Problems with your Lease Agreement?

Hey, uh, are you leasing your space? I wanted to go over this hidden thing that, um, that might exist in your lease that, uh, you might not be aware of that can affect your cash flow. So I had a, uh, new potential member reach out to us, um, over the weekend, and he said, man, my local gym is closing. And I'm looking to, you know, try out your gym to see if it might be a good fit. Well, I, of course, hopefully not too insincere, but saw an opportunity because I know that the portion of humanity that needs you most as a gym owner, if you close, that portion takes a really long time to join a gym for whatever reason, whatever number of their insecurities. Those guys, if you close, likely aren't going to find another fitness home. So, I didn't want these people to lose that opportunity and maybe go home and not want to do the work of finding a new space. So, I reached out. I found the gym on Facebook. I did a Facebook Messenger, tried to get in contact with the owner. I did get in contact with the owner and we had a good conversation. I was, just so you know, the opportunistic side of me, I saw an opportunity. It's like, look, if this gym owner were willing to promote our gym and I was willing to do whatever needed to happen to help him be comfortable in doing that, we were willing to compensate him for doing that. Because instead of advertising, let's reward him for helping us and helping his members at the same time. He honestly didn't feel comfortable with that. It's fine, I get it. He doesn't really know me that well yet. He's not familiar with our gym yet. So he just said, I've encouraged all my members to go and look at all the local boxes, all the local gyms, for them to figure out their own thing. And so I asked, I said, well, so why are you closing? What's going on? He's like, we're actually doing really well, but the building was bought by a new owner and the new owner does not want to rent to any sort of gym company, whatever that means. We won't go into talking about that owner. But so, to me, there's a couple things that are going on here from a cash flow standpoint. One, look at your lease. Like, it's really hard for you as the tenant to get out of a lease. It should be pretty hard for the owner, especially if he's going to sell to another owner, to get himself out of the lease as well. To me, there should be something— you want to make sure that your lease agreement at least lets you use the entire space for the period of your lease, regardless if it ends up being sold to another owner. Usually that new owner, especially if the contract is written the right way, Should assume the tenants of the space and let that lease period run out based on the legal contract. Apparently, that's not what's going on here because this was not in their plans. So there's, there's that issue. The other side I look at it is, I mean, I'm looking at his words and saying to myself, if you're doing well, why wouldn't you find another space? I mean, your members must be loyal to you, so why not find another space? And I, I'm in the same area as him, and I've looked around. I know that there are spaces out there. Um, the challenge is, is that it costs money to move your gym. You guys know this. If you— I mean, if you haven't done it yet, you still probably have the assumption. You, you got to move the equipment. You're likely renting some sort of truck or U-Haul type of vehicle to load up your equipment in and then take it over to the new space. You're probably going to want to do some improvements, and not all landlords are awesome. They don't really give you tenant improvements, which is something where they cover it upfront and then they just wrap up the cost of that improvement in, in the length of your lease. But there's cost in that. And so, if they're not going to do a tenant improvement, you're going to have to pay to at least repaint the space. Ripping up rubber floors from one gym and then taking them and putting in another one is quite the undertaking. I'm not saying it can't be done, but a lot of gym owners don't do that and they just buy a new rubber floor in the other space and try to sell the existing one for whatever they can. So, look, those are things to consider. But to me, it's like, man, if you're doing really well, Why not do that investment? I think deep down, if you look at the numbers, this owner is likely not doing that well. So I know this year for 2020, as I'm recording this, COVID has been a massive crisis. And we even have some states at this point going into a second and third lockdown, which for some reason they've— well, not for some, I think I know the reason. But they pinpointed gyms as super spreaders. These morons did this study, um, and, you know, they look at the Gold's Gyms and the 24 Hour Fitnesses of the world and say these facilities are super spreaders, and they have zero concept of what we do as micro gym owners and how much tracing knowledge we have of people coming in through our doors. Regardless, they are getting closed down again. Um, So, I've talked a lot about Profit First this year because all of our clients who ran Profit First prior to COVID shutdowns, they're still in business, they're still doing fine. I'm not saying they don't have worries or stress, but they had cash reserves built up because of the Profit First system. This scenario of having your building sold to another owner and now you're forced out would be another type of crisis where the Profit First system benefits you drastically because you build up a cash reserve. And if this owner had been running the Profit First system, he'd at least have something where he'd be comfortable moving to another space, taking on the cost of, you know, remodeling it as efficiently as possible with the least amount of cash spend. But, you know, he'd still be in business, his members would still be getting fitness. their fitness services, their fitness needs met. And at a minimum, if you have a cash reserve, you also look a lot more attractive to banks who likely would give this guy a loan if he, you know, was in a financially stable situation. So, keep that in mind too. Also, from a Profit First standpoint, obviously we like some of the systems that allow us to pay down debt quicker. But in crisis scenario, if you have a good model before the crisis and it's profitable before the crisis, it can make sense to borrow some money to get you past the crisis so that then going forward you are able to pay that back. Now, if you weren't in a good position prior to any sort of crisis happening, I think you need to look at your business model first before taking on debt. You want to make sure you have a good plan on how you can pay that back. Another thing with leases to consider too, like our current lease for our gym, GSL Fitness, it's up in July, but based on the terms, we have to give a 6-month notice to the landlord. And right now, you know, with COVID as what it is, with limited classes, limited spacing, all those things. It's like, man, I don't really want to make a decision in 2 months if we want to renew the lease or not. Because on one hand, I don't want the cost of moving the space if we don't have to, if we can make the current space work. And the space is gorgeous. We just have a really crappy parking situation, but there's not— it's not like there's not solutions. But anyway, so keep that in mind too. I bought into a failing gym, so we haven't had a super great amount of time of Enjoying profits and building up a cash reserve from our gym revenue. And so, you know, for me to make a decision 6 months in advance as we're still— as we have momentum and crawling out of, you know, years of neglect from previous owners, you know, we're in that situation. And if our gym were profitable, this wouldn't be a concern. which is why we focus so heavily on helping gym owners find profit. And a lot of gym owners have the profit already there, they just need to restructure some things. It's not always or usually a sales-only issue where you just have to bring in more members. A lot of times it's just cash flow management. So I just wanted to share this message with you. Um, there are more types of crisis that can pop up, not just related to COVID. Or things like that. Your lease could be one based on what— how it's set up. And remember, having profit is always going to put you in a better position to make better decisions instead of being limited because you don't have the profit. Profit is a choice. Choose to be profitable. We'll see ya.