What Buyers Look For in a Yoga Studio

Memberships, class packs and drop-ins

Revenue comes in three forms, and a buyer will want each reported separately. Unlimited memberships on automatic billing are the most valuable, because the money arrives each month whether or not the member attends. Class packs sell a set number of visits, usually with an expiry date, and bring in cash up front. Drop-ins and introductory offers fill the room and feed the other two.

The key measure is retention. A buyer wants to know how many members the studio has on the last day of each month, how many joined, how many cancelled, and how long the typical member stays. A studio that signs a lot of new students through a cheap introductory month and loses most of them by the third month has a leaking bucket, and buyers can see it in the churn report. One that holds students for years has something worth paying for.

Pricing and discounts need to be listed too. Founding member rates, locked in for life, can drag down future revenue, and a buyer will ask how many people are on them. Our post on recurring revenue and contracts shows how buyers treat income that renews on its own.

Unused class packs and prepaid balances

When a student buys a pack or pays for a series, the studio owes them classes. On the closing date, a buyer takes over that obligation, so they will ask for a report of every active pack and prepaid package, with the visits left and the expiry date. How this is handled at closing is negotiated, often through a credit to the buyer. The studio software normally produces the report, and the amount should tie to the books.

Gift cards and workshop deposits belong in the same list. Our post on getting financials ready for a buyer explains why liabilities like these matter as much as revenue. Rules on how long a prepaid balance may last or how an unredeemed balance is treated vary by state and your attorney confirms what applies.

Teachers and the relationships that matter

Teachers are the product. A buyer will ask how many teach at the studio, how long each has been there, which classes each one leads and which classes fill. Two or three popular teachers can account for most of the attendance. If they leave, their students go with them to a competing studio or to an online class, which is a risk to price around.

How teachers are engaged also matters. Many studios pay per class and treat teachers as independent contractors. Others employ them. The classification depends on the facts of how the work is done, and a buyer will ask to see the arrangement and may have their attorney review it. Rules vary by state and your attorney confirms what applies to your studio. Written agreements that cover pay, schedule, notice and the use of the studio's students and methods help a lot.

The owner is often the most popular teacher. That puts a buyer in the position of asking who teaches those classes after closing, and how much of the schedule depends on the owner. Our post on owner dependency covers how to move classes to other teachers before listing. Buyers usually want the owner to stay and teach for a period, and our post on how long you stay after selling describes what that looks like.

Teacher trainings and workshops

Many studios run teacher training programs, often over a long weekend series or several months, with a tuition that is higher than anything else the studio sells. They can add a large share of profit, and buyers look at them closely. A buyer will want the calendar for the past several years, the number of students in each program, tuition collected and the cost of delivering it.

Trainings carry their own risks. They usually depend on the lead trainer, who may be the owner. The studio's registration with a yoga credentialing body may be tied to named individuals and may not move automatically to a new owner. A buyer will check what it takes to keep the program running after the sale. Trainings also bring in cash before the work is done, and a deposit for a program that has not started is another prepaid obligation. Workshops, retreats, private sessions, corporate classes and retail sales of mats, clothing and props are smaller lines, and each should appear in the books on its own.

The room, the equipment and the lease

A yoga studio has less equipment than a gym, though what it has is specific. Hot yoga rooms depend on heaters, humidity control and flooring that can take the moisture. Buyers check the condition of those systems, the ventilation, the showers and changing rooms, and whether the studio has a sound system and lighting that suit the classes. Props, mats and blankets wear out and are replaced, and a buyer will want to see that the studio has kept up.

The lease is the single most important contract. A buyer's lender will want enough years left to cover the loan, and the landlord has to consent to an assignment. Heating and ventilation changes, the build out of studio rooms and the right to operate hot classes are all points to confirm with the landlord. Our post on the lease as part of the deal walks through it.

Records a buyer will ask for

Expect requests for business tax returns, monthly profit and loss statements and a balance sheet. From the studio software, a buyer wants reports on active memberships, new and cancelled members, class attendance by class and teacher, pack sales and redemptions, and revenue by category. They will ask for teacher agreements, payroll and contractor payments, the lease, insurance policies, waivers and the processing statements for membership billing. The member list, the email list, the website, the social accounts and the app or booking page belong with the business, and a buyer will expect to receive them.

What tends to sink a sale

Most failed studio sales have a familiar cause. The best teachers left when they learned of the sale. Attendance had been falling for a year and the owner had not mentioned it. Prepaid balances were large and the cash had been spent. The teacher training was the main profit and it could not run without the owner. The lease could not be assigned. The software numbers did not match the tax returns.

We market a studio without naming it, and buyers sign a nondisclosure agreement before they see anything that identifies it. Students and teachers should not hear about a sale by rumor. Our post on when to tell employees covers the timing.

Getting the studio ready

Give yourself a year. Get your retention numbers up and reduce your dependence on introductory offers. Write agreements with your teachers. Develop a second lead trainer. Reconcile the prepaid balances with the books. Teach fewer classes so the schedule works without you. At Business Advisors of America we start with a valuation built from your own memberships and attendance, and the page on selling a yoga studio is a good place to see how we approach it.

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.