Selling a Pilates Studio

What a buyer is paying for

The buyer is paying for the monthly income that members and package holders produce and for the likelihood that it continues after the owner leaves. A studio typically earns money from unlimited or fixed monthly memberships, class packs, introductory offers, private and semi-private sessions, workshops and teacher training. Buyers separate these streams because they behave differently. Monthly memberships are the most valuable, since they renew automatically. Packs expire and need to be sold again. Introductory offers bring new faces, though many of them never come back.

Expect to be asked for membership counts by month for several years, with the number who joined, the number who canceled, and how long the average member stays. A studio that holds most of its members for more than a year is in a stronger position than one that survives by selling a steady supply of introductory offers. Our post on recurring revenue and contracts explains why buyers pay more for income that renews on its own.

The booking software holds most of this. Whether it is one of the common studio platforms or something built for a small number of locations, the reports it produces will be used by the buyer. If you cannot pull a clean report of active members, pack balances and class attendance, that is the first thing to fix.

Reformers, equipment and the room

Equipment is the visible asset. A studio will have reformers, and many also have Cadillacs or trapeze tables, chairs, barrels, towers, mats, props and, increasingly, spring-based machines built for group classes. Buyers will ask for an inventory showing the number of each, the brand, the age and the condition. Reformers last a long time with care, though springs, ropes, straps and upholstery wear out and cost money to replace. A buyer will ask when springs were last changed and how often.

The number of reformers sets the ceiling on class revenue, so buyers will do the arithmetic. If the studio has ten reformers and runs classes at a high fill rate during peak hours and a low fill rate off-peak, there is room to add classes at slow times. If peak classes already have waitlists, the studio may have outgrown its room. They will also look at the floor, the lighting, the sound, the changing rooms and the retail area, since boutique studios depend on appearance and calm.

Equipment ownership should be clear. Some studios finance their reformers, some lease them, and some were bought from a previous owner with a lien still attached. A buyer will check every one.

Private sessions

Private and semi-private sessions carry the highest price per hour and usually the highest margin. They also tie revenue to individual instructors. A buyer will ask for the number of privates sold by month, who teaches them, how many clients each instructor holds, and how long those clients have been coming. If one instructor handles most of the private book and is the owner, the buyer will see a risk and price it. If three or four instructors share it and the clients move between them, the book is easier to transfer.

Rehabilitation work is a special case. Studios that work with clients recovering from injury, pregnant clients, or older clients with specific needs may employ instructors with additional training, and some partner with physical therapists who refer clients. Those referral relationships are assets, and a buyer will ask whether they depend on the owner personally. Our post on owner dependency gives a way to think about reducing it.

Instructor certification and retention

Instructor quality is what clients are buying. Pilates certification varies widely, from comprehensive programs that take hundreds of hours and include observation and practice teaching, to short weekend courses. Buyers will want a roster of instructors with their training programs, certifications, how long each has taught at the studio, what they are paid and how they are classified. Many studios pay instructors per class, and some pay a split on privates. Buyers will want to see that pay is consistent and written down.

They also want to know who stays. Instructors build loyal followings, and a teacher who leaves can take a roomful of clients across town. Buyers will ask about turnover, what restrictions exist on teaching nearby and whether the instructors have been told about the sale. Restrictions on moving to a nearby competitor are covered by state rules that differ, and your attorney confirms what applies. Our post on when to tell employees discusses timing, which matters a great deal in a studio where instructors are the product.

A studio that trains its own teachers has an advantage. A teacher training program supplies new instructors, produces tuition income and builds loyalty. A buyer will review that program's revenue and standing separately, and will ask whether the training certificate is the studio's own or affiliated with a larger education brand that has its own agreement.

Small class size and what it means for profit

Small classes mean high prices and a ceiling on volume. A buyer looking at the studio will model what each class earns when it is full, half full and almost empty, and what the instructor is paid in each case. A studio that runs many early morning and late evening classes with two or three attendees is carrying fixed costs it may not recover. A studio that has trimmed its schedule to the times people attend is usually more profitable.

Buyers also look at pricing. Many studios have not raised their rates in years and have a loyal base that would accept an increase. A buyer will see that as upside. A studio that discounts heavily to fill classes will look like it has a demand problem, and the buyer will ask why.

Records and what has to transfer

Plan to provide business tax returns, monthly profit and loss statements, the booking software reports, payroll records, instructor agreements, the equipment list, the lease and insurance policies. Members sign waivers, and a buyer will want to see that waivers are current and stored. Our post on getting your financials ready describes what clean books look like.

Pack balances and prepaid memberships deserve attention. Clients who have paid for classes they have not yet taken represent an obligation the buyer inherits. Whether the cash is credited to the buyer at closing is negotiated, and an adjustment for unused prepaid services is common. The booking system, phone number, email list, social media accounts, website and domain all need to move as well.

The lease comes next. Studios put money into floors, mirrors, sound control and sometimes plumbing for showers, and a landlord who is happy with you may not be happy with a stranger. The post on the lease as part of the deal explains the usual path.

What tends to sink a sale

Studio sales usually fall apart over the same things. The owner teaches most of the classes and privates. Instructors leave once they hear. Membership numbers are weaker than the owner described. Prepaid balances were not tracked. The landlord will not consent. Confidentiality is difficult in a business where clients and teachers talk constantly, and we approach buyers without naming the studio, with a nondisclosure agreement signed first, as described in how we market a business confidentially.

How to prepare

Start a year ahead if you can. Raise prices if you have been hesitating. Hire and develop a lead instructor or studio manager who can run the schedule. Spread private clients across teachers. Clean up the booking software data. Service the equipment and replace worn springs and ropes. Put instructor agreements in writing.

If you are considering selling a Pilates studio, Business Advisors of America can value it from your own numbers, prepare what a buyer and lender will expect, and screen buyers before they see anything identifying.

This article shares our opinion and general information. It is not legal or tax advice. Always speak with a licensed attorney for legal advice, and a qualified tax professional for tax questions, before you act.