My friend owns a small, niche gym that caters to a maximum of four clients per hour, offering highly personalized training and access to a nutritionist. Although the gym is less than a year old, it has already built a modest but recurring client base. High-end boutique fitness studios are seeing increasing demand, particularly in South America. Given the gym’s early stage, limited financial history, and service-based nature, would a Discounted Cash Flow (DCF) analysis, an asset-based valuation, or a multiples approach be the most appropriate method for valuation?
What is valuation for.
I have done this for family when they needed a valuation for a divorce settlement.
FCF can be done but things to consider
- Capacity - what is the maximum revenue given staff and limited number of people in space. You then need a realistic occupancy level. Are they planning to teach themselves or have staff?
- Growth from now to what is deemed full utilisation
- Add on revenue
- Equipment - leased or purchased. Often lease length < useful life of machine. So we get poor cash flow in early years and great in later years.
If you are then scaling to more venues with same brand you can multiple value of one gym across others.
Everything is possible be DCF as long as make good assumptions.
I would do scenarios with probabilities and apply a relative high discount rate.
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Great points, mate!
I still need to meet with the owner’s to get all the assumptions in place.