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Old 11-13-2017, 09:31 AM   #1 (permalink)
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WHAT A SALON IS WORTH

How do you figure out how much a salon is worth? Im looking to buy an existing salon but i think the price is way too much.

PRO
huge parking lot
new gym in same parking lot
rent is good
only salon in area
been there 20 +
clean

CON
20+ year old equipment
no computer system
Decor is terrible
all beds need to be replaced
sales are slumping BADLY

I know i can make that place profitable but he wants way too much.
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Old 11-13-2017, 10:09 AM   #2 (permalink)
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Re: WHAT A SALON IS WORTH

Only worth what it is making plus assets plus a few $$$ for the goodwill.

So if a salon is not making any money and the equipment is old it is only worth some money for the goodwill (Customer list, lease). However if the bones (AC, Wall, Electric) are what you need then there is some value.
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Old 11-13-2017, 11:02 AM   #3 (permalink)
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Re: WHAT A SALON IS WORTH

I agree . But how do you determin value of the store? Is a there a formula? And please take off Im an idiot. Lets play nice.
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Old 11-13-2017, 03:14 PM   #4 (permalink)
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Re: WHAT A SALON IS WORTH

There is no formula in this industry. Couple of questions:

Is the salon making money?

How is the year over year trend?

Can you assume the lease?

Is it below market value?
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Old 11-13-2017, 04:33 PM   #5 (permalink)
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Re: WHAT A SALON IS WORTH

question 1 no
question 2 decreasing
question 3 yes
question 4 lease is fair
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Old 11-13-2017, 07:18 PM   #6 (permalink)
 
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Re: WHAT A SALON IS WORTH

Make a modest offer you will be happy to have accepted and do it in writing.
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Old 11-14-2017, 11:31 AM   #7 (permalink)
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Re: WHAT A SALON IS WORTH

Quote:
Originally Posted by FRANKYYY View Post
question 1 no
question 2 decreasing
question 3 yes
question 4 lease is fair

So if the salon is currently NOT profitable. And sales are going down from there --- what is the value you see?


The "buildout" technically belongs to the Landlord. The salon owner paid for it (probably) but if it is "fixed" (e.g. not portable walls), the LL "owns it" and so not really something of "value" from a business asset point of view. Sure - would be nice to walk into a buildout, elec in place etc --- but as a BUYER, you are arguing that is not "tangible"

20 year old beds? Could probably sell them on Craigslist for $500 eac for people to come pick up, but otherwise not much more "value". You would probably have to pay a vendor to take them away for you if you were going to replace. Again - it would be nice to walk into tanning beds just sitting there, but if they aren't making money for this person, no guarantee they would make money for you.
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Old 11-18-2017, 11:00 PM   #8 (permalink)
 
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Re: WHAT A SALON IS WORTH

I have purchased two salons in the last 2 years so I have some experience with this in the Southern California market. Your market may be different but I think that generally the same principles should apply.
But I have a few questions for you so I don't give my 2 cents ignorantly:

1.) Did you approach the salon owner about buying or did he approach you?

2.) Do you already own a salon and are looking to expand to a 2nd location?
A. If so, how close is it to your current store?
B. If you don't already own a salon, do you have any other experience operating your own business?

3.) How long has this store's sales trend been declining for?

4.) Does the current owner seem like he is eager to get out of the business?
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Old 11-28-2017, 11:40 AM   #9 (permalink)
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Re: WHAT A SALON IS WORTH

QUESTION 1 . Someone told me it was for sale and then I approached him.
2. This will be my 4th salon under current name but 10th overall.
A. it would be about 7 mile away
3. well what i can see the past 3 years .
4. very eager
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Old 12-01-2017, 05:28 PM   #10 (permalink)
 
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Re: WHAT A SALON IS WORTH

I didn't see anywhere in the thread if you said what he is currently asking on the price. What is it? Also, you said you have other stores. Have you started those up yourself or did you purchase those too? If you did purchase them, what formula did you use then?
I don't think typical formulas like "3x net profit" or "Assets + Gross Revenue" work in cases like this. First off, like you said, there's no profit. While a successful tanning salon is a valuable asset, an unprofitable one is a huge liability. It seriously depends on how much money he is losing. The more money he bleeds the more he'll understand how little it is worth. I highly doubt he really sees it for what it's actually worth though because he has had it for 20 years and he remembers what it used to be. He will have a sentimental attachment that may make it difficult to look at it objectively.
All of the factors you listed suggest that you can get a steal on this store. You need to save your money on the purchase price (get it for as low as possible) and use that money for new equipment and decor. As you said, here are his current liabilities that are getting worse every year:
A. Used tanning equipment. Not only does 20 year old equipment have no value, it can actually cost him money if he has to store it while he's waiting to sell it. And he'll never end up selling it. If he doesn't believe you, ask him to list his equipment for a month to see how many queries he gets.
B. He has been losing money for three years and the trend is that he will lose more money every year until he is forced to shut down.

If you were in his situation, what would you be willing to take for your salon? If he's smart he would be lucky to get $1 for something that has so many liabilities. By you just taking it over you would be saving him a lot of money.
If I were you, I would make those factors clear to him so that he understands the situation and see if he will transfer ownership to you. It sounds crazy to "get a business for free" but what's really happening is you are assuming all of his business liabilities. In your mind you should be willing to walk away from the deal because it doesn't sound like he can sustain that store for long. If the store closes then you could jump right into a built out space and the old worthless equipment would have already been removed for you.
It sounds heartless but it's a reality of the situation. If one were to argue for paying him anything it wouldn't be for "goodwill" it would be for "blue sky". Blue sky meaning that you are paying him on the potential you see in the business under your ownership. It's tough paying someone based on something you are going to do. If you think this new gym in the center has the ability to really make the salon boom then the absolute most I would pay for a business like this is $10,000.
Obviously you have to be sensitive with how you present the idea that you think his business has more liability than value. That can be very offensive. But you have the ability to really help him avoid losing more money while you have the opportunity to build a successful business.
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