5 fatal gym partnership mistakes

What’s up Gym World?

Partnership mistakes are some of the most expensive mistakes gym owners make.

Luckily, most of them are avoidable.

Here’s how you can avoid the 5 bigger & most expensive ones:

Hire a good lawyer

A good lawyer representing YOUR interests will pay for themselves many times over.

Establish a “Partnership Charter”

A Partnership Charter is a document created by psychologist and business mediation expert David Gage, that defines the softer parts of a business like goals, expectations, responsibilities, and relationships within a partnership. It ensures each partner clearly knows what’s expected of them and what they can expect from the business in return, including:

• Voting rights

• Compensation - The person running the gym must get a fair, market-rate salary. If anyone works for less than the market rate with a promise of future upside, set clear terms for what happens if that upside doesn’t materialize.

• Day-to-day duties

• Performance expectations

• Meeting requirements

Have a money plan

It’s important to understand how to handle your business’s money. You and your partner need to agree on when to:

• Borrow money: Do you believe in borrowing money? If so, what are the valid reasons for borrowing money? Are your views aligned on this?

• Repay loans: How much of your earnings will go towards paying off loans? Do you have a clear plan to manage future debt?

• Distribute or reinvest profit: Do you want to open more gyms if this one is successful? Or will you milk the gym’s cash flow and reinvest outside the business?

• Handle non-core income: If your partner has a side project, like personal training or teaching seminars, where does that revenue go? Is it a part of the business or separate? What happens if that project takes off?

💬 John’s note: Small side hustles can turn into big ones. It’s important to lay out clear terms in your operating agreement for managing them.

Set a plan for handling disputes

There may come a time when one partner wants to buy out the other. Emmy’s experience was complex and frustrating because of the one-sidedness.

For 50/50 partnerships, a buy-sell agreement is a good mechanism that avoids this complexity. Including it in your operating agreement ensures both partners understand the buyout process if and when it happens.

Here’s how it works:

1. Either partner can exercise the buy-sell agreement at any time.

2. The partner that exercises the agreement sets the valuation.

3. Then, the other partner gets to choose whether they:

   a. Buy the exercising partner’s share

   b. Sell their shares

This incentivizes the partner that exercises the agreement to set a fair price.

Get a professional business valuation

To avoid being forced to sell at a price you don’t control, especially in a minority partnership like Emmy’s, put a protective clause in your operating agreement that outlines how the business is valued and who the business will be valued by in the event of a sale. This way, everything is agreed upon in advance so that:

• You get a fair price for your share if you’re forced to sell.

• You pay a reasonable price if you’re buying more of the business.

TL;DR

Bad partnerships kill good businesses. Protect yourself.

stay safe,

j