From Solopreneur to Studio Owner (webinar)

In this episode of the Yoga Biz Camp podcast, Sinead introduces Offering Tree for studios, an all-in-one software for wellness professionals to manage their business.

Michael and Mitch talk about the pros and cons of starting your own brick and mortar fitness studio and purchasing one. They discuss the importance of doing research and homework to find the right location, understanding the market rates, and finding a space that can accommodate your capacity needs.

Mitch also shares insights on how to negotiate leases and emphasizes the value of larger single-room spaces. Michael stresses the importance of having a proper business plan and doing research to understand the needs of the community.

Grab Mitch's formula by sending me a message on Instagram

Mitch McGinley - Fitness Business Broker

Offering Tree Demo

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Michael Jay - Yoga Biz Champ 

Michael Jay, the Yoga Biz Champ, stands as the go-to Yoga Business Consultant, embarked on a mission to elevate yoga studios from mere survival to genuine thriving.

With a rich background as a yoga teacher, former studio owner, marketing expert, and yoga studio business coach, he possesses the insider knowledge necessary to elevate your yoga venture to new heights.

His passion for yoga, combined with a sharp business acumen and a sincere desire to see studio owners excel, encapsulates his professional ethos. Michael is not one to offer one-size-fits-all advice; instead, he's dedicated to providing tailored guidance, tangible outcomes, and supporting your studio to emerge as the next Yoga Biz Champ in your community. 

• Certified Yoga Biz Consultant • 
• FitTech Partner •
• Yoga Studio Launch & Growth Specialist

FREE RESOURCES AND BOOK A CHAT LINK
https://yogabizchamp.link/podlink

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https://yogabizchamp.link/podlink

Transcript

Offering Tree Webinaar

Sinead: [00:00:00] Hello everyone. Hey. Hi. I can see people hopping in. Hello. 

If you are new to Offering Tree, we are an all in one software. It's a website built by wellness. Four wellness professionals, and we have everything that you need in one easy place to manage your business. From scheduling, class bookings, payment processing, running a membership, posting your on demand content.

It's just about everything for running a wellness business and for running a studio. So we're really excited today to have Mitch and Michael here to talk all about that process of making the dream come true, opening your own studio, and there's gonna be a lot of intel and information here. You're gonna learn from.

Excited to be here with the offer entry, Eminem, Michael and Mitch . I've known Mitch for quite a few years now, and we work together. He's an amazing business broker. I'm gonna get him to introduce himself in a second. I'm I'm Michael Jay I had a studio [00:01:00] in Vancouver for over 13 years.

Prior to that I was in marketing and for the last seven years I've been working, consulting and coaching with just yoga studios. So if I say, I know there's different fitness modalities here today, but if I say if I say yoga studio, it's cuz that's my language every single day. Please apply that across the board to any fitness things.

I also have a podcast called Yoga Biz Camp, which is one of my proudest things. And Mitch has been on it three times two times. And this'll also be on the podcast as well, so they'll make it three. Hey Mitch. Hi Michael. Thanks so much for having me, and thanks to offering Tree as well. I apologize to everyone just a little bit.

My voice is about completely gone. I spent all week at SSA this week which was so much fun. It's, one of the biggest fitness conferences in the world and I was really happy to meet Eddie of offering Tree at IHRSA this week. And he was just one of the nicest, most authentic [00:02:00] kind people I think I've ever met instantly felt like he was one of my best friends.

And it was, fortuitous that this, we had this scheduled weeks and weeks ago, and I finally just got to meet him. But I'm really happy to be here with Michael. As he said, he's a really good friend of mine and has been for a long time. My company is Boutique Fitness broker. I spend all of my days helping people in the boutique fitness, health and wellness industry buy and sell businesses.

And so for everyone at Offering Tree. And for this particular workshop, webinar, podcast, whatever, all of the things that it will ultimately be I'm here to help encourage you all to make acquisitions that there's a really exciting way to do this, where you can step into really great cash flow and just build on everything that you've created already.

And so I'll look forward to talking about that a little bit. Yeah, we're gonna save that part to the end cuz really it's a magic formula that Mitch has about how to [00:03:00] buy an existing fitness studio business. With not a lot down. So it just wows me every time he says this, so I can't wait to get to that.

But we'll save it till close to the end. One of the things both Mitch, and I have in common is, or many things, but one of them is we both owned a yoga studio. We both created it to be profitable and we both sold those studios. And what I work with now is a lot of people starting, so I help people start their studios.

It's a big part of my business and Mitch is it's a good combination. Mitch is, he helps people buy and sell studios and he is the best in the business and he is rocking it. I keep seeing all of his wins and his successes online, so I can't wait to get into this. 

So I want to have a conversation to start with about the pros and cons of starting your own brick and mortar fitness studio and purchasing. Both have good pros and cons. And should we start [00:04:00] with the starting your own business? 

Yeah. So one of, one of the things I see a lot of people doing is they they jump in without a bit of a business plan and without doing the research. And also I see I have studios that have done million dollar Buildouts when they've started and 10 years later they're still paying that off.

Do you have any thoughts about that process? I do, I have lots of thoughts about that process. , it's really nice to dream out your or build out your dream space. I think all of us could relate to that. It's easy to lay around and dream about what you could build if you had a million dollars to do it.

But one very harsh reality that I always want people to know is that it's very difficult to recover that money that's spent when you do go to sell. And the primary beneficiary there is gonna be the landlord because you're spending all this money to turn a shell into a beautiful space that you won't be able to take with you unless you own the building.

[00:05:00] Which is a whole nother thing, but it's very, few and far between people who are able to purchase commercial real estate. And when you go to, to build a space, Construction costs are through the roof. It takes a really long time. It always costs more than you think it's going to cost, always takes longer than you think it's gonna take.

And ultimately it's very difficult to get that money back. And so when you're looking for a space to put your studio in there are a lot of spaces that are on the market that had businesses in it that closed. Finding a space that's built. already is, provides so much value. , or, buying an existing studio that you can step into.

Yeah. There are ways to do, I think it depends on the business. I think yoga's a little bit easier. I have some studios that have the full buildouts with reception desks and showers and all the amenities. MySpace and several of my studios [00:06:00] too that I work with are just a space.

And so I think that works with a, definitely in a yoga type of business. But, I remember my studio that I is turning 20 next. And 20 years ago Ikea used to sell flooring. Yes. That ages me. And 20 years later that IKEA flooring in the studio is still there. The IKEA cubbies are still there.

The, non-expensive reception desks that are suitable is still there and they are, 20 years later still rocking it and still making profit cuz they didn't do all that buildout. So I do think yes but I do think there are other ways to do it as well where it can be profitable. for sure.

And it's all a function of how much you can invest in, in a build out. So if you're bootstrapping and starting from scratch and doing everything, really stretching every dollar that you can, you're absolutely right for a yoga studio, especially a non-heated yoga studio, the ability to step into a space and have it be a raw space [00:07:00] and work is real.

But for someone who, has like a. For example, a cycle studio that, that has a bunch of technology integrated into it. Those types of buildouts, especially when we look at some of these franchises. And we can differentiate too, between starting a franchise and starting an independent studio.

Franchises have minimums and requirements for all kinds of things that it's very common for me to see buildouts and startup costs exceeding $500,000 Yeah. For some of these studios. Yeah. And that's hard when it comes to sell, right? You just don't get it back. Yeah. One of the other things too is one of my studios did a probably a million dollar buildout and has got salt, like salt rock walls 

it's amazing, phenomenal space, but because of that buildout, she's locked into that space. And when it comes time to renegotiating lease, she doesn't have much opportunity because all of her money is in [00:08:00] that space. So for her to take that and put it somewhere else, so she's locked in with that building.

A hundred percent. And then, landlords are the third party in all of this who end up having a lot of power, and I make the joke often that there's a reason the word Lord is in their title. Like they, they have way too much power. And so if you do that build out, you are locked into that space and they know they've got you, because you're not gonna move your salt walls.

You're not gonna spend a million dollars again to go build out another space. And it gets into the and something else that we could probably talk about on its own separate webinar would be how to negotiate with landlords. As you get into these situations. The only opportunity that you have for leverage in those scenarios is prior to signing the lease.

Once you've signed the lease, you're locked in. And so there's all kinds of things that we can hold off on this, but for another day to talk about working into your lease to make sure that you've got some options [00:09:00] there and can get out and move it if you have to. Mitch, as a fitness business broker, boutique fitness business broker, do you help your clients with.

Negotiating the leases with landlords, is that something you take part in? I do. I'm not a commercial real estate broker. That's, that is a different role. But it overlaps a lot with what I do. And I'm based in California. I live in San Diego and California makes us as business brokers, they make us get licensed as real estate agents.

Okay. Yeah. Which is funny because we really don't do anything with real estate . We can, but it's not my expertise. And so if, for example, like if you wanted to buy a commercial building, I would bring a commercial real estate broker in because it's not my expertise and I wouldn't wanna mess anything up.

But when it comes to negotiating leases, that's part of every transaction that I do. And so I'm a lot more comfortable reading a lease and giving, [00:10:00] whichever party, some feedback about things that they could ask for to improve their situation going forward. Yeah. The space, the location.

 That's a kind of a big deal if you're starting your own. It's location and also researching the area and your ideal customer. So you deal with this with spaces every day. Is there anything that you see that is the kind of the winning formula for finding a great location?

It's probably not to anyone's surprise, it's you imagine having a space like right next to Whole Foods in a big strip mall that's got tons of parking and great visibility and a high traffic area that's got hundreds of thousands of cars driving by it every day. I think that's what everybody's looking for.

Yeah. The truth is that those spaces are really expensive, and it's, there's pros and cons to everything. You can look for an industrial space that's a little off the beaten path, that's gonna be more of a shell that'll be less expensive for sure but is also likely to be less expensive and have more [00:11:00] parking.

And, there's trade offs for everything. And one thing I will say though and this is From experience and in selling all of these businesses, the studios that I've sold that have the most value, that sell for the highest dollar amounts are usually single room, larger spaces. And the main reason for that is when you're paying staff to teach classes, let's say you've got a 3000 square foot space, which is a big space, I think most people are usually looking in the 1500.

Yeah. Yeah, maybe 2000. But if you've got a nice big space, once your bills are covered, once your rent's paid and your teachers are paid, every extra body in that room, , it goes straight to the bottom line. Yeah. And so if you take that 3000 square foot space and divide it into two different rooms, you inevitably end up doubling your payroll because you're paying two teachers to teach maybe at the same time.

And you're also limiting the number of people who [00:12:00] can go into the room, who are, that just fall to that bottom line. So that's one thing I would just offer. For anyone that's going into a space, it's a bit daunting, to go into a bigger space where the rent is gonna be a bit higher. Obviously if you're starting from scratch, you've gotta build up into that.

But if it's a situation where you're stepping or buying. An existing business that could be a little bit more comfortable with a lot more upside. Yeah, I I love that because it really is about capacity especially in a a fitness business like yoga where it's about, space and mats and I always I always talk about the mat space as being real estate , right?

So it's like the more real estate you can offer in that space, my space was 1400 and we could pre covid we could squeeze 30 in there if we wanted to. All right. And so that was really good. But I knew I knew eight people in that space actually covered my cost for that. . So I had done all that math out, so anything over eight in that [00:13:00] space, I was thinking profit.

So I love that because yes, it is about capacity and and I agree with two spaces. You are doubling payroll. And payroll is the rent and payroll are the two biggest, right? Always. And payroll's almost always the biggest. Yeah. And for, and my no payroll should be 30 to 50% of your. , ideally.

Yeah. Ideally hopefully less. Yeah. If you can, get your numbers up. But one thing I did wanna say, I realized I didn't say yet, but I also owned a studio and that was how I got into this. So our studio is similar size to yours. We were able to get 40 mats in there, and it really is nice when you know what that threshold is and so you're just smiling at every other person that walks in the door knowing that you're making some money on that class.

Yeah. . It's a nice feeling. . Yeah. Yeah, Shanee, I used to manage a studio here in Calgary and they moved just before I started managing it. They moved from an open space, so like they, there was no [00:14:00] reception area, so you just came in and that was the room. But it was a beautiful space and they could fit about 35 mats in and they transitioned because they wanted a reception area to a space that could fit.

15 to 17 mats in and just, and they also lost like no windows. So there was so much, so many changes to it. And the business started to really see the impact of that because they just didn't have that kind of foresight to think, it's all about the mat space, as opposed to having a reception area like you can work around not having a reception area or what do you guys think about that?

If it is just one room and there's no specific reception area, how does that work? You have to have good rules and enforce them . So that means door locks at class time. If you are not there at class time, wait till meditation's over and then we'll let you in. But I had very. Rules about how the space and it really is about just educating your clientele of how the space works.

What about you, Mitch? , we were in a similar situation. We actually did [00:15:00] the same thing. So when we bought our studio it was just one big room. And because of where we are we're located pretty close to the beach and there's a number of mildly sketchy people walking around who would just open the door and, ask to use the restroom or something like that in the middle of a class.

And we really didn't want that. And so we built a wall, we separated off the lobby space. Just like you said, we spent a lot of money on putting windows into that wall for that reason, to keep the light bright and feel like, you're still close to outside. But that really helped us cut down the interruptions in class.

But we made it as small as we could. So that we could keep that studio space as big as possible to fix . . Yeah. Dak Mars. Just saying in the comments classes by registration only. That could be, that could work. Yeah. I do, I, with my studios I like a mix of drop, mostly dropping classes, but I like I like registered courses.

I'm a big fan. You can find, I've got [00:16:00] podcasts on that, but I'm a big fan of having a registered course because it's paid up upfront and it's, whether they come or not, you've got that money for the eight weeks or however it is. And it's also a great way, it's another way, like an intro offer of for a beginner course.

It's a great way to get people into the studio in a different environment, in a little bit more controlled. Yeah. One other thing I'd say though about having a lobby is it gives you the ability to meet new students and engage with them while class is going on. If someone just happens to be walking by and wants to stick their head in and take a look at your schedule and peek in the window or whatever, yeah.

It gives you the chance to engage with that person and sell them an intro offer and then, get 'em scheduled for their next class. And I think the ability to, we could talk that, I know that's many other webinars that we could do is talking about the sales process.

Yeah. But that space allows for the sales process to. While classes are going on. . Yeah. [00:17:00] And make sure that you're, you soundproof between reception and and studio space. for sure. I just saw that the comment from Dagmar in the chat about opening a studio in another country, the Caribbean specifically.

I so Great. I got an email yesterday from someone in the Cayman Islands who wants to sell theirs. So I'll follow up with you separately about, about that Dagmar yeah. Tax free zone in the Caymans, I think. I don't know enough about it, but Hey, Mitch, maybe there's a new angle for us here. I know, right?

 One of the things that I think is important as well, when you're more, when you're opening a brand new studio space, them purchasing a studio space, but really doing the research and homework of the environment around the people, around what they are looking for.

I've got some specific things to this, some great examples, but I'm just wondering if you have an on that, Mitch, about doing where the research has been important. [00:18:00] Yeah. And so websites like LoopNet are, loopnet.com is the primary commercial real estate website here in the states. And I think it covers Canada too.

But they've got the best demographics and some of those numbers on, they can give you the number of cars driving by a certain place. Oh, the average income of the households around a lot of those really specific details to, to help you make some of those informed decisions about where you want to choose.

Yeah. I opened in 2022, I opened a few brand new studios, but two really stand out to me. One was in January and that was, Newberg Yoga are my client. They worked with me for four months. They're on my web, my podcast two Yoga Biz camp because it was a crazy four month period, but we researched the area, what people were looking for, and then the other one was west Park Yoga in Northern California.

That opened in September. [00:19:00] And we spent a year researching asking people questions, what they need and trying to figure out what that community needed because there was a void there. And because of that homework Newberg ob yoga shower opened up to full capacity. And west Part Yoga, we pre-sold founding memberships and we sold 220 of them before opening.

So already their bills, their costs were covered before they even opened. Sometimes we have a dream which is fantastic. We don't wanna lose that passion. But doing that homework, I think really pays off in the long run doing the homework and a proper business plan. It does.

There's no question about it. And you also have to be able to walk away from a place that isn't the right price. It's, a lot of times I see people get caught up in, in finding what they think is the perfect location, but it's extremely expensive, and if you do that you're gonna hurt yourself in the long run.

And so [00:20:00] you can't be too overzealous in finding the right space and spending too much on it. Make sure that you're calm in your approach and using trusted advisors, talking to commercial real estate brokers, getting their sense on, what the right market rate for where you're looking is what some of the normal terms are.

Those things become really important, further down the road. Cuz if, for example, if you wanna sell one day and your rent is well above market price, people aren't gonna buy your business just because the rent is high. Yeah. Sine I think we've got a question actually we've got on from Liz.

And just going back to Liz's question is, what is the ideal square foot space per yoga student? Is it six by six? Yeah. It really depends on your definition of ideal . Because some people want to practice mat to mat, where they're, their sweat is flying onto other people's [00:21:00] Personally.

That's not really for me. But it's also knowing your demographic. And if you're in an area with a bunch of really young, healthy student like clients who don't mind being closer together. You can get more bang for your buck in terms of the square footage per person.

If you're in an area or you're perfect customer avatar is an older, maybe someone who's still wary of covid or something like that, where space becomes a bigger issue, you're gonna want some more space between the mats. And so there really isn't an ideal square foot per yoga studio per student.

But I would just offer that, that most of the studios that I see have a studio space that's somewhere between 1200 and 2000 square feet. 

. There's a question in the q and a. For Mitch would be a good.

Oh, I'll just read it out loud real quick. Negotiating lease, I'm taking over an established studio and the landlord is very happy to continue a yoga studio [00:22:00] in the space. The previous owner is coming to an end of our five year lease. The landlord has offered us a two year lease and no increase in rent.

I think this is good. I have friends telling me I should negotiate with him for a lesser amount because we'll technically be a new business. What do you think? Thank you, Carrie, for the question. It's awesome that they're not raising the rent. I would say that's a gift in and of itself for anyone that thinks you can negotiate a landlord to a lesser rent.

Those are unicorns for me. Rent only goes up. Inflation is a headline everywhere right now, and inflation hits landlords really hard. I'll pile on landlords all day long, but at the end of the day, like there are people who have bills too. And when inflation's high, like the value of what you're paying for rent goes down.

And what I would say though is that two years is probably not long enough. I would want you to negotiate a little bit longer of a lease to make sure that you've got that space safe for yourself. Whether it's a couple of options, a [00:23:00] two year with two, two year options to extend something like that would give you a little bit more security in the long term.

Thank you for that question though. So the, I wanna talk about the differences. Buying a studio and starting your own studio as far as the culture, the staff, the team kind of thing. So what I see is when you start your own studio with my clients, so we're able to create our culture from day one

 The importance of starting with your mission, vision, values after you've done all your research. Mission vi vision values is super important to the beginning stages and moving on stages of your business. But when somebody starts their own studio, they're able to hire into that culture.

But what I see is when you buy a studio you're also purchasing that culture and those staff, whether they're good [00:24:00] problems or not, or bad problems. Any thoughts on that? Absolutely and look, I'll be very blunt about this. Staffing is the number one issue in this industry, hands down.

And I, we talked about it a ton this week at IHRSA. Finding and retaining quality staff is very difficult to do. And so there's pros and cons here to each option. When you buy a studio and you're, like, you said Michael you're acquiring that culture, you're acquiring that staff. You have less of an influence on putting them into place because you are the new person stepping into it.

but the staff is there and they are in place, and presumably they have some sort of longevity in that role. Ideally they're really good, and someone else has done the hard work of recruiting, training, getting those people into, to doing well and performing in a high level in the studio.

When you start from scratch, [00:25:00] inevitably like you're gonna have some hits and some misses. You're gonna hire some folks that don't work out, and when everyone is brand new it's hard and it's stressful and the number one thing that I hear from people who start studios from scratch is they really struggle to find a good gm, which is the person.

I think that as an owner, you rely on the most. And for a lot of people, especially for new business owners, you're probably going to be the GM yourself. also, which is great because then you're gonna make sure everything gets done correctly. But in the long term, I would argue it's not sustainable.

You, you can't work in the business all day, every day and work on the business. And so that GM role is really critical for the long-term success of the studio. And if you're starting from scratch, really difficult to find the right GM to start with you probably can't afford the right one.

You don't have systems to teach [00:26:00] them. You need someone who's got a lot of initiative and creativity, and a lot of times those people will bump heads with you as an owner because they don't want to listen to your opinion because they're very creative. They want to do things on their own.

So if you can buy into a studio where that role is already filled by a competent person, a lot of times you're gonna hit the ground running a lot more easily because those critical roles are already in place. Yeah. I've seen though purch when purchasing an existing studio and their culture, I have seen the op, the, with the instructors.

I've seen a lot of pushback because in my case, usually. . They've purchased it and then they've hired me to help them, get the business going. And I'm coming in, you need to change this. We need to dial in this. And so quite often the staff, the teachers have been very resistant to somebody coming in and changing everything.

I've [00:27:00] had it to the point where it was so poorly managed before they've purchased it, they've gone in and the staff is all selling their trinkets and their Marla beads and everything on the front counters. And it's like the staff has got free run and then this new person comes in with a business consultant behind them that's trying to change and put structure in place.

And I get a see a lot of resistance on that. What I'm recommending now on that when someone's doing that, is that because you are a new company, because you have to open up as a new LLC, 

so I'm recommending re-onboarding and rehiring people at that stage so that they do fit into your mission, vision, values and culture, which is why you're so good at what you do , right? That's spot on. And, ideal, like I, I like to talk ideally you're stepping into a staff that's strong, that's not doing the things that you don't like, you're buying that business because of that there's value in that, right?

Yeah. Yeah. But yeah, [00:28:00] it's, there's no doubt when you want to make changes, and I would say this to everyone. You never want to walk in and tear everything apart right away. Yeah. You make those changes slowly over time as opportunities present themselves.

And for a good example I think is maybe a teacher who's on the staff who's, whose ego is through the roof, who thinks that they're the most important person in the studio. You don't want to come in and fire that person because that creates a bunch of negativity both within the staff and within the community.

But if you don't get along with that particular teacher, don't be afraid to move on from them at some point. Not too far down the road, because you and I have both seen so much data that clients don't usually leave with that. They like coming to that studio because it's close to their house or close to their work, and the time slot fits into their schedule.

Their friends go, yeah. And so you can replace that, that difficult staff member as at the first [00:29:00] chance that you get, this is a good opportunity to talk about somebody we both know. And she's on my podcast, Jill Agonias from Sol Seek Yoga,. And we can talk about her cuz she has talked about this openly on my podcast.

 She purchased in Santa Barbara. She purchased a studio didn't do her due diligence and found out that the rent hadn't been paid. The teachers had been screwed over. The students have been screwed over. She just, and she just came into a bad space, but she sat with it.

She didn't try to change everything overnight. And I know she worked with you a lot during this stressful period , but she has now, she's a marketing genius first of all. But she has now. Reset the culture of that. It took a couple of years for her to reset the culture to the point. Now she is just super rocking.

That studio out, her studio has crappy parking. It's downtown San Santa Barbara. Beautiful little space, but she is rocking her [00:30:00] business out. But she didn't do it overnight. It took her a while to do that. It does. It takes time. It takes a lot of time. And it's, I love Jill's pieces and if she ends up listening to this , she knows how much she's loved.

But yeah it, it really does for me personally. Like we, we ended up, we bought our studio and then ended up rebranding two years later. That's how long it took for us to really. Put the money into that and change the name and change the website and repaint and, really bring a new energy to it.

And that was great because, there's, when you take over an existing studio, there's buzz and that buzz creates energy, and so people come back in that maybe haven't been in, in a while. And then, if you do make some of those changes consistently down the line, it will continue to create that buzz to get people in the door.

And it also, makes it your own. It's when you take over somebody else's brand, it's somebody else's brand and it's hard to a shoe that personality. And then when you make it [00:31:00] your own, it's, there's a confidence I think that comes with that, that translates well to other people.

Yeah. I have a studio I'm working with in Australia that purchased a 20 year old studio and. Which is, very much got its own culture and she purchased it and, but it, again, it was she was, it was the old culture and so she wasn't able to put her stamp on it. And now I've been working with her probably for a year and now, and she's Indian, and so she teaches authentic Indian yoga.

And so now she's putting her, finally putting her stamp in her voice on the studio. So it took a little bit of time. She also had to get rid of the previous owner who was still teaching , which I don't recommend, even though I still teach at my old studio . But you're a unicorn in that regard. It's really, I it's true.

It's very difficult for a seller a previous owner to become an employee in what used to be their business. Yeah. Mitch, I wanna get to the peak of this webinar, which I think is such valuable. [00:32:00] Information for people and let, I want to talk about how do you purchase a, that's what you do that every day is you're selling businesses, but there's a way of purchasing an existing business by putting not much down there is, and it's, I want everybody to grab their pens here for the math

Actually, you know what I did to be helpful was I wrote this out in an Excel spreadsheet, so that Did you really? Yeah. So if I can do the screenshot, screenshot this, my friends, hopefully that worked correctly. I'm screenshotting this. All right. What I have here. Is an example, this is actually a studio that I have listed right now where the asking price is $699,000.

And to talk about valuations for just a moment. Oh yeah. Usually the way that we value businesses like this is a function of profit. It's somewhere between one to three times [00:33:00] the profit at the studio. And for business brokers, we use the term discretionary earnings instead of profit. Because a lot of times there's expenses that are run through the business that aren't necessary to the operation.

Common examples would be meals, entertainment, travel, continuing education. Those aren't necessary to running the business, but most business owners in this industry write off those expenses because they can't. And so what we do is we take the net income and we add back those discretionary expenses and get what we call discretionary earnings.

And so for this particular studio their gross sales for 2022 was 543,000, and their discretionary earnings was 221,000. And so this is a high end studio. This is a really high performing studio. And so I'm setting the bar really high here, but for good reason. So three x, that number is usually the high end of the range.

And three x this would [00:34:00] be right at 6 63. We went a little bit higher than that because January and February were up significantly from where this was in 2022. And so we're expecting to eat into that difference. But this is how it works. So with an SBA loan, and this is unique to the states, so if you're in Canada, I know that there's a different version of this.

In Canada, it's not called SBA a but with an SBA seven, a acquisition loan, you can buy this business only putting 10% down. And so the way that the math works, the bank will then cover the other 90% of the loan and a 10 year term. And so if you think of it as three years of profit, Spread out over 10 years.

What ends up happening is that ultimately you cash flow about 60% of what the cash flow was before. So in this example, asking price of 700, [00:35:00] you'd put down 10%, which would be about $70,000. The bank would cover the rest interest rates. Are like, I cringe talking about interest rates right now. I can't help it.

I can't believe they went up again this week, but right now for these loans, they're around 10%. And so the way that works is the monthly debt payment is about $8,000 a month, which means the annual debt payment is just under a hundred thousand a year. And so what that means is, instead of make, if everything stays the same, instead of making $220,000 a year, you're gonna be making around 120.

But you're also getting equity in the business that you own. And if you put $70,000 down and you make 120 something in your first year, you're gonna get your money back within six or seven months, which is really phenomenal. R o [00:36:00] roi. There aren't many investments in this world where you get your money back in six or seven months and then can cash flow in numbers like this.

And I know not everybody has $70,000 in their back pocket. I'm very sensitive to that. But this works on much smaller scales too. So if you were buying a studio that was $300,000, that was doing a hundred thousand dollars a year in profit, you could put 30,000 down and expect cash flow 60 every year.

And that's a really beautiful way to step into an existing business where you're only putting 30,000 down instead of paying for a build out, having to, have a bunch of runway where you're covering expenses before you're ever profitable. There's just a lot more confidence in security and.

Certainty stepping into a situation like this. . Can you talk about the SBA loan has the [00:37:00] business has to be profitable for three years to be eligible, is that correct? It does. So both the buyer and the business have to qualify and the business is actually the harder part to qualify.

 Because it's a government insured loan, has to check a lot of government red tape boxes. And the way that the business gets approved is by the last three years of the corporate tax return. And so if they're not showing. Hundred thousand in profit on their corporate tax return, it won't get approved for the SBA loan.

And so as a buyer, or as someone who's looking to make an acquisition the bank is actually one of your best advocates in terms of due diligence to make sure that you're buying a business that, that really is performing at that level. Because the bank is the one that's putting 90% of the money out, they're going to make damn well sure that they're not putting their 90% into a bad business.

And for someone [00:38:00] who's not an expert in due diligence or tax returns or, all of those things using an SBA pre-approved business is a great way as a buyer to make sure that you're buying a really solid business that, that you're gonna make money on. So that business has been profitable, that you're purchasing has been profitable for three years to be.

Eligible, then you purchase it and you come in with a great business consultant and , you rocket the sales of that place for another three years and you increase the profit and then after three years you have a business that is worth more to sell. Correct? That's right. Yeah. If you take it from doing a hundred a year in profit to doing 150 a year, you're three xing the difference.

And so that studio that was worth 300,000 is now worth 450,000. And besides making $150,000 a year, [00:39:00] if you own it for three years, stick with me on this. You're gonna make 150 in th years, one, two, and three. So that's 450,000 and then you turn around and sell it for 450,000 also. And so you're making $900,000 over the next three years.

Yeah, that's a sweet proposition. . That's why I wanted to leave this till last cuz I think this is such great, it makes me want to I swore I wouldn't own another studio, but it makes me it makes me want to go and flip studios . Now I know because I know how to make them profitable. So it makes me want to go out and maybe we should team up Mitch and start a TV show.

Flipping yoga studios or fitness studios. feel like it's inevitable, , but one, one more thing I'll say because the SBA pre-approved studios are few and far between. Like there, there really aren't that many of them because there aren. That many studios that show a hundred thousand dollars or more in profit on [00:40:00] their tax returns.

It's not that common. The studio that I bought was not profitable when I bought it. And, it's very common for those types of studios to sell for maybe $50,000, even though, they're not profitable because there's a client base and a beautiful space and staff and systems and whatever.

And so if you can buy a studio for 50 or maybe a hundred thousand dollars and then create that performance, you're gonna do just as well in the long run. But instead of putting $50,000 down and then having a debt payment for 10 years, you're just putting $50,000 down to buy the whole business and then growing it from there, knowing that you're gonna take a couple years to build it up.

And truthfully, you don't have to have three years of that profitability to get that valuation. Three is better than two. Two is better than one, one is better than zero. But that's the trajectory that you want to be on. And I imagine there has to be a [00:41:00] few, after post covid, some studios that haven't recovered and may be looking to get out.

I have a studio they bought a a full-fledged hot yoga studio for $25,000. Build out heating everything in. Yeah. Are you seeing that it's common? Yeah, it's really common and people have all kinds of reasons for needing to sell. I think that's worth saying too.

It's a lot of times it's accompanying some bigger transition in their life that isn't necessarily related to the business. A lot of times it has to do with an aging parent or kids who are about to go off to college or having kids, or, any number of the health issue. Like in, there's so many reasons that people have to sell good businesses, and sometimes when they're in a bind and they have to sell now, it means they're not gonna get, the highest dollar, the best value that, that they could possibly get.

And coming off of Covid is a perfect example. Why? People's tax returns the last couple years haven't looked great. [00:42:00] And so the ability to get financing right now is really hard, and when you can't get your business pre-approved for sba. The valuation goes down because then you're stuck looking for cash buyers.

And it's a lot harder to find someone to buy your business for $200,000 when that person needs 200,000 in cash. And the last thing I wanna mention real quick about this that always comes up is seller financing. In those situations where a loan isn't feasible, A lot of times sellers will have to resort to seller financing, which is essentially saying if I were selling you my studio for a hundred thousand dollars, but you've only got 25,000 that you can put down, then I sell you the studio.

And then there's a promissory note where you're gonna pay me the other 75,000, in monthly installments over the next couple years. And that's fairly normal. We do a lot of seller financing in these deals for that reason. Pros and cons to everything. It's y you'll get a better interest rate from a [00:43:00] seller.

They're not gonna charge you 10 or 11% like SBA will. But it's also riskier for sellers because there's always the possibility that, the new owner won't thrive. That they won't make enough money, that they won't be able to make that payment. But it is something that's normal. It's a, it's the last tool in the tool chest as a seller.

But if you're a buyer and you're looking at those types of scenarios, those are really attractive scenarios too, where you can put a little bit of money down and make some payments over time to make the seller whole. That's how I sold my studio. I sold it to one of my teachers, which I think is a common thing for an existing studio.

And I got paid over two years. And for me at the time, it was perfect, but spreads out the tax liability too. Yeah. , guys, I have one really quick question before we go, and hopefully it's not too big of a question, but in making a studio successful, is it just classes or is it workshops, teacher trainings, a variety.

What builds into making that studio [00:44:00] to get in those profit margin? I, for me it's classes first because that's your bread and butter, that's your day-to-day. I see some studios focusing too much on the external things that look great from the outside world, the retreats, the workshops, and all of those things.

I say, get your base rocking first. A really great retention of your customers. Get that all working first. And then you add in the additional incomes and teacher trainings. Bring a lot of extra income for yoga studios in particular and Pilate Studios. But I love all of the extras, but not until you've got the base of your business.

It's nice waking up on the first and the 15th of the month and knowing that your bills are covered. So do that first. Yeah I totally agree. And it's, once you have that foundation, that's your pool of people to do the trainings, to do the retreats, the workshops, those are the clients that, that will then become higher ticket, higher value, lifetime value clients.

[00:45:00] So it, it really is one. And then the other, I love that, and I wanted to make sure that I shared in the chat Michael's checklist, which is a very comprehensive list that you can download of how to go through, of everything really that you need to think about from New Studio. It's really cool.

So thank you for that, Michael. Yeah, tha it's got everything from initials business set up to your brand set up through the space, set up classes and teachers and revenue. So it's a pretty thorough checklist. And for anyone who's here watching the replay, that link will be in the email that you received or in the comments below.

We'll make sure that's included and I'll give one last shout out to us. Offering Tree cuz we have a software that supports studios. And right now you can still access custom pricing for that studio package. So I would urge you to check out the features and the pricing that goes along with that.

But thanks so much Michael and Mitch. This was amazing. There was so much information in it. I love it. I hope [00:46:00] everyone found it really useful. Yet Nancy's saying thank you.

It's amazing info. Myra. You guys are welcome Eric. Thanks. And Kelly? Yes, thank you. Offering Tree is an awesome platform. Thank you so much, Michael, Mitch, really appreciate it. Take care. You. Thank you Sinead. And offering Tree.

Thanks. Bye-bye. Bye.