Here are financial results from a Curves franchise. EBITDA is somewhat higher than I expected assuming these numbers accurately reflect the state of the business. It’s in Sarasota, FL and they project growing from 373 to to 500 members by the end of 2005. It’s large for a Curves, 2900 sq feet, and has the standard 12 workout stations and 12 recovery stations (those bouncy platforms). Let’s look at the numbers provided by the franchisee seller:
||TOTAL EXPENSES before interest, taxes, depreciation
||ASKING PRICE (includes franchise fee)
Selling price per member: $402
Reason for selling: Doesn’t want the responsibility (sounds fishy considering the owner bought the franchise last year)
If these numbers are accurate, and place is run mostly by the part-time employees, then it’s asking price is only about 2x EBITDA, which sounds cheap. It doesn’t say if the expenses include the owner’s salary, but it’s probably safe to assume that it doesn’t. The owner has several part-time employees, but they must be “really part-time” because this franchisee only has on allocated $56,000 or $4,666 a month for rent, fees, operational expenses and owner’s/manager’s salary.
This particular franchisee is earning its first year a 37% return on their $40,000 investment assuming $60,000 is allocated to either the owner’s salary or expenses for a full-time qualified manager. 37% is an excellent return. Keep in mind I’m working from unaudited and anonymous information. And as we saw from our Quiznos example, the devil is in the numbers things are usually more expensive than they appear.
This particular franchisee looks like a good deal. It is earning in its first year a 37% return on their $40,000 investment assuming $60,000 is allocated to either the owner’s salary or expenses for a full-time qualified manager. 37% is an excellent return. Keep in mind I’m working from unaudited and anonymous information. And as we saw from our Quiznos example, the devil is in the numbers things are usually more expensive than they appear.
- national “buzz”
- low opportunity for employee theft
- customers tend to have a positive experience
- realistic possibility of positive cash flow the first year of operations
- a Curves franchise has very flexible real estate requirements
- it is a healthy, socially enriching venture
- 8% of all the franchisees out there are actively trying to sell their franchise (according to Curvesresales)
If there is a profit margin, then competitors will quickly move in. Competitors will inevitably have a better business model, better facilities, and construct an improved workout system with better equipment. That will pressure Curves membership rates, retention and recruitment.
- Numerous clubs for sale have low membership levels, under 150 members
- Members may get bored of the same workout routine
- Typical health club equipment needs to be replaced in as little as every 3 years
I’ve changed my mind on Curves and think it is a very worthy and likely worthwhile venture. The modified womens-only workout system with a friendly, personable, and fun atmosphere is a winning formula. And Curves seems to have packaged it right. My biggest concern is obtaining and maintaining a profitable level of members in the face increasing competition.
(See our first post on Curves a few days ago for more background information and pictures)