How To Start a Gym Business
Starting a gym business is no easy feat, but with ambition, a strong work ethic, and the right know-how, you can make it happen. It’s no wonder that you would want to pursue this dream, considering the U.S. fitness industry is valued at $39 billion and had an average industry growth of 3% over the last five years.
There is a lot to think about when it comes to starting your own gym business, but to make it more simple, you can break it down into the six stages we’ve gathered up below. So, let’s learn exactly how to start a gym business.
Planning For Your Gym Business
According to the Bureau of Labor Statistics, the rate of business failure is 20% for the first year and increases as time goes on. One of the biggest reasons why businesses fail has to do with poor business planning. Before opening a gym, you need to plan.
Creating A Business Plan
Before opening a gym, you need to create a business plan. A business plan gives you direction in starting and managing your business. It’s also vital in terms of getting funding from investors or loan providers. Investors want to feel confident that they are going to get a return on their investment, so they want to see a business plan.
While there are several ways to format a gym business plan with varying levels of detail, the best bet for starting a gym business is to go with a traditional business plan. This type of business plan is the best for getting funding. Additionally, you should always include these six sections:
- Executive summary
- Services/product section
- Market analysis summary
- Marketing and sales section
- Organization and management summary
- Financial Plan
You will have to do market research to put together your business plan. Another one of the most common reasons for business failure is lack of or poorly conducted market research. Make sure you are thorough with this!
To help you write your business plan, use this helpful guide provided by the U.S. Small Business Administration.
All About Logistics
To assist in writing your business plan, and in starting your gym business in general, you need to consider the logistics. It’s the equivalent of walking before you can run. Below are some things you should consider.
If you haven’t already had a career as a personal trainer, consider trying that out first before becoming a fitness business owner. Getting first-hand experience with the profession will help you decide if this industry is for you. You’ll also be able to make more informed decisions when hiring other personal trainers. The best part is that you’ll be able to gain clients that will follow you when you finally open your gym!
To become a personal trainer, you need to get a personal training certification. Even if you don’t become a personal trainer yourself, you should still get certified to increase your credibility when obtaining investing or applying for a business loan. Gym owners should understand the ins and outs of the business and its offerings.
You also need to hire qualified staff with the right certifications. Organizations offering some of the top training accreditation include:
- American Council on Exercise (ACE)
- National Academy of Sports Medicine (NASM)
- American College of Sports Medicine (ACSM)
- National Strength and Conditioning Association (NSCA)
- International Sports Sciences Association (ISSA)
Choosing A Location
Strategically choosing your location can make a big difference when it comes to profits. Of course, you can spend a lot of money on marketing and advertising. But do yourself a favor: maximize your chances of success by putting your gym or fitness center in a prime location.
You want a location with a lot of foot traffic. Do market research on your target client and find an area where there would be the highest amount of traffic of those individuals. For example, if your target client is a health-conscious individual, putting your gym near a grocery store like Whole Foods would make sense. Look for a location that is easily accessible by either foot, car, or public transport. Make sure there is easy access to parking as well.
Choosing A Facility
Figure out how big of a facility you need. How much space do you need?
To figure that out, you should consider how many clients you plan to have. The industry rule of thumb is to have approximately 10-12 square feet of space per member. The average square footage for a commercial gym is 3,000 to 4,000 square feet. You can fit a basic gym, including basic weight training and cardio equipment, as well as male and female toilets, showers, and lockers into as little as 6,000 square feet.
In choosing the size of your gym, the amenities you plan to provide are relevant. Some fitness centers only offer cardio equipment, weight training equipment, and restrooms. If you’re going to have showers, that’s more space needed. You’ll need an even bigger facility if you want an area, or multiple areas, to provide classes and personal training.
Additional amenities such as a massage bed, a sauna, a tanning bed, steam rooms, pools, and childcare require even more space. These amenities are worth considering, though, if you want to give your guests the ultimate gym experience.
One more facility consideration is that of the Certificate of Occupancy (CO). It certifies that a building complies with all building codes, zoning laws, and other government regulations necessary to occupy it. Review regulations for your state to make sure you comply and can obtain the CO.
If you are planning to lease your gym space, you can typically get the CO from the landlord. Before renting the building, make sure your landlord either has the CO or can obtain it for you.
If you plan to do major renovations, you will need a new CO. In your lease agreement, include language stating that you won’t start making lease payments until a valid CO is issued.
If you plan to build your own gym space or purchase one, you need to obtain a valid CO from a local government agency or building department.
When it comes to gym equipment, decide if you want to purchase new or old. Considering that a new client is likely going to want to see new equipment, I’d recommend you go with new.
If you’d rather go with old equipment because of the cost savings, then you need to thoroughly inspect and service all of the equipment to make sure it is in top-notch condition. Whether you buy new or used, you need to make sure you get high-quality equipment.
You also need to decide if you want to own or lease the equipment. View the costs section for more on this.
As for the type of equipment, the cardio options are as follows:
- Cross country ski machine
- Elliptical trainers
- Rowing machines
- Stair steppers
- Stationary bicycle
For strength training equipment choices, you have the following:
- Ankle Weights
- Exercise Mats
- Resistance Bands
- Battle Ropes
- Squat Racks
- Body Bars
- Strength Training Machines
- and More
Pick the equipment that will best fit your target client and your budget.
Hiring For Your Gym Business
Hire fitness instructors and personal trainers with the right training and accreditations. A good idea is to temporarily hire them for a few test classes or personal training sessions. That way, you can see how they do before giving them full employment.
You also need a solid sales force. If you don’t plan to have an entire sales department, at least have one or two people in the gym who can close a deal when a new customer comes in. While marketing/advertising gets people through the door, it’s the salespeople that can get them to commit.
Legalities Of Starting A Gym Business
I know the legalities involved in starting a gym business may not be the most exhilarating part of starting one. But, I assure you, this aspect is absolutely crucial when it comes to protecting yourself. After all, you don’t want to do anything that could potentially get you in trouble with the law. Below are the details of what you need to consider.
Registering An EIN And Choosing A Business Name
First, you need to register for an employer identification number (EIN). You can obtain your EIN for free through the IRS website, via fax, or by mail.
Additionally, you need to register your business name. When choosing a name for your business, try to choose one that you can use as your domain name for your website. Use GoDaddy to check if the domain name you want is available. Once you’ve got your domain name, go ahead and register it through an accredited registrar.
You can register your business name formally when you set up your business structure. Also, make sure someone else hasn’t already taken the name you want. In most states, the state business-filing-agency website has an online tool to check business name availability.
Choosing A Business Structure
To start any business, you need to select a business structure. The five main types of business structures are:
- Sole proprietorship
- Limited Liability Company (LLC)
- S Corporation
- C Corporation
When starting a gym, you want to make sure that you, as an individual, are legally separate from your business. If you were ever to find yourself in a lawsuit, you wouldn’t want people going after your personal finances and assets. If you don’t legally form a business structure, the government will automatically view you as a sole proprietorship or partnership (if you start a business with someone else). You don’t want this. It means you are not legally separate from your company. By default, you’re putting your personal assets at risk.
Instead, consider forming an LLC. It is the most common type of business entity structure and is quick, easy, and inexpensive to set up and maintain. It also protects your personal assets and finances. Additionally, you get to decide how you want to be taxed (e.g., sole proprietor versus corporation).
Noteworthy, though, is that the way you choose to be taxed comes with different tax breaks. Speak with an experienced tax accountant to help you decide how you want your LLC to be taxed and to find out what state and federal taxes you need to register for.
For help with registering your business entity, use this tool to find your state.
Companies need to apply for the proper business licenses. Gyms don’t usually need federal licensing, but they do need to follow state regulations. There are various licensing and permit requirements for different states, so use a legal expert or business consulting service to help you with this.
You also need to look at licensing for music. If you plan to play music in your gym, you need to obtain the rights. If you fail to get the right business license(s), you can face up to $30,000 in fines per song for every time it’s played!
You can usually obtain a “blanket” overhead license that will allow you to play music in your lobby and locker rooms. Large catalogs of artists and recording studios own this type of permit. You can obtain it from performance rights organizations, such as BMI, ASCAP, SESAC, or GMR. If you plan to play music in classes, though, you also need to get a public performance license.
Insurance is vital for a gym owner. Your customers are going to be engaging in activities daily where they could hurt themselves. Even high-intensity exercise can be dangerous for some. You need to make sure to legally and financially protect your business and those who are funding you from any accidents that might occur.
The types of insurance to consider are as follows:
- general liability
- professional liability
- business income and extra expense coverage
- worker’s compensation
- occurrence policy
- equipment breakdown coverage
- business personal property coverage
- participant liability and accidental medical coverage
- premises liability coverage
- employee dishonesty, money and securities coverage
Click here for more details on these different types of insurance.
Even if you don’t get all of these forms of insurance, your state, city, or town might require you to get liability insurance before you can obtain a permit. In addition to your standard business insurance, you should definitely get worker’s compensation insurance.
To further protect your business, include a clause within your member contract that prevents members from pursuing legal action in the event of an injury.
Other Legal Considerations
When it comes to protecting your personal assets, you need to set up a business bank account and get a business credit card(s). Mixing personal and business accounts can get messy. Since you legally have to file taxes, a separate business bank account makes filing taxes a lot easier.
The business credit card keeps all of your business expenses in one place, and separate from your personal expenses. It will also build your company’s credit history. Good credit history will help with getting more funding down the line.
Also, set up business accounting. Keep track of all of your expenses and sources of income. By doing this, you’ll have a better understanding of how your business is doing financially. Additionally, keeping accurate and detailed accounts will further simplify your annual tax filing.
Lastly, contact a lawyer about setting up business contracts, gym membership contracts, and any legal documents such as liability waivers.
Calculating Your Costs To Start A Gym Business
Part of starting a business means calculating the costs to include in your business plan as well as to create a budget. The various expenses to consider are:
- Startup costs involved in opening the gym: Facility costs, licenses and permits, legal fees, and business insurance.
- Ongoing expenses for the gym: Employee salaries, equipment costs, tech-related costs, and advertising and marketing costs.
Depending on a variety of factors such as location, facility size, and type of gym, the costs to start a gym business can vary significantly. Startup costs and maintenance costs can range anywhere from $10,000 to a million dollars or more! Despite this wide range, you can start researching how much starting your gym is going to cost. Read on for more details.
Facility costs will be one of the most expensive. Decide if you want to own or rent the facility. Owning the facility is going to cost you a lot more upfront. It’s easy to pay upwards of $800,000 to own. Additionally, the size of the facility affects both the cost of rent and ownership. The larger the size, the higher the expenses.
What state your facility is located in also matters. For instance, rent in New York City is significantly higher than in Toledo, Ohio. Research the cost to rent or own commercial buildings in your area. As a point of reference, a 2000 square foot building in Los Angeles costs about $6000 a month.
The cost of rent will also be affected by gym placement. If you open your gym where there is a lot of street visibility, the cost of rent increases.
Additionally, the gym amenities you provide will affect your facility costs. For example, if you’re going to open a gym that offers classes and has showers, take into account the remodeling costs.
Lastly, consider the costs for utilities such as water and electricity. If you plan to have the gym open 24 hours, that is going to mean large energy bills.
Licenses And Permits
Standard business licensing costs vary based on how many employees you have but shouldn’t cost more than a few hundred dollars. As for a basic overhead music license, price varies with library size, but you are generally looking at paying anywhere from $300 to $2,500 per year.
As for the public performance license, the costs vary for each performance rights organization, so do your research to get the best deal. The variables affecting the price of this license include the type of business, facility capacity, business hours, the method of music transmission, and the number of times played. The annual license fee can range from $300 to $500, on average, for a small business.
Additionally, if you need to hire any trainers or instructors that are not already certified, the cost of training can range from $500 to $800 per accreditation.
Other fees to consider are those associated with setting up an entity. This cost will vary by state, the cost of your domain name, and the cost of consulting with lawyers. When it comes to lawyer fees, expect to pay about $200 an hour. Overall, the average cost of legal fees to start a gym ends up being around $9,000.
Insurance costs are going to depend on how many policies you purchase and the type. For general liability, most insurance plans cost less than $1,000 per year. It costs about $300 to $1,000 per year for a 1 million dollar policy. A 2 million dollar policy will cost an average of $500 to $1,300. And you’ll typically pay $700 to $1,500 per year for a 5 million dollar one. Remember, these are just the costs for general liability insurance.
If you get any other type of insurance, costs vary by state, business size, employee type of work, and insurance provider. Contact various insurance providers to see who will give you a policy with the most bang for your buck.
Although minimum wage varies by state, top trainers that will bring in and retain clients will want higher pay. Expect to pay around $25 an hour or more depending on your location. You also need to consider costs to hire an accountant, a marketing/sales team, and maintenance workers.
For salespeople, you can pay them minimum wage plus a percentage of commission on all of the sales they make. Commission-based pay will motivate them to sell more. You get more money, and they get more money. It’s a win-win for everyone!
Cost Of Equipment
You also need to decide if you want to buy or lease the equipment. Leasing can let you stay up-to-date with the latest fitness equipment, will help you assess your equipment needs before purchasing, and often includes maintenance. Yet, leasing is typically more expensive long-term because you give up ownership.
Although the initial cost of ownership is higher than leasing, if you use the equipment for years, over time, the costs of leasing will outweigh the costs of having purchased the equipment. You also won’t own it, so you can’t ever sell it and won’t get any tax deductions on it.
If you do decide to lease equipment, check to see if the leasing company is a member of an association such as the National Association of Equipment Finance Professionals or the National Association of Equipment Leasing Brokers.
If you choose to own the equipment, discounts on purchasing the equipment in sets will save you money.
Lastly, the purchase of new versus old equipment and the actual types of equipment will affect costs. Research prices to decide the best options for your gym. As a frame of reference, a commercial gym around 3,000 to 4,000 square feet will usually spend $30,000 to $50,000 in equipment costs.
Gym management software is most commonly on a subscription basis. Prices can vary from $100 to $1000 a month depending on how in-depth of a system you get.
You also need to set up an internet network and a point-of-sale system that accepts different forms of payment. The cost of setting these up depends on the provider you choose, but expect to pay up to $2,500 per year and even more when you first get started.
In terms of a website, it costs around $300 to $700 to build. If you want to save money on creating your website, you can use a site like Squarespace or WordPress and do it yourself.
Advertising And Marketing Costs
Advertising and marketing costs will change based on the route you take. The average small business using Google online advertising campaigns spends between $9,000 and $10,000 per month. If you decide to go a more traditional route such as handing out flyers, it costs around $100 for every 2,000 flyers. You also need to pay the people passing out the flyers (unless you plan to do it yourself).
Other costs to consider are miscellaneous gym supplies such as towels and chairs (around $500 to set up), merchandise, and employee uniforms.
Getting Funding To Start Your Gym Business
Now that you’ve got your business plan squared away and figured out your costs, it’s time to get gym funding. Unless you have the money to pay for every aspect of your gym business independently, you’ll need to know how to finance your gym.
Before getting into more details, just know that you should have two years of previous tax returns and financial statements for most financing groups and landlords. You should also have enough money saved for personal expenses for at least a year or two before starting a business. You need to have a way to support yourself if you don’t breakeven right away.
With that said, below are the different ways in which you can get funding for your business.
Getting Funding From An Investor
One way to get money for your business is through investors. An investor is someone who will supply you with funds for your business without actually being involved in running the company (operations). A silent partner would fall into this category because your partner is giving you money for the business but isn’t involved in the operations. An investor can be a family member, a friend, a business associate, or a successful business person.
By using an investor, you can save money on the charges associated with getting a bank loan. However, an investor will expect a return on investment. The terms will usually be less defined/strict than a formal institution’s conditions. You can have multiple investors, but make sure you understand what return on investment each investor is expecting so you don’t end up giving away all of your profits to different investors.
It is essential that you negotiate terms and agree to ones that are going to be the most beneficial to you and your gym, while also being to the investor’s liking. Don’t just accept money from the first investor that comes your way. You want an investor who not only believes in your gym concept but also in you. The right investor will agree to terms that are reasonable and fair for both parties.
Furthermore, if you don’t personally know anyone who would be willing to invest in your gym, the easiest way to meet wealthy individuals who would is to attend investor networking events.
Getting Funding From A Partner
While you do have the option of a silent partner, as mentioned before, you also have the option of getting a working partner. A working partner provides funds for your gym while also being somewhat involved in the day to day operations. You may be primarily responsible for them, but the working partner does get involved.
While you can have more than one partner, your profits will be less with each partner since each one generally has an equal stake in the business. The case in which it would be worthwhile to get more than one partner is when your partners help you make significantly more profits than you would have without them.
Getting A Bank Loan
Getting a bank loan to start a new gym is a common way for entrepreneurs to obtain funds. Start with your local bank. Because they already know you, they will likely invest in getting more business from you. Local banks also have an interest in local community development.
Develop a relationship with the bank manager to increase the chances of getting funding when the time comes. You will need to show your business plan and have three years’ worth of financial projections. Aside from asking for your personal tax returns, a bank may also want to secure collateral against your loan. Collateral is an individual asset that the bank would take from you if you didn’t pay them back. Examples include your house, car, stocks, bonds, and cash.
Getting A Small Business Administration Loan
If you are a woman, part of a minority demographic, or disabled, consider getting a small business administration (SBA) loan. The SBA offers loans directly from the government and makes it easier for members of these demographics to obtain them. However, an SBA loan can take longer to get approved than a non-government loan, so consider your timelines before applying.
Starting Your Gym Business
Now that you have planned every aspect of how to start and manage your business, figured out your costs to develop your budget, and gotten funding, you can hit the ground running. All you have to do is figure out how you are going to make a profit.
Marketing, Advertising, And Sales
Although briefly touched on previously, this is the aspect of your business that is going to help bring in revenue. You need a marketing strategy if you want to run a successful gym.
Whether you choose to go with a Google ad campaign or hand out flyers, you should still have a website and use social media to promote your business.
You can also encourage word-of-mouth marketing by offering free guest passes, free services gym membership discounts for referring new customers, and other similar incentives.
Again, whom you hire matters. Hire top-notch salespeople who will get customers to commit and hire personal trainers who already have a good client base that they can bring to your gym.
Ways To Make Money
It’s time to decide how your gym is going to make money. For one, it is wise to charge a sign-up fee. With a sign-up fee, you’ve still collected months’ worth of revenue even if a member cancels early. Plus, a hefty upfront fee incentivizes gym members to stick around longer so that they don’t waste their initial investment. Typically, this fee would be about $100 to $300.
Furthermore, the standard business model for a gym to collect money is through monthly membership fees. Do market research to decide on a competitive fee you want to charge. With that said, if you are planning to have a gym with premium services and multiple classes such as yoga, pilates, and jiu-jitsu training, it makes sense to charge a premium price. Usually, gyms charge anywhere from $20 to $50 a month, but if you are in a high-rent location, you may want to charge more.
Other items/services you can charge for outside of membership fees, fitness classes, and personal training are: juice bars, tanning beds, supplement sales, chiropractic services, massage services, and other merchandise like t-shirts and protein bars.
Congratulations on making it this far! You’ve finally got all of the details on how to start your gym business. As you can see, opening up a gym requires a lot of planning and hard work. By breaking everything down, you can slowly put the pieces together and increase your chances of success. Truly, there are few things in life more rewarding than starting your own business. Want to learn more? You may enjoy our article on the six best books on starting a business. You’ve got the drive; you’re motivated and raring to go. Now, all you need to do is start. What are you waiting for?