At last, Gyms can re-open ... or can they? The sunk cost fallacy of an independent gym owner

From 25 July 2020 the government allowed gyms to reopen in England, giving a huge boost to many fitness lovers and an overall sigh of relief that there has been another small step towards normality!

Gyms will have to follow strict social distancing guidelines, including:

  • Capacity limits, controlled by a timed booking system

  • Reduced class sizes

  • Equipment spaced out and improved ventilation

  • Temporary floor markings in dance studios where possible

  • Customers encouraged to shower and change at home

For many larger organisations the above measures have been implemented quickly, but what about smaller independent gyms?

Due to the nature of the industry, many independent gyms have received no income since March. The safety measures will undoubtedly require funds to implement and result in fewer customers. Couple this with accrued liabilities for rent, business rates, hire charges for the equipment and deferred tax - many small gym owners are struggling to see how they can possibly reopen and remain solvent.

Our very own Emma Ballard (co-owner of Ballard Business Recovery) is also a qualified personal trainer and fitness enthusiast. Emma says “the opening of gyms is encouraging, especially with recent suggestions that the risk of contracting COVID-19 is significantly increased for those in the overweight or obese category. Quite how personal trainers are supposed to social distance and provide a 'hands on' service remains to be seen. Also with less equipment to work with, periodic closures for cleaning and restrictions on the numbers allowed to attend classes etc, many small gym owners are likely going to need financial support or professional guidance to make their businesses viable.”

Many business owners regularly loan funds to their business to help it through difficult times. The idea of course is that the business become profitable and then these funds are returned to the business owner in due course. COVID-19 has made the prospect of loan repayments much more difficult and brings the concept of the sunk cost fallacy back to the forefront of our minds.

As with many other industries, we expect the fitness industry to utilise insolvency procedures to reduce creditor pressure and ultimately rescue their businesses. Click here to understand what processes are available or contact us for more information.

Alternatively, if you know a business owner or director proposing to loan funds to a company to ‘weather the storm’, advice should be given to that director to obtain a debenture over a company's assets to provide them with some level of security in the event of a subsequent insolvency event. For more information on director debentures, please contact us for advice.

At Ballard Business Recovery we believe in offering a personal service that not only protects the interests of creditors, but also helps directors and owners get back on their feet. Even if an insolvency process is not for you, we have a fantastic network of fellow professionals to assist you with your business needs. We are here to help.

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