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Old 01-03-2005, 08:57 PM   #1 (permalink)
 
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Please bear with me... this is long.

There is a salon that I go to, and the owner approached me about buying the place. He says that he is in financial trouble and needs out pretty bad. I will try and list everything as best as possible, if someone can let me know if they think it's worth it or not.

The salon is located in a strip mall with about 15 other stores... a barber shop, a hair salon, a women's fitness center, ice cream shop, pizza place, nail salon, among other things...

It's on a fairly busy two lane road, with many subdivisions in the immediate area, and another half dozen under construction.

I know NOTHING about the tanning industry, but I do own a couple of other businesses that are succesful, so I do have good business sense, or at least I like to think I do.

About the salon... the strip mall is pretty nice. The area is middle class, and low crime. Lots of starter homes (younger people) in the area. The current owners do not advertise at all that I know of. The salon's sign is hard to read from the road, as the sign has yellow letters on a white background.

Inside the salon, there are 4 units: 1 Sunstar ZX32 3f (1150 hours), 1 Phenix Sun 28/1 HP (1437 hours), and 2 Peacock standup booths (284 and 456 hours). Other than that, there is a cash register, a computer system that is not hooked into the units, but merely for personal use and Quickbooks. There is also a moderate amount of lotion for sale that is included. Of course, the shelving, and other stuff is included as well.

The equipment is all paid for, and no money is owed to anyone, with the exception of the rent. The rent is actually overdue now (December), and they plan on paying it with the money from the sale (kinda scary).

There is 150 amps of power to the store, and a 3 ton A/C unit. I do not know if I'll need to upgrade or not... part of the reason I'm writing. The salon is not the best to look at, but it needs a female's touch that I can give it. The current owner's are both male.

As for money, it hasn't done as well as it should, in my opinion... In Feb. through May of 2004, it made over $5500 a month (gross), with March at $7800. But, since June of 2004 until present, it has been consistently around $2500-$3000 a month. Subtract all the bills, and it's darn near breaking even. It's only been open since January of 2004.

The rent is $900 a month. There are $1000 a year in taxes. The current owner says that his electricity is about $350 a month. Insurance is about $300 a month. Then, there's phone, internet, cable, etc. (Am I missing anything?)

As for customers, he's had approximately 700 different people through the doors in the last 12 months, with 163 in the last 90 days.

He wants $10,000 for the business. Any advice for a newbie?
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Old 01-03-2005, 09:04 PM   #2 (permalink)
 
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Were is the salon located at?
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Old 01-03-2005, 09:20 PM   #3 (permalink)
 
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Quote:
On 2005-01-03 20:04:00, SOCAL wrote:
Were is the salon located at?

In central Florida.
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Old 01-03-2005, 09:44 PM   #4 (permalink)
 
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If you have the $10k plus another $20-30k to pump into cleaning the salon up, changing the street sign and advertising like crazy it seems like a pretty good idea. Expect to put in the hours to and do not count on employees to do it for you. Need other advice PM me. Peak season is about to start so you need to pull the trigger on this one quick.
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Old 01-03-2005, 09:59 PM   #5 (permalink)
 
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Quote:
On 2005-01-03 20:44:00, sizzlestan wrote:
If you have the $10k plus another $20-30k to pump into cleaning the salon up, changing the street sign and advertising like crazy it seems like a pretty good idea. Expect to put in the hours to and do not count on employees to do it for you. Need other advice PM me. Peak season is about to start so you need to pull the trigger on this one quick.

I have the $10,000 for the upfronts, but I was inquiring here to see if I would need to make any upgrades, etc. If I need to make $30-40,000 in upgrades to the place, then I'll pass on it. It's not making enough per month to warrant that much money up front.
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Old 01-03-2005, 10:03 PM   #6 (permalink)
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Fact it is easier to build your own tanning salon and build up the clientle yourself. However it will cost you more. Fact it is harder to turn around a TANNING SALON buis then any other.
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Old 01-03-2005, 10:28 PM   #7 (permalink)
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4 units now - 2 are standups - other two are basically basebeds, although he is probably using the 32/3 as his "upgrade" from the 28/1. Is there room to put in additional rooms? Are the current rooms big enough to accommodate bigger units? It is VERY hard to make a 4 bed salon "work" in terms of a real money maker - just can't physically do enough tans!

Of course, if you say yes, I'm going to say that with 150amps and 3 tons AC, you are already close to max anyway! So even with more squarefootage available, would have to upgrade Elec and AC (which is pricey).

But that said - I don't like the "mix" at all! Base bed of only 28 lamps is not "competitive" in most markets. But then putting in facial gives them less reason to "upgrade" to the nicer beds (never put in facials on base beds!). Level 2 is "ok". 2 stand-ups is probably 2 too many in most markets! The huge difference in hours bears that out in this salon. At a minimum, would trade in one of them for a "big bed" of at least 40+ bulbs with facials (e.g. - just so you can go look at something on the web, see www.sunergoline.com for the Ergoline 400 or 500 -- beds that retail for about $20K).

Rent is cheap, although again, only 4 units. Payroll would be the same whether you had 4 units or 14 - so again, the 4 units makes this much less cost effective.

Realize that Feb - May are "the season", when you typically make 75% of your money for the year! (or Jan - June for sure). March and/or April are typically the BEST month - generally about 15% of the year's income. So the "drop off" you see later in the year is to be expected - and you will do the same.

Lotion - if it costs $50 "retail", they likely paid $15 for it. So make sure to look very carefully when you assess the true "value" of the "moderate" amount of lotion you would get with the inventory. Probably a few hundred dollars at most.

Also - check to see when the beds were last relamped (and see a bill/invoice to ensure it was really done) - my guess is that they are 'due' to be done again. You are looking about probably $800-1000 each for the standups and $350-400 each for the beds. This is a twice/year expense you should figure in your "overhead" calculations. And plenty for advertising as sizzletan points out!

$10,000 seems fair for gettng the build-out, equipment, inventory - he's just cutting his losses it seems. My concern is that the POTENTIAL for this salon really IS only to "break even" or a bit more because of it's limited size. Do his numbers include anything for payroll, or were they working it themselves for "free"?

I worry about your statement saying "I know nothing about the tanning industry" and feeling like you have to make a "fast" decision. $10K isn't much in the whole scheme of things, but I think you may just be buying yourself a "job" until you can move or expand the operation and add some additional equipment.

Last questions - if you are assuming his lease, how long are you locked in? Is there room within the strip (preferably on a side of you) to expand?

Feel free to PM me with more specific questions/details!!
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Old 01-04-2005, 01:25 PM   #8 (permalink)
 
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If your thinking of buying it to have other work there for you to make money it will not be a good investment. Most tanning salons that size will only make money if you, (the owner) is there doing the work.
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Old 01-04-2005, 01:36 PM   #9 (permalink)
 
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Please remember where he is from. Peak season in Florida is earlier than up north.
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Old 01-04-2005, 02:28 PM   #10 (permalink)
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If you're looking to work it yourself, it seems this is a barely break even place. You've gotten some good feedback from others, so I'll just add what I learned from purchasing ours last month.

Power. Can your unit handle the draw you'll need to upgrade? We are using a meter from a neighbor and now have 3 meters, each rated at just a little over 100 amps. Talk to staff and see how the AC handles the Florida summer. I'm coastal and in San Diego. We open the doors and get ample AC

Never believe their numbers. A "barely breaking even" place will likely be "losing it's behind" even if you looked at their CPA prepared numbers. In my case it was easier for them to hide because they had 3 salons. There are unexpected items that somehow never show on a balance sheet or expense ledger... yellow pages ads, workman's comp, unemployment insurance, regulatory costs (health permit, tanning permit, etc).

Your decision really needs to be based upon your goals. If it is to be profitable, I'd pass on this. If it's to somehow get a foot in a door, 10k seems reasonable. We bought ours because we needed to get our "feet wet" for larger businesses we plan to operate down the road, and my wife enjoys the tanning industry. So the personal reasons outweighed the financial reasons. From a purely financial standpoint, we too should have skipped.

John, MBA
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