How to Start a Gym Business

Starting a gym is a passion project for some. For others, it's a business opportunity. Whatever your reasons for starting a gym, you'll need a plan for setting up and running your gym, a pricing strategy, and a marketing plan to get customers through the door.

What Type of Gym Will You Open?

The fitness industry has become increasingly segmented. Many gyms now offer a single activity, such as:

• cycling
• barre
• yoga
• pilates
• CrossFit training
• circuit training
• boot camp
• rock climbing
• boxing, and
• martial arts.

Most would-be gym owners will naturally gravitate to the types of activities they themselves engage in and enjoy. It's important to balance your personal preferences with the business elements that will make your gym successful.

Some of the elements to consider when deciding on the type of gym you want are:

The demographic market. Each type of gym tends to draw a particular type of customer. Although every consumer comes to the gym with assumptions about their abilities and the experience they expect to encounter, an understanding of the typical profile of your gym's customer will help you to anticipate the types of amenities you'll have to offer and how much you'll be able to charge.

For example, you might learn that rock climbing enthusiasts are less picky when it comes to fancy amenities than other groups. Keep in mind, you'll have an uphill battle for customers if your pricing isn't in line with competitive gyms.

Competition in your local area. Most consumers won't travel a long distance for a gym and, when deciding which gym to join, they'll evaluate your offerings against others close-by. Your gym will come up short if it doesn't offer a comparable—or better—experience.

The size of the investment. The largest expenses for gyms are rent and equipment. Determining the size of the facility and the amount of equipment you'll need will help you decide whether the investment required is within your financial means or the debt you're willing and able to assume.

Some niches, like yoga, require little or no equipment; while others, like cycling, require a substantial investment in equipment. A barre studio doesn't need as much space as a circuit training facility, and so on.

Should You Buy a Franchise?

You can start your gym from scratch, or buy an existing gym or a franchise. When you buy a franchise, you'll usually get an established brand recognized by consumers, along with the ability to tap into proven operational and marketing systems. But the cost for buying a franchise is generally greater than the cost to start your own gym (more on costs below), and many franchise agreements require additional expenditures, including royalty fees, advertising, and training fees, whether or not you feel it necessary or are satisfied with the support and services provided.

What Additional Services Will You Offer?

Many gym owners create additional revenue streams by renting space in the gym to related service providers. Some of the services or amenities you might consider offering at your gym include:

• massage therapy
• tanning salons
• chiropractic
• physical therapy, and
• a juice bar or café.

How Much Does It Cost to Start a Gym?

The cost to open a gym varies from $200,000 for a small facility to $1 million or more for a large gym. The location, the equipment, staff size, and the amenities you offer, along with the size of the facility (the rent) all determine the cost to run the gym.

In general, the initial investment to acquire a franchise can range from $300,000 to $4 million or more.

Start-up and Ongoing Business Expenses

When planning your budget, factor in both startup and ongoing costs, including:

• rent
• utilities
• equipment purchase or lease
• facility improvements like rubberized floors and showers
• insurance
• gym management software and maintenance
• phone system
• staff salaries and benefits, plus tax return preparation costs, and
• marketing including website design and maintenance.

Should You Lease or Purchase Equipment for Your Gym?

You'll have to purchase equipment like hand weights, elastic bands, kettle bells, and gym balls, but equipment like treadmills, "cage" systems with pulleys, and elliptical machines can be purchased or leased.

Leasing gym equipment. The cost to lease equipment ranges from $60 to $100 per month per item. As with any lease, the amount you'll pay in financing depends on your credit history, borrowing history, and past business history. You can usually deduct the financing costs of leasing equipment from your taxes.

Purchasing gym equipment. The cost to buy equipment can range from $2,000 to $7,000 per item, depending on the equipment type and brand. For any equipment you own, you'll be able to deduct from your taxes either the whole cost at once or the depreciated value over time.

If you lease your equipment, you won't have to worry about maintenance and repair costs, and you can often get brand new equipment when your existing lease expires and you enter into a new one.

Checklist for Opening Your Gym

You'll need to take many of the same steps to open a gym as you would for any other business. The nature of a gym business—your risk exposure—makes it very important to pay special attention to some aspects, like choosing your business structure and getting insurance.

In general, you'll want to:

• write a business plan
• decide on a business structure
• choose a business name
• buy insurance
• obtain permits and licenses
• hire a staff, and
• market your gym.

Let's look at each of these steps more closely.

Write a Business Plan

A business plan gives you a roadmap for opening and running your business. You'll need a written business plan if you expect to get a loan to finance your business or seek investor funding.

Your business plan should include a description of your business; an analysis of the fitness industry, the local market, and the competition; and the way you plan to differentiate your gym.

The plan should detail your strategies for growth, your start-up and ongoing expenses, your marketing strategy, and your revenue and profit projections. The plan should also set a timeline for breaking even and turning a profit, so you can anticipate the financing you'll need.

Decide on a Business Structure

If you decide to operate on your own (and not buy a franchise), you'll need to decide how to structure your business. Will it be as a sole proprietor, or a partnership (with other owners), or an LLC or corporation? To cut to the chase, there's no debate about what you need: an LLC or a corporation.

Here's the issue: As a gym owner, you run a greater risk that customers might be injured on your premises than you would if you owned, say, an art gallery. If you're sued or have unpaid debts, litigants and vendors will be able to tap into the assets of your business for payment. But what about your personal assets—will your home, car, and personal bank account be at risk? Not usually, as long as you choose a business entity that protects your personal assets.

The two types of business structures that protect your personal assets are limited liability companies (LLCs) and corporations. As an LLC, you'll have fewer rules to follow and more flexibility in choosing the way you pay taxes than you would with a corporate structure. Sophisticated outside investors, however, will require your business to be structured as a corporation.

It's important to be aware that neither an LLC nor a corporation will protect your business assets from being used to settle business lawsuits or pay business debts. Limited liability refers only to protecting personal assets like your home. And if you fail to follow the rules for running your LLC or corporation—if you intermingle your personal and business expenses—a court can decide that you aren't entitled to the limited liability protections these business structures provide, and allow your personal assets to be available when jury verdicts and settlements result in your having to pay money to creditors. (For more on how you can lose limited liability protections, read our article about piercing the corporate veil.)

Register Your Business

LLCs and corporations must register with the state where they operate. You can find information and an online application for registering your business on the website of your Secretary of State. If you register in one state but operate in another, you'll probably need to file to qualify as a foreign business in the state where you'll operate.

Business registration rules. Rules for registering a corporation are different from those for an LLC. For example, if you're registering a corporation, your state might require you to list the type and number of authorized shares for your business. If you're registering an LLC, your state might require you to list the LLC members' names and addresses. For specific rules, check with your Secretary of State or agency that governs business registrations in your state.

Domain name availability. Before you settle on a business name, you should make sure that the same name is available as a domain name for your website. Using the same name for your location and your website will help you build awareness for your business and your brand. Domain names are sold by website builders and others.

A quick internet search will tell you whether the name is available, but that answer isn't all that you can glean from a thorough search. Look for names that are not exact matches, but similar to yours. You don't want to use a name that's very similar to one already in use. Domain sellers will tell you only whether the exact name you chose is already in use.

Set a Pricing Strategy

Gyms typically use one of two pricing strategies, depending on the type of gym:

• an annual membership fee plus an initiation fee, or
• a per class fee, with discounts for buying a series of classes.

Some gyms offer both: access to the gym in general, plus the ability to sign-up for structured activities.

Gyms offering weight equipment along with exercise classes typically work on an annual membership fee. Gyms that offer specialized classes such as barre, boxing, and yoga typically charge per class, with discounted rates for those who buy a set number of classes at a time.

Open a Business Bank Account

Both LLCs and corporations must separate the finances of the business from their owners, so it's essential to open a bank account for your business and set up a business-only credit card. It can also be useful to establish a "net-30 account" (a line of credit with your vendors that allows you to pay invoices within 30 days without interest charges).

Obtain Permits and Licenses

As a gym owner, you'll need a general business license (usually from your local municipality), as well as specialized licenses, including:

• a health club license (usually from your state, but some local municipalities have their own requirements as well).
• a sales tax or seller's permit (from your state), and
• if your gym will have a snack bar or café, a food and beverage sales permit from your state health department.

Many states have dedicated departments or agencies that oversee business licensing. For details on how to get a business license in your state, check out our state guide to business license requirements.

Occupational certification. While most states don't require you or your instructors or trainers to have a fitness certification, it's customary for providers to be certified by a nationally recognized institute or academy in the type of exercise they provide.

CPR certification. Some states, however, do require gym owners, trainers, and instructors to have CPR certification including training on an automated external defibrillator (AED). Even when it isn't required, you and your trainers and instructors should consider getting CPR certification, such as the one provided by the American Red Cross.

Buy Business Insurance for Your Gym

As noted, the risk of accidents and injuries is greater with a gym than with many other businesses. Most gym owners will find they need several kinds of policies, each covering specific risks and damages.

For example, if a client slips on a wet floor that you failed to cone-off, your general liability insurance will likely cover any medical expenses that result. But a general liability policy won't protect you if that same client were to claim that the same injury resulted because an instructor didn't provide proper instruction for performing an exercise. You'd need professional liability insurance to cover that type of circumstance.

Here are some of the insurance policies gym owners typically carry. Some can be bundled into a single business owner's policy.

General liability insurance provides coverage for non-employees (that is, visitors and members) who suffer bodily injury or property damage on your premises due to negligence (such as the wet floor example above) or equipment malfunction. For example, general liability insurance would protect you if a customer is injured after falling off a bike that wasn't properly bolted to the floor.

Professional liability insurance, also called errors and omissions insurance, protects you from losses that arise when the accident or injury occurs because a client wasn't advised correctly or wasn't advised at all on the way to safely perform an exercise.

Cyber insurance is often worthwhile coverage for gym owners when they store client credit card information on their computer system. For example, if your system is hacked and a customer's personal data is stolen resulting in fraudulent activity on their credit card, cyber insurance will help cover the losses.

Business equipment insurance will cover items like gym equipment if it is lost or damaged for any reason.

Commercial property insurance covers damage to real property. If you own the property that houses your gym, you'll need commercial property insurance. If you lease, make sure your landlord carries this policy.

Personal property insurance covers equiment that is lost or damaged due to accidents or thefts.

Workers' compensation insurance covers your employees if they suffer injuries on the job. Most states require employers to carry workers' compensation insurance (Texas is a notable exception).

Create a Liability Waiver

Most gyms ask members to sign liability waivers, in which members agree that they will not hold you responsible if they are injured as a result of your negligence (waivers typically will not be effective if the injury results from your extreme carelessness or recklessness). In the poorly-secured bike example above, an enforceable waiver would protect you against a successful lawsuit or insurance claim.

While you should include a waiver in your sign-up documents, don't assume that it will always protect you if a client is injured. As noted, you're fair game for a lawsuit if your conduct was extreme. Judges construe waivers narrowly, and if, in a particular situation, your waiver is not upheld, you will need an insurance policy as a backstop.

Set Up a Gym Management Software System

Running a gym requires specialized recordkeeping to track membership data, payments, and scheduling.

Make sure that your software offers these capabilities and integrates with your accounting software.

Check for Laws About Running Gyms in Your State

Some states have laws aimed at deceptive and unfair practices used by health clubs. These laws might govern the terms of your membership contract, refunds and automatic membership renewals, initiation fee charges, advertising practices, and members' rights to cancel their memberships.

Additionally, all states have consumer protection laws that might affect your gym policies and procedures. It's a good idea to check with the office of the Attorney General in your state before setting your gym policies.

You'll remember that we discussed fitness training and certification earlier. It's equally important to stay in your lane when working with clients. Don't stray from the credentials you have.

For example, a fitness trainer can discuss some aspects of healthy eating with their clients, but they can run afoul of the law if they call themselves nutritionists or dieticians, and they should never give nutrition advice for health conditions such as diabetes and heart disease.

Market Your Gym

Even a small gym will start running up expenses well before opening day, so it's important to start marketing your gym before you open your doors.

• Pre-sell memberships so that you get your gym out in front of the community and hit the ground running when you open.
• Offer promotions for early sign-ups. Consider offering free, one-week passes, free training sessions with membership enrollments, and discounts on monthly or annual memberships.
• Use social media to drive traffic to your website and encourage website visitors to leave their name and contact information so that you or your staff can follow up.