Pondering buying existing salon

[princessllp]

I've been presented with the opportunity to purchase an existing salon. It has been open for approx. a year and has over 1000 clients. Our town's population is around 22,000 and the median income is $60,000. There are 3 other tanning salons within a 8 mile radius. These salons, however, are gaining quiet the bad rep for poor customer service and dirty beds. The salon I'm interested in has a great reputation (so far) and is becoming the trendy place to tan. It consists of 3 bronzing beds, 1 versaspa, 1 aqua massage, 1 Mega V standup, and 1 brand new high power bed (unsure of the name) The purchase includes equipment, clients, computers, a/c, and the name. I have no idea what a fair price is. I know no one can promise me their advice is accurate, but I'm just asking for best efforts. Thank you in advance!

[sunsally]

Before you can come up with a price, you need to see records on:

a. How much total revenue they brought in

b. How high their costs are.

If I were to guess, if someone is selling this after a year, it isn't making any money. They probably sunk everything they had into opening the place and now don't have the money to run it at a loss so they are trying to get someone else to take that on. If so, you will be paying for the negative profit it is already making, along with paying back the money you give them to buy it. So you will run at an even bigger loss than they did.

With only 22,000 people in the town, probably 2000-2500 of them are tanners. That isn't many to spread across 4 salons! The others may be "dirty", but you would be surprised how many tanners don't care about that! They might also be close to their homes or work, by where they shop, run by someone they know, where their friends tan, cheaper, etc etc etc. Lots of reasons for people to tan at one salon over another!

5 beds, a spray booth and an aqua massage is a tough mix to make profitable. Will depend on your rent, how much they owe on the equipment etc etc but I'm going to guess this looks like too much of a gamble to take on.

If you can get more information about their revenues and costs, please share.

[parrot head]

Like Sunsally says, the only revenue, basically, will be from 5 tanning beds. I had a aqua massage, it made absolutely nothing. I've got a spray booth and make very little, with it mainly being part of a few service salon. I bought it used and still haven't paid for it after 3 years. The Versaspa is a very good unit though. If the 3 bronzing beds are base beds, your just have 1 bed maybe considered a big vhr. The standup could be considered a level 2 unit. A thousand customers after a year is a fair number, but are you near the max in that town? Again, like Sunsally says, they are most likely having trouble with cash flow and not making any money.

[Woodlands]

Ditto on the Aqua Massage. When I bought this place I had the previous owners take it out of the contract and compensate the price accordingly. They looked at the hours the other day - something like 17 in almost a year. And most of that was one of the owners. It's still in the salon so I get to use it free when I have the time (only used it once). It's nice but not for the prices you have to charge to get your money back. Buying 2 good beds or 1 great bed would have been a better bank for their buck (and they would have gotten more for the salon - now they're going to take about a $10K hit when they sell the machine).

[princessllp]

Originally Posted by sunsally

Before you can come up with a price, you need to see records on:

a. How much total revenue they brought in

b. How high their costs are.

If I were to guess, if someone is selling this after a year, it isn't making any money. They probably sunk everything they had into opening the place and now don't have the money to run it at a loss so they are trying to get someone else to take that on. If so, you will be paying for the negative profit it is already making, along with paying back the money you give them to buy it. So you will run at an even bigger loss than they did.

With only 22,000 people in the town, probably 2000-2500 of them are tanners. That isn't many to spread across 4 salons! The others may be "dirty", but you would be surprised how many tanners don't care about that! They might also be close to their homes or work, by where they shop, run by someone they know, where their friends tan, cheaper, etc etc etc. Lots of reasons for people to tan at one salon over another!

5 beds, a spray booth and an aqua massage is a tough mix to make profitable. Will depend on your rent, how much they owe on the equipment etc etc but I'm going to guess this looks like too much of a gamble to take on.

If you can get more information about their revenues and costs, please share.

Thank you for the reply. More demographics for this area, %98 caucasian, median age 34, 60 female/ 40 male population. At anytime in any of these salons, there is a wait. I personally know the salon owner and the reason for the sale is she and her husband own a huge company and now she is realizing she doesn't have time for it. Owning a tanning salon was something she had always wanted to do. She did say the aqua massage is a bust and she is trying to sell it. The versa spa always (I was surprised too but have personally witnessed this) has someone waiting in line for it. She has done some amazing advertising. The town was originally 8 miles North of where the salon is located and the town expanding quickly. (It's a suburb of Little Rock) The town is also a "dry county" so people get off of the new exit (where the salon is located) to go to the liquor store on their way home from work. The salon is right next to the liquor store. :)

She says her gross last year was 70,000. Doing some off the top of my head calculations of what costs were, I'm guessing her salary was only about 30,000 last year. I'm not looking at this to be our source of income, my husband has a good job. BUT, I don't want to work my tail off for free either...

Does this additional info help any greater?

[sunsally]

We'll do the math.......

Gross of 70K

Paying someone $7/hour, plus taxes you have to pay, plus a small commission for product sales, if you are open approximately 70 hrs/week (about typical for a salon) is about $36K/year. So yes, she probably grossed 30K (the extra would go to the employer required part of her taxes) and you could too, if you are willing to work 7 days/week, 70 hrs/week, 363 days/year for that price. Otherwise, factor it into cashflow you'll pay someone else for any of those hours you don't personally work.

Rent - You tell me, but small space, so I'll fill in $12K for now ($1000/month)

Utilities - Estimate $500/month (some will be higher, some lower) or $6K/year

"Amazing Advertising" - Realistically, $500/month is nothing - one little ad in a paper or a coupon clipper ad or 1000 postcards. But I'll estimate low on this, at only $6K/year

Insurance - 1K

Equipment payments (to a lease company, a bank or herself if they used their own cash to pay for everything - still have to factor in a "payment" to pay themselves back before it is profitable. I'd guess her equipment cost was (23K Versa, 17K Aqua, 18K "3 bronzing beds", 10K "Mega V standup", 20K "unknown High Power Bed", 2K computer & software = 90K = 2K/month or 24K/year)

Buildout payments (to a bank or themselves) - 1K/mo or 12K

Lotion inventory, relamp, cleaning supplies, phone, other - 6K/yr


Total Rev - 70K
Total Expenses - 103K -- assuming rent is only $1000/mo


So it depends how much you want to pay to buy something that may be currently losing about 35K/year. How much are they asking? Do you have to take over any leases or loans?

[princessllp]

WOW! That's exactly the help I was looking for... thank you. I'm not walking away but RUNNING away screaming!

[sunsally]

Here is another way to look at it.

1000 people walked through the door (which is good, probably half the tanners in your town tried them!), and spent an average of $70 in the year (again, pretty good - right about the national average).

And yet, they are probably running at a substantial loss.

So, to make it profitable, either costs drop drastically (they "give" you the buildout and equipment for a fraction of what they have invested in it) and/or you get each of them to spend a LOT more than, statistically, you would expect.

CAN happen - but are you willing to gamble with your money that it will?

[movieking]

Originally Posted by sunsally

Here is another way to look at it.

1000 people walked through the door (which is good, probably half the tanners in your town tried them!), and spent an average of $70 in the year (again, pretty good - right about the national average).

Is the national average really that low? I don't know how anyone could stay in business if their average was that low.

[princessllp]

I, personally, spend at least $100/month in the months that I'm motivated to tan. Of course, I'm very fair , but don't burn, so it takes me a while to even look like I've ever been in the sun. I would think most people spend AT LEAST $50/ month when they are actively tanning.