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Ian Silverberg was supposed to be a doctor. His father was a pediatrician, and Ian went to UC Santa Barbara on the pre-med track. He paid his way through school selling boats in Los Angeles every summer.
Then he took a job at a local gym, ended up running its membership sales, and eventually forgot about medical school.
A few years later, the gym was dying. The university had built its own rec center, and the owner was ready to walk away. The asking price was $700,000.
Ian was 27, wore a ponytail, and had about $3,000 to his name. Thirteen banks turned him down.
He bought it anyway. Nine years later he sold the business for $2.1 million, but he didn’t sell everything. He kept the building and collected rent on it for the next 15 years. By his own estimate, that rent brought in well over $5 million.
The seller hadn’t realized what he was sitting on. Ian did.
What he believed
Know what you’re actually buying, and what you’re actually selling. Sometimes the most valuable part of a business isn’t the business.
You’re selling a feeling, not a product.
A track record is collateral. Once you’ve done what you said you’d do, lenders and buyers treat you differently.
Agree on the formula first, and the price takes care of itself.
Pick a buyer who will put their heart into it. It matters even more if you’re financing them.
The story
Here’s what the seller missed. The club sat on a ground lease: the land was rented long-term, but the club owned the building on top of it. About 25 years were left on the lease. The land cost roughly $3,000 a month. A building like that would rent for about $25,000 a month on the open market.
That’s a gap of around $22,000 a month. Most people saw a ticking clock. Ian saw 25 years of income.
Banks didn’t see it that way. They wanted collateral they could easily sell, and land they didn’t own made them nervous. The 13th banker, Lou Stone, ran a bank a mile and a half down the road. Ian had nothing left to lose, so he put his feet up on the desk and just talked. Stone liked him.
Then Ian pieced the $700,000 together:
$350,000 bank loan. Stone got 80% of it guaranteed by Cal Coastal, a nonprofit lender that works much like the SBA.
About $175,000 rolled over. A physician who owned 25% of the club, and had helped build it originally, kept his stake instead of cashing out.
$100,000 from friends and family.
About $50,000 in credits at closing. Hundreds of members had prepaid for their memberships. Ian would owe them service, but the seller had already collected their money, so he took a credit for it.
$3,000 of his own, which went to a legal bill.
He also signed a personal guarantee, which as he put it wasn’t worth much. Then, two weeks after closing, the $300,000 operating loan he’d been promised was pulled.
The club had a bad roof and no air conditioning. Ian traded gym memberships for a new front desk. He also rebuilt the club around the roughly 85% of people that most gyms intimidate: no contracts, no pushy salespeople, and an easy way to cancel. He was breaking even within about six months.
Over nine years he grew the club from 900 members to 3,000, and from about $600,000 in revenue to roughly $2 million. It earned around $400,000–$450,000 a year in EBITDA, even after paying a fair market rent.
Lesson 1: If you own your real estate, it’s a separate asset. Price it separately.
As he got closer to selling, Ian did something most owners never think to do. He split the company in two.
The building became its own entity and kept all the debt. Ian refinanced it for about $500,000, which paid off the original loan, bought out his partners, and paid for a remodel.
The gym moved into a new, debt-free company that paid rent to the building company.
Buyers judge an operating business and a property in completely different ways. One is valued on a multiple of earnings, the other on rental income. When you lump them together, you usually get paid fairly for one and shortchanged on the other.
Ian sold the gym for 4.5x EBITDA and kept the building. The buyers signed a lease of about $25,000 a month, with rent increases tied to the gym’s revenue.
Ian is honest that some of this was luck. He owned through one of the biggest real estate booms in history, and the gap between his land cost and market rent kept widening. But he only benefited because he saw the value early and kept the two assets separate.
Your move: if you own your building, or have a below-market lease, get it appraised separately from your business. Then decide on purpose whether to sell it, lease it back to the buyer, or keep it.
Lesson 2: How a deal is financed can matter more than the headline price.
Financing shaped Ian’s story on both ends.
When he bought, 13 banks didn’t understand the ground lease. A few years later, the refinance was easy. He now had a track record, and the first bank’s loan had shown other lenders how to think about the collateral. Ian also found an appraiser who understood that kind of property.
When he sold, he offered seller financing. The buyers paid about $1.4 million at closing, using an SBA loan plus $400,000 of their own money. Ian financed the remaining $700,000 himself over 10 years, at a variable rate tied to prime.
Because he was willing to carry that note, the price barely got negotiated.
There was risk. His note sat behind the SBA’s loan, so if the buyers defaulted, the SBA would get paid first. But Ian had served on Cal Coastal’s loan committee, and he knew a lender would never want to run a gym. He also owned the building that all of the SBA’s collateral sat inside. That made him the one party nobody could work around.
The buyers never missed a payment, even through a tough economy. He collected every dollar.
Your move: before you sell, decide whether you’d finance part of the price yourself. If you would, figure out what would protect you if the buyer stumbles. Owning the building, holding a personal guarantee, or having a solid lease all give you leverage.
One quick question, this week’s Owner Pulse:
If you made a big move in the next year, like an expansion, a major remodel, or buying out a partner, how would you fund it?
(One click. It’s anonymous and just helps us tailor what we send you.)
Lesson 3: Agree on the formula before you argue about the number.
Ian started telling people the gym might be for sale a year or two before he actually sold. Instead of opening with a price, he opened with a framework.
Gyms like his were selling for 1x to 5x EBITDA. So the conversation became: where does this club fall in that range, and what are its real earnings? Once both sides agreed on those two inputs, the price was just multiplication.
The buyer search had some bumps:
The local competitor said no. Ian later found out they were in the middle of selling themselves.
A nearby club owner took about two minutes to show Ian he wasn’t someone Ian wanted to do business with.
A large gym chain walked him almost to the finish line, then came in with a lowball offer. When he refused, they threatened to open in his market and drive him out of business. Ian knew suitable real estate in his area was scarce, so he called their bluff. He admits it was stressful.
He ended up listing the club online. That’s where he found a father-and-son team from Malibu with one club of their own. They wanted to put their hearts into it, not fold it into a chain. They agreed on the range almost immediately.
Your move: learn the multiple range for your industry, and figure out honestly where your business falls in it. Owners who walk in with a formula get further than owners who walk in with only a number.
The fine print
Two mistakes Ian made that are worth avoiding:
He checked tax returns, not bank statements. The seller told him about $30,000 a month came in through automatic membership drafts. Ian later found that about $13,000 of it bounced back days later from closed accounts and expired cards. He didn’t sue. He said that one was his mistake to own.
He underestimated the handoff. He stayed 30 days and his general manager stayed 90. After that, several key employees left, and the new owners ran the club very differently. Since he was still owed $700,000, there were stretches when he worried. In hindsight, he says he would have paid much closer attention to the transition.
Why he sold
Every year, Ian sat down with his general manager to ask whether the club was still adding value to the community, and whether it was still adding value to them.
Over time, the answers shifted. The industry was consolidating. Too much of his net worth sat in one asset. He knew his great GM wouldn’t stay forever. And he planned to start a family. Years earlier, he’d asked doctors what they would do differently in life, and almost all of them said they’d spend more time with their kids.
So he had two choices: commit to opening more locations, or sell.
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The through-line
The man who sold Ian the gym saw a failing business on borrowed land. Ian saw an operating company sitting on top of a 25-year income stream, and he made sure to keep those two things separate.
He sold the business to a buyer he chose, on terms he set, financed partly by himself. Then he kept collecting rent for years after the sale.
Before you sell, list everything you actually own: the business, the building, the lease, the note you could carry. Then decide which of those you’re really selling.
To your future exit,
Andrew
Unlock Your Exit
Source: Built to Sell Radio, hosted by John Warrillow, interview with Ian Silverberg.