Buying an Existing Salon--Is It Worth It?
I got a call today from the existing salon interested in selling. We’re making progress! Buying the right salon in the right location for the right price can be an awesome way to get into your salon location.
We’ve found an 800 square-foot salon with a basement that could be an interesting purchase. The salon has one year left on its lease, has eight stations, three shampoo bowls and the owner is aggressively seeking to sell.
Our Buying Considerations:
Why is the business for sale? Is it profitable or losing money?
It’s easy to say you can run it better, but can you? If the salon is profitable, how much business will stay when the owner leaves? Is the price worth the value of any renovation and marketing needed to get out the word for the new salon?
Is location inside our target area?
Stick to your target area! The new or slightly used the motto, “location, location, location” is almost always true. You need walk-in traffic; your location needs to work just as hard as your marketing.
Is the lease transferable?
Many are not and trying will terminate the lease.
What’s the benefit to assume the lease, and can we lock in future terms now?
Your hope is you can take advantage of a lease signed with better terms than they would offer today. It’s important you know all the terms of the lease before you begin to negotiate. If the lease has less than five years left, you may want to consider negotiating your future terms now.
The Purchasing Process
The current salon owners have shared their asking price; wow is always my first answer in these situations.
We’ve requested the last two year financials from the owner, preferably audited by an accountant. As we review the financials, our goal is to create a post-purchase profit and loss statement and see what the net income will be post purchase. Your accountant is a great resource here.
Our Investigation Begins:
How many owners has the salon had, and be honest, why do we think we can make the location work?
One owner and in our target area: Check.
Does the owner work behind the chair, and how are they paying themselves? Usually it’s out of the profits. Assume we lose 100% of their revenue, what does the business look like now?
Almost half of this salon’s sales are done by the owner: Red Flag!
What’s the rent savings?
For us, it’s approximately $25,000 savings year one: Check.
Review expenses and all vendor agreements to accurately project your expenses going forward.
All straight-forward, and no surprises.
HOT TIP: If you get to an agreement, have your attorney do a lean search, it’s important to know all debts tied to the business are paid at time of sale.
We’ve decided to make an offer; the question is what should the offer be? A salon will usually sell for either: 2-4 times net income OR 35% of revenue plus inventory. If the salon doesn’t have positive net income or substantial revenue, then look at the value of the location and furniture.
Well, today was a bust. We put our third and final offer over several days of negotiation and it’s a no go. We learned they were already under contract with another buyer. It's frustrating, but part of the process. Our realtor Eddie says, everything works out for a reason, and he has some good news on a location we were really excited. Stay tuned.