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Is Private Equity Right for Your Fitness Business?

Is Private Equity Right for Your Fitness Business?

There are several ways to finance your fitness business. Whether or not private equity is the best option comes down to your style and goals

Taking on private equity money isn’t always the right move for a fitness business. There are successful businesses that have grown and scaled on their own, without raising money from private equity investors. They’ve opened franchises across the country and even had successful exits. A private equity investor is not a necessity for everyone. 

However, it is a great strategic move for many fitness franchise businesses. The key to making it a successful relationship for you is to know whether or not it’s the right fit before you enter into a partnership and to understand the expectations on both sides. 

What should you expect from a private equity relationship? And what will they expect from you? Athletech News breaks down what you need to know:

Understand the Goal of Taking On Private Equity

Before you do anything else, reflect on why you want to take on a private equity partner. Is it because you need cash to grow and scale quickly? Are you looking for mentorship from someone who’s been through the process and successfully exited? Do you want to tap into resources in terms of expertise, talent, and skill from someone who’s been there before? All of these are excellent reasons. Just make sure you know your specific why.

Think About Your Collaboration Style

“A private equity partner will expect open and honest and regular communication,” Jon Canarick, managing partner at North Castle Partners, told Athletech News.  

How do you ideally want to collaborate with your private equity partner? Do you want someone that’s going to be a warm, inviting sounding board? Do you prefer someone who offers the tough advice? Every partner is going to be different, and if you know that you work in a certain collaborative style, then you can pick the right partner — but you can also decide whether that type of relationship isn’t what you want right now. Maybe moving forward without outside investment is the best decision for you in the moment.

Discuss Their Involvement With Your Team & Hiring Decisions

A private equity partner is going to want to make sure you have the most talented, knowledgeable people on your team. Set expectations early about how that will impact hiring and the team they currently have.

“Human capital is also a major component PE firms are looking at. Skilled workers and experienced leaders are invaluable as they are seen as the driving force behind the success of the company,” explained Carolyn Collins, franchise fitness vice president of sales, Mitsubishi HC Capital America.

Communicate About the Type of Mentorship Available

“You should expect a good partner. Someone who will work with you through your problems and help guide organizational growth. This is someone you want to have a drink or coffee with,” Canarick said.

Set these expectations early. If you’re going to take on a private equity partner, know what that mentorship relationship will look like. What do you want to get out of it? Is that a main goal of pursuing private equity investment for you?

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Determine Whether You Would Benefit From the Support

PE might be the right decision if you’re looking to tap into expertise that goes beyond your skill set. Private equity could open doors for you in terms of franchise knowledge, marketing skills, networking, and more. But you also have to be open to that advice. 

“A partner will look for open-mindedness to change and adapt. If they speak from experience, the entrepreneur should recognize they don’t know what they don’t know while, of course, upholding the values that made their business successful in the first place,” explained Canarick.

Reflect on Your Desired Exit Strategy

If you don’t have a desired exit strategy right now, then private equity investment might not be the right answer. They will want to see a return on their investment. If you plan on staying in this business without selling or going public, then there’s no incentive for them to put up their capital. Discuss this early so no one is put in a situation where the expectations don’t meet reality, and one party ends up frustrated or feeling as if they were not given a clear vision of the future.

The Reality of Private Equity Investment

Taking on a private equity partner not only means they’re investing in you, you’re investing in them. You’re entering a true partnership, where you’re able to tap into the wealth of knowledge, resources, network, and expertise that they have to offer, and they believe investing their capital with you is going to be worth the risk. It can be an incredible opportunity on both sides. But you both have to be aligned, and these discussion topics can help you find that alignment.

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