Whether you’re opening a health club franchise such as Curves for Women or an independent exercise gym, there are many steps you must take before opening the doors. Owning a health club business isn’t the same as just having a gym job. You need to worry about health club marketing, gym equipment, gym memberships, and so much more.
As you begin to really dig into your new business opportunity, perhaps one of the biggest challenges you’ll face is governmental regulation. Although requirements vary around the country, there is no place in this country you can open a gym or health club without meeting at least some government requirements.
City, county, state and federal government agencies all, to varying degrees, require some type of licensing or permit process before you open your fitness gym to the public.
Where Do You Fit In The Health Club World?
Before examining what each of these agencies may require, it’s important that you first decide exactly what type of health club you’re opening. This is important because the government does not treat all fitness centers equally. Nor should they! A large co-ed gym like Gold’s Gym or World Gym will have to meet certain requirements due to their larger member enrollment and the nature of the workout they provide. These large health clubs will need more parking, more air conditioning, more square footage, more fire exits, etc. If you’re opening a health club spa or a women’s health club you will probably find that the city requirements to obtain your Occupancy Permit are much more forgiving.
It is an important first step to visit your local City Hall and obtain an application for an Occupancy Permit. Depending on the city in which you live, you may find that there are special stipulations for gyms or health clubs. Sometimes, it can be beneficial to categorize your small business as a health spa or a beauty spa as that will eliminate some hurdles immediately. Check to see how other similar businesses are categorized in your area. For example, if you’re opening a hydraulic circuit-training health club for women then ask the city how the local Curves gym is categorized. Checking on the competition in this way can give you helpful hints on how to organize your own fitness health club.
At the very least, the city in which you live will require that you obtain an Occupancy Permit prior to opening your gym. Even if you’re renting a facility, this process usually requires that you at least have a fire inspection. Typically, the city building department and fire department are both involved in making sure your health club is safe. If you’re doing any remodeling to the building in which you plan to open a fitness center, you can expect a plumbing and electrical inspection as well. Some cities require additional inspections.
The price of a city Occupancy Permit can range from a mere $20 to over $6,000. Unfortunately, this is not an area that is open for negotiation!
Although you probably do not have to apply for any permits from the county, in most areas of the country you do still have to file an annual personal property tax report. Counties charge tax on business property, sometimes referred to as personal property. Even if you are leasing and don’t own the building, your business still has property. Some examples of property on which you will probably need to pay county tax include exercise equipment (even if it’s used gym equipment), gym mats, gym lockers, fitness equipment such as gym balls, and perhaps even specialized gym flooring.
If the county in which you live charges business property tax, it’s useful to keep a careful log of business purchases. Most counties allow you to depreciate the value of your gym property based upon IRS depreciation tables, so you will also need to record the year in which the property was purchased and its original purchase price.
Of course, if you also own the building in which your gym is located then you will need to pay county property tax, which is separate and distinct from business (personal) property tax.
When preparing to open a gym, it is vital that you maintain an awareness of state requirements. The first step you will need to take is to visit the Secretary of State and inquire whether your desired business name is available. If you want to open Jane’s Gym, for example, you need to make sure that the name Jane’s Gym is available for use. If you’re purchasing a gym franchise, then this step has perhaps already been done for you.
Once you’ve determined that you can indeed legally use the name you’ve chosen, the next thing you’ll want to do is register your name and logo as a state trademark. This is important because it will prevent someone from opening next door to you with the same name! State trademark fees are typically quite modest, ranging from $15 to $50 in most areas of the nation. Again, if you’re purchasing a fitness franchise then this step has probably been done for you.
Next, it’s important to register a DBA name with the state. A DBA name is simply a “doing business as” name. It tells the state who you really are, and under which name you plan to do business. For example, you could register with the state as Jane Smith, DBA Jane’s Gym. If you’re participating in a franchise business opportunity, such as opening a Curve Gym, then make sure you check with your franchisor regarding authorized DBA names. More often than not, each franchise registers their DBA based upon their location. For example, Sally Jones is opening a Bally’s gym so she may register her DBA as Bally’s Health Club of XYZ County.
Please note that most people getting involved in any small business opportunity would be wise to organize their business as a legal entity prior to filing for a state DBA. One of the biggest mistakes made by fitness center owners is doing business as a sole proprietorship rather than as a legal entity. This error places all of your personal assets at risk and exposes you to hazards that are easily avoided with the proper legal organization. Depending on where you live and your personal situation, you may choose to organize as a Corporation or an LLC (Limited Liability Company). Other possibilities include forming a GP (General Partnership) or an LP (Limited Partnership). The decision regarding which legal organization to choose is very complicated and best made with the assistance or an attorney and an accountant. Regardless of which vehicle is selected, it is always a good idea for you to apply for a DBA via your legal entity rather than as an individual.
Once you have found a business name that is acceptable to the state, registered that name, obtained a state trademark for that name and finally filed to DBA using that name, then most of the state paperwork is complete. However, requirements do vary from state to state so be sure to check with your own Secretary of State for additional stipulations.
Some selected states require that any health club owner post a surety bond before opening for business. Even if you’re just opening a little gym, this requirement stands. Basically, this means that you will need to place a sum of money on hold with the state, which they will keep for as long as you’re in business. This bond is returned to you if and when you cease to operate in your state and there are no pending consumer complaints or lawsuits against you. The reason for this is that the state is seeking to protect consumers. Unfortunately, there have been some dishonest operators in the fitness industry that open their doors to the public, sell as many paid-in-full memberships as possible, then immediately close the gym and disappear. Some states require this surety bond from gym owners so they have the ability to compensate those customers who may have a legitimate grievance against their health club.
Once your fitness center is open and operational, you will occasionally need to send reports to the state. Most states require that each business operating or based within their borders submit an annual report. This may be a simple one-page document or may involve the full minutes of your annual meeting. The purpose of this requirement is primarily so the state knows how to contact your company and who is responsible for its operation. Other reports may or may not be required by your state.
Other than annual reporting, your state will require that your gym pay taxes. Although these will obviously differ from state to state, the most common types of tax you need to be aware of are: 1) Income Tax (Withholding Tax) – usually paid quarterly 2) Unemployment Insurance – usually paid quarterly 3) Sales Tax- usually paid monthly 4) Use Tax – usually paid monthly 5) Workers Compensation – varies
Income tax is withheld from an employee’s paycheck then paid by the company to the state. Some states do not have an income tax. In most cases, the company must pay this tax to the state quarterly.
Unemployment insurance is paid by the company to the state, and is usually a percentage of the total company payroll (in dollars). Again, this tax is often paid quarterly.
Workers Compensation rules and regulations vary widely from state to state, but be aware that you must obtain valid workers compensation coverage for each employee in your health club.
Sales tax is another obligation that must be paid by the gym to the state. Again, sales tax requirements vary widely from state to state so be sure to check for local requirements. Some states require that sales tax be charged on fitness center memberships, while others do not. In most states you will need to charge sales tax on all retail sales which may include gym bags, gym shorts, gym clothes, gym shoes and any other tangible items you offer for sale to your members. This sales tax, which is collected by you at the time of sale, is usually sent to the state on a monthly basis.
Please note that several states charge sales tax on all retail items with the exception of food. The purpose of this exemption is to keep food affordable. If this is the case in your state, then you will need to determine if your state considers bottled water, protein bars, nutrition supplements, vitamins, diet pills and weight loss products to be food. Chances are good that you’ll be selling some, if not all, of these consumable products and it is far better to adhere to local sales tax law than to be surprised with an unsuccessful audit.
Some states require that you pay what is called a use tax. Essentially, the use tax requires that you pay taxes on any product that you purchase out of state and then bring into the state to use. This tax does not apply if the product in question is intended for resale to the public. For example, if you order a business computer from Dell and have it shipped into the state then you will probably owe use tax on that computer. If you order t-shirts with your logo (from out of state) then you will not owe use tax on those items because they will be sold to the public (the tax on resale items is collected at the point of sale via sales tax).
The final state requirement that you as a health club owner must comply with is the annual tax filing. For the business owner, it’s best to hire a Certified Public Accountant (CPA) to handle this annual filing.
For the fitness center owner, most federal filings will take place with the Internal Revenue Service (IRS). If you chose to organize your gym as a legal entity (strongly recommended!), then the first and most important step is for the legal entity owning your gym to apply for a federal Employer Identification Number (EIN). This is the number by which the IRS will recognize your business. If you are doing business as a sole proprietorship (not a good idea!), then instead of an EIN you will use your personal social security number.
Federal payroll taxes generally must be paid when someone is issued a paycheck by and from the gym. These taxes include (but are not limited to): 1) Unemployment Tax – usually paid quarterly or semi-quarterly 2) Income Tax (Withholding Tax) – usually paid monthly or quarterly 3) Medicare – paid monthly 4) Social Security – paid monthly
Just as it does with state income taxes, the health club must withhold federal taxes from each employee paycheck and then periodically submit those withheld funds to the federal government. As the employer, the gym must also pay a portion of the Medicare and Social Security taxes for the employee. As of this writing, these two taxes are shared equally by the employee and the employer.
What this means is that when you issue an employee their paycheck it is actually costing you more than the gross pay earned by that employee. Say, for example, that you issue someone a paycheck for $2,000. Depending on their deductions and the state in which you live, that employee may receive a check for $1,635 after taxes. As the business owner, you have withheld $365 from that check and you are under the obligation to pay that amount plus the employer share to the appropriate governmental agencies (state and federal). The employer share in this example would be approximately $80 so it cost the company $2,080 to pay that employee a $2,000 check. Remember that the employee actually received a check for $1,635. Again, please note that tax rates, rules and regulations will vary widely depending on where you live and your individual situation.
The final federal requirement that you as a health club owner must comply with is the annual tax filing. For the business owner, it’s best to hire a Certified Public Accountant (CPA) to handle this annual filing.
This document is by no means a comprehensive look at government requirements when opening a gym, but hopefully it has given you some helpful information as you pursue this unique business opportunity. There are so many more requirements that must be met, particularly in the area of employment regulations, that you’ll find it necessary to do some more research. Some additional resources you may wish to investigate are: irs.gov, sba.gov, onlinewbc.gov, business.gov and dol.gov
(For more free health club marketing ideas please visit: http://www.cuecd.com/ or our blog: http://cuecd.blogspot.com/ or connect with us here: www.linkedin.com/in/circuittraining/.)
The purpose of this document is to give you a basic working knowledge of government requirements for a small business. This document should not be considered the end of your research! The author advises you to check with any and all appropriate governmental agencies for additional information. The author makes no representation or warranties regarding the outcome or the use to which this information is put and is not assuming any liability for any claims, losses, or damages arising out of the use of this document. Additionally, the author strongly recommends that you retain the services of an attorney and accountant to assist you when opening a business.
This document is designed to educate and provide general information regarding the subject matter covered. However, laws and practices often vary from city to city and from state to state and are subject to change. Because each factual situation is different, specific advice should be tailored to the particular circumstances. For this reason, you are encouraged to consult with your own advisor(s) regarding your own specific situation.
The author does not assume any responsibility for any errors or omissions. The author furthermore specifically disclaims any liability resulting from the use or application of the information contained in this document, and the information is not intended to serve as legal advice related to individual situations.