Before retiring, my wife was a professional hairstylist for over 22 years. It was work that she really enjoyed and still gives haircuts to friends and family.
We’ve talked for a few years now (and even put it on my bucket list) about her back into the industry but this time, on the management side of things. To do that, we would need to own an actual salon. We’re now in a good enough spot where we can make that a reality. Here’s a short writeup of our experience.
The First Attempt
Every salon is different and each owner gets to put their own little spin on things. The shop somewhat is an expression of them in their attempt to make their customers feel at home but also give off a professional impression. That is why i was so excited when i got the call today that they shop we were thinking about buying was interested in selling. We were taking our first steps toward owning our own place. It wasn’t long before i realized how scary this process could be and i had some tough questions that i needed answers to before i knew if this was the right shop for us or not. We just want the right size salon in the best location for an ideal price.
We found and 800 ft. shop with a basement that seemed ideal. It has multiple stations, couches, televisions and the owner was super interested in selling. The shop has a few years left on its original lease agreement which brings me to my first question.
Our Buying Conditions:
Are there options to take over the lease?
Many times the answer is no and any attempt to may terminate the lease.
Is this business profitable and if so why is it for sale?
Basically we want to know if there will be any extra steps involved like renovations or additions before we can begin to make money off of our investment. There’s a possibility some of the customers will follow the previous owner in their transition so we have to take into account any marketing costs needed to offset.
Also, what type of salon will it become? Do we want a no-frills salon with Great Clips prices or more upscale and charge Regis Salon rates? Current clientele and location are the two biggest factors in play here.
Is taking over the current lease a possibility, can we talk future terms now?
It’s important to know all aspects of the agreement and also how long remains on it as well in case we need to negotiate any future terms now, though our hope is we can take advantage of a previous lease more beneficial than one we might be offered in this current situation.
Is this location the most beneficial for us?
Location is key when it comes to any business. You can spend lots of money on advertising but sometimes being in the right place at the right time helps, so sticking to your target locations is best.
Once the owners shared their asking price, we requested the financial information from previous years, preferably an audit done by an accountant. Our goal is to subtract all losses from our estimated profit in an attempt to figure out our bottom line. Your accountant can help you do this easier.
Assessing the Situation
Is this an owner operator type situation, and how are they paying themselves?
Normally the owner pays its bills out of their profit. If most of the profit is generated by the owner then one might be nervous about the fact that their clientele could possibly leave with them.
How many times has the shop changed hands in ownership, and will the location hurt or help us?
The shop had only had one owner and was well within our target area. This was huge on the pro list.
Do expenses and vendor agreements accurately project our expenses going forward?
They all seemed straight forward and we found no problems here.
One more thing we tried to keep in mind was if we got into any agreements to have our attorney investigate and debts related to the business. It’s important to know any additional responsibilities we might acquire.
We decided to make an offer but we were unsure as to what that offer should be. We obviously wanted to make an offer large enough to not be outbid but we also don’t want to overspend in the process.
Most salons will usually sell for either 2-4 times more than they make a year a percentage of the money maid off products based on how much inventory is involved. If the salon doesn’t seem to be making much money this way, then we could always look at what the location is worth.
This is important because with a little extra marketing we can always draw in new customers and with the right location something as simple as a well placed sign could make a huge difference. The furniture is also important because it creates a comfortable atmosphere and will make customers feel at ease, its an important factor as well.
After several days of negotiations we put our best offer in but we did not come out successful in our attempts. We were told someone else found less risk involved and was more eager to pay a steeper price. It’s all part of the process. We are currently in negotiations with other shop owners in other locations throughout the city.