbershop.

Music licences

If your classes use recorded music, the facility generally needs music licences. Entandem, a joint venture of SOCAN and Re:Sound, issues those licences for gyms and fitness studios, with fees set by the Copyright Board of Canada and usually based on participants and activities. Entandem says it is the responsibility of the space where the class is taught to hold the licences, not the individual instructor. Show the buyer your current licences and reports, and tell them they will need to set up their own after closing.

Tax on the sale

How the sale is taxed depends on whether you sell assets or shares and how the price is split. In an asset sale, goodwill, equipment and inventory are each treated differently, so agree a fair split in the purchase agreement. See asset sale vs share sale, goodwill when selling and taxes when selling a business.

For GST/HST, the CRA explains that you and the buyer may be able to jointly elect under section 167 of the Excise Tax Act, using Form GST44, so that no GST/HST is payable on the sale. This generally needs the buyer to get at least 90% of the property needed to carry on the business, and if you are a registrant, the buyer must be one too. Provincial sales tax has its own rules. See GST and PST when selling a business.

A simple worked example

These numbers are made up and rounded for illustration only. Your own deal, timing and tax will differ.

Questions to take to your lawyer and accountant

• Will my landlord consent to an assignment, and will I stay liable after it?
• How should we count and credit unused class packs, memberships and gift cards on closing?
• What member information can I share before closing, and what must the buyer agree to?
• How do my booking software and payment processor move recurring billing to a new owner?
• Are my instructors and trainers set up correctly as employees or contractors?
• Which equipment is leased or financed, and should I pay it out on closing?
• How should we split the price between goodwill, equipment and inventory?
• Can we use the section 167 election for GST/HST, and who files it?

For more, read what your lawyer and accountant do. Running a daycare or child care centre instead? See selling a daycare or child care centre in Canada. Running a spa, massage or wellness clinic? See selling a spa, massage or wellness clinic in Canada. Running a physiotherapy clinic? See selling a physiotherapy clinic in Canada. This guide is general information, not legal or tax advice for your situation. Questions about listing with us go to hello@sellmybusinessdirect.com.