It’s pretty rare for a gym owner to think about selling a gym in advance of when that time comes. If all goes well, opening a gym and the years of successfully running it are filled with great happiness and health for everyone involved.
And if you’re like many gym owners, there will simply come a time when you’re ready to move on. According to Matthew Becker, if you’ve set yourself up correctly, selling a gym might not be as complicated as you’d think.
Becker is a gym owner, a lawyer and the owner of GymLawyers.com, a company aimed at educating gym owners about legal matters that impact their business.
He’s been providing valuable legal tips for all stages of running a gym. In case you missed it, check them out here:
- Opening a Gym: The Four Legal Steps that Shouldn’t Be Overlooked
- Owning a Gym: The Three Legal Documents Every Gym Needs
- Protecting Your Gym: The Three Critical Parts to a Rock-Solid Gym Waiver
The Two Key Details to Selling a Gym.
1. Ensure All Legal Components are Set Up Properly from the Start.
As it turns out, the very first piece of advice Becker provided to kick off this series is applicable for selling a gym too.
From a legal perspective, it’s imperative that you set up the various components of your business properly. Because if not, you may intend to sell it, but don’t actually have the ability to.
In order to sell your business, you will need the following in place:
- LLC and FEIN (Federal Employee Identification Number).
- A business bank account, where all business funds are processed.
- Operating agreement, applicable to partners or shareholders, if needed.
- DBA (Doing Business As), the name that your business is operating under, if different from the legal name.
So, why do these matter for selling a gym?
“If the LLC was set up improperly, then the LLC didn’t have the power to buy all the equipment to begin with,” said Becker.
He shared other examples. If a gym owner has been running transactions through a personal bank account, technically the LLC has no money. Or, it may not be possible to sell if someone never drew up an operating agreement to indicate how assets will be sold.
Further, without the proper DBA setup, the gym owner might try to sell the assets of the business - including the name it’s been operating under - and can’t. This is because the LLC does not own that asset.
Thinking about selling a gym in the near future? No need to panic if some of these assets aren’t set up properly. Becker said it may be an extensive process, but it’s not too late to get things in order.
“There is a process you can go through to clean it up,” he confirmed.
2. Cover Your Bases by Drafting All Legal Documents.
It probably goes without saying but a handshake deal just isn’t a thing anymore. When selling a gym, make sure every aspect of the agreement is put in writing. Not only to show the proper transfer of ownership but to protect yourself from any other liability.
Becker explained that, generally speaking, when it comes to selling a gym, the sale becomes an asset purchase. This means the buyer is only buying the business’ assets, rather than the entire LLC.
From the seller’s perspective, this could be because they choose to keep their LLC. It may be that they plan to do something else with it in the future, like starting a new business.
On the other hand, from the buyer’s perspective, they may want to limit liability. If there are still loans or potential liability attached to the LLC, they may choose not to buy it.
For example, if a member recently got injured in the gym and filed a lawsuit, the new buyer obviously doesn’t want to be connected to the situation. So, to separate themselves from the liability, he/she should only purchase the business assets. Purchasing the LLC might wrap them up in the lawsuit.
Pro Tip: Need help with selling a gym? Contact the team at Gym Lawyers to let the experts help you get it done right.
In Summary: Smooth Sales Come From Strong Starts.
Even though it may be time consuming and perhaps even annoying to iron out each legal detail from the start, it’s worth taking the time. Those intricate components matter.
“Missing one step in the process can really expose you,” said Becker.
First, set up all legal components correctly from the start. Then, when selling a gym becomes the priority, cover your bases by drafting all the proper legal documents.
From opening a gym through the day-to-day of running it, these details matter to keep your business protected. And that’s exactly why Becker opened Gym Lawyers.
“To take the stress off the small gym owner,” he said. “And more importantly, to provide them with the necessary legal protection they need, every step of their gym owning journey.”