Before you sign, verify membership quality, instructor retention risk, lease assignability, and owner dependency — the four factors that make or break martial arts acquisitions.
Acquiring a martial arts studio means buying a recurring-revenue membership business anchored by community loyalty — but that loyalty is often tied to the owner-instructor, not the brand. This checklist guides buyers through the five highest-risk areas in martial arts studio acquisitions: membership revenue quality, instructor and staff stability, lease and facility conditions, financial documentation, and liability exposure. Use it alongside your attorney and accountant before submitting a final offer or proceeding to SBA loan underwriting.
Verify that recurring revenue is real, automated, and not dependent on informal payment arrangements that will collapse post-close.
Pull 24 months of EFT billing reports from Mindbody, Zen Planner, or equivalent software.
Confirms recurring revenue is systemized, auditable, and not manually collected by the owner.
Red flag: Revenue is collected via cash, Venmo, or manual invoicing with no centralized billing platform.
Calculate monthly churn rate by tracking active member counts over the trailing 24 months.
Churn above 5% monthly signals retention problems that erode revenue quickly post-acquisition.
Red flag: Seller cannot provide month-over-month enrollment data or member count history.
Audit membership contract terms — duration, auto-renewal clauses, and cancellation policies.
Long-term contracts provide revenue certainty; month-to-month memberships carry high post-close attrition risk.
Red flag: Majority of members are on no-contract month-to-month plans with no cancellation penalties.
Confirm average revenue per member and breakdown across pricing tiers and program types.
Healthy studios show diversified revenue across kids programs, adult classes, private lessons, and after-school.
Red flag: 90%+ of revenue comes from a single age group or program with no diversification.
Assess whether qualified instructors will stay post-close and whether the business can operate without the selling owner on the mat.
Request employment agreements, certifications, and teaching tenure for every active instructor.
Certified instructors with documented tenure are transferable assets; verbal arrangements are not.
Red flag: The owner is the only certified black belt or head instructor with no documented backup staff.
Determine the percentage of weekly classes taught personally by the selling owner.
If the owner teaches more than 40% of classes, revenue and retention are directly at risk post-close.
Red flag: Owner teaches the majority of classes with no plan or timeline to transition responsibilities.
Confirm whether instructors have signed non-solicitation or non-compete agreements.
Unprotected instructors can leave and open competing schools, taking loyal students with them.
Red flag: No non-solicitation agreements exist and key instructors have expressed interest in going independent.
Assess instructor compensation structure — W-2 employees versus independent contractors.
Misclassified contractors create tax liability and are easier for competitors to poach post-acquisition.
Red flag: All instructors are paid as 1099 contractors with no written agreements defining scope or exclusivity.
Confirm the lease can be assigned to the buyer and that the physical facility meets operational and safety standards.
Review full lease document including term, renewal options, rent escalations, and assignment clauses.
A non-assignable lease or short remaining term can kill SBA financing and post-close operations.
Red flag: Fewer than 3 years remain on the lease with no renewal option and a landlord unwilling to negotiate.
Confirm landlord's written consent to lease assignment and any personal guarantee requirements.
SBA lenders require lease assignability; personal guarantee transfer terms affect buyer risk profile.
Red flag: Landlord requires full personal guarantee from the buyer with no cap or burn-down provision.
Inspect mat space, flooring, equipment, HVAC, and locker room conditions with a third-party contractor.
Deferred maintenance on mats and safety surfaces creates immediate capital expenditure post-close.
Red flag: Mats are worn, cracked, or non-compliant with safety standards and seller has deferred replacement.
Verify zoning compliance, occupancy permits, and fire safety certifications are current.
Non-compliant facilities can be shut down by local authorities, halting operations immediately post-close.
Red flag: Occupancy permit or fire inspection certificate is expired or was never obtained by the current owner.
Validate that seller discretionary earnings are real, consistent, and properly adjusted before applying any valuation multiple.
Obtain three years of tax returns, P&L statements, and bank statements for side-by-side comparison.
Gaps between tax returns and P&L statements reveal unreported cash revenue or inflated add-backs.
Red flag: Tax returns show significantly lower revenue than seller's P&L with no documented explanation.
Reconstruct SDE by documenting every owner add-back with receipts or payroll records.
Unsupported add-backs inflate SDE and directly overprice the acquisition multiple.
Red flag: Seller claims large add-backs for personal expenses, travel, or vehicle costs with no documentation.
Identify any revenue from one-time sources — belt testing fees, tournaments, or equipment sales.
Non-recurring revenue should be excluded from normalized SDE used in business valuation.
Red flag: Seller includes a large one-time tournament or event revenue in their SDE calculation without disclosure.
Confirm SBA lender eligibility by verifying business has at least $150K–$250K in clean, documented SDE.
SBA 7(a) underwriting requires verified cash flow sufficient to service debt at the proposed purchase price.
Red flag: Documented SDE falls below debt service coverage thresholds at the asking price and multiple.
Uncover any injury claims, insurance gaps, or operational compliance issues that could become post-close liabilities.
Request full insurance history including current general liability, professional liability, and claims history.
Gaps in liability coverage or recurring claims signal risk that increases cost of insurance post-close.
Red flag: Studio has had multiple student injury claims in the past 36 months or carries inadequate coverage limits.
Review all student enrollment agreements for liability waivers and assumption of risk language.
Poorly drafted or unsigned waivers expose the buyer to student injury lawsuits post-acquisition.
Red flag: Liability waivers are unsigned, outdated, or were never collected from a significant portion of members.
Confirm instructor certifications include current first aid, CPR, and discipline-specific governing body credentials.
Uncertified instruction creates liability and may violate local business licensing requirements.
Red flag: Head instructors lack current CPR certification or recognized governing body rank documentation.
Check for any outstanding BBB complaints, state AG actions, or small claims filings against the business.
Unresolved disputes signal customer service failures or predatory billing practices that harm retention.
Red flag: Seller has active or unresolved complaints related to billing disputes or membership cancellation refusals.
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Profitable martial arts studios with strong EFT-based membership revenue and documented instructor teams typically sell at 2.5x–4.5x SDE. Studios where the owner is the primary instructor and revenue lacks documentation trade at the lower end. Studios with 100+ active members, sub-5% monthly churn, a 3+ year lease, and clean financials command multiples at the top of that range. Always apply the multiple to verified, normalized SDE — not the seller's unadjusted claimed earnings.
Yes. Martial arts studios are SBA 7(a) eligible and represent a common use case for SBA acquisition financing. A typical deal structure involves an SBA 7(a) loan covering 80–90% of the purchase price, a 10% buyer equity injection, and an optional seller note covering the remainder. SBA underwriting will require three years of tax returns, a lease with sufficient remaining term, and debt service coverage of at least 1.25x — meaning the business must generate enough verified SDE to cover annual loan payments with a 25% cushion.
The core question is whether students are loyal to the brand or to the individual owner-instructor. Request month-over-month active member counts for the past 24 months and calculate churn. Interview or survey a sample of long-tenure students to understand their connection to the business. Negotiate a 6–12 month transition period where the seller remains in a non-teaching ambassador role. Require that at least one certified lead instructor is in place before close who can run classes independently. Structure 15–25% of the purchase price as an earnout tied to 12-month post-close membership retention thresholds.
Before submitting a letter of intent, request: three years of tax returns and P&L statements, 24 months of EFT billing reports from the studio management software, current active member count and membership contract samples, a copy of the full lease agreement, instructor employment agreements and certification records, the current insurance policy and claims history, and any existing liability waivers in use. This pre-LOI document package lets you assess revenue quality, owner dependency, lease risk, and liability exposure before committing to a price.
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