Purchase price - tanTALK

susanlatte · 10-02-2003, 05:18 PM

I am trying to negotiate a purchase price for an existing salon. The current owner thinks that the salon is worth $96k but the books really show it to be worth 50k. This taking into account the location, good clientel, good salon, net profit etc..
The net profit for the last 3 years has avg. about 35k. So the 96k price really is high I think. I have two diffent attorneys look at the P&L stmts and a CPA and they agree with me.

Any thoughs on how to negiotate a lower price? I know that current owner will go down to 80k but that still seems like alot to me.

The current owner is looking to retire this year...

Any thoughts or ideas on this???

Thanks!

Rich · 10-02-2003, 06:11 PM

If the salon were in fact producing $35K net pretax profit and the equipment were in good shape I would think the salon would be worth a lot more than $50K. Ask yourself this, if the salon netted $35K a year and you owned it why would you sell it for just a years profit. If you kept it for another year you would have made the sale price and you would still own the salon. I would expect to pay anywhere between 2 and 3 years profit for a good salon. Of course you can always steal a crappy one but what is the point?

susanlatte · 10-02-2003, 06:21 PM

But, the bottom line on the p&l stmt is that the net profit is what the owner has essentially earned ..the business is currently run as a sole prop. I am looking at buying the salon not selling it but that point you made is good. I just am a little confused now. That is why I have posted this subject. I am not trying to doubt the professional wisdom of the attorney or cpa. I just don't know what to think.

tansource · 10-02-2003, 06:48 PM

On the P&L it should have payroll. If the owners salary is not included in this figure then the business "profit" is basically zero. A business should cashflow after salaries. That salary should be within reason for managing a salon. If you are still at 35k and you think you can definitely grow the business then you have to determine how much it will grow. If you think you can run it better and be say 10% ahead of current trend then 2.3 times cashflow is not so bad. You could grow the business and reduce that multiple to less than 2. So basically you are able to own the salon and turn 35k+ per year. If you work it you make another 20-30k in salary. You can write off cars and a billion other things. That seems a no brainer to me. But we don't have enough info here.

susanlatte · 10-02-2003, 06:59 PM

The owners salary is zero and not included in the figure. Monthly draws are what the current owner does. Yes...I haven't been able to provide enough info. But..thanks for the reply.

Rich · 10-02-2003, 08:18 PM

Check out the P&L to see what else the owner is running through the business that you might not such as personal insurance, car payments, etc. Even at $35K bottomline with no owner payroll I think it is still worth it.

sunlists · 10-02-2003, 09:02 PM

Simple - Cash flow + assets + good will. Total the following:

- 1x annual cash flow
- assets at what you can sell them for (beds 30 to 50% of cost new depending on age and of course condition, electronic stuff-computers-furniture 25% of cost new, supplies at present value being mindful of expiration dates and adjusting accordingly and $0 for the stuff that doesn't sell)
- buildout and equipment (AC/Electric upgrade) 50% of cost
- customer list $10-12 for each unique customer that has tanned in the last 6 mos. and $3-4 for each that has tanned in the last 7-18 mos.

Take the total. Reduce it if the owner will receive a cash buyout, maybe by 20%. Must have a good lease. If it's a great lease add a few bucks. Have an attorney and CPA watch your back and watch your own by checking in with the local zoning/building department to make sure someone isn't in the process of opening next door Get a non compete from the seller.

susanlatte · 10-03-2003, 11:32 AM

Hey thanks for the info!

Well after much discussion I deceided to go against the deal took my attorney's advice. Probably has saved me much grief.

I called the owner and explained it. We chatted briefly and then she hung up on me. Oh well.

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10-02-2003, 05:18 PM	#1 (permalink)
susanlatte Waiting Confirmation Join Date: Sep 1 2003 Posts: 137 Rep Power: 0	I am trying to negotiate a purchase price for an existing salon. The current owner thinks that the salon is worth $96k but the books really show it to be worth 50k. This taking into account the location, good clientel, good salon, net profit etc.. The net profit for the last 3 years has avg. about 35k. So the 96k price really is high I think. I have two diffent attorneys look at the P&L stmts and a CPA and they agree with me. Any thoughs on how to negiotate a lower price? I know that current owner will go down to 80k but that still seems like alot to me. The current owner is looking to retire this year... Any thoughts or ideas on this??? Thanks!

10-02-2003, 06:11 PM	#2 (permalink)
Rich Join Date: Jan 27 2000 Location: Topeka Kansas Age: 68 Posts: 564 Rep Power: 25	If the salon were in fact producing $35K net pretax profit and the equipment were in good shape I would think the salon would be worth a lot more than $50K. Ask yourself this, if the salon netted $35K a year and you owned it why would you sell it for just a years profit. If you kept it for another year you would have made the sale price and you would still own the salon. I would expect to pay anywhere between 2 and 3 years profit for a good salon. Of course you can always steal a crappy one but what is the point?

10-02-2003, 06:21 PM	#3 (permalink)
susanlatte Waiting Confirmation Join Date: Sep 1 2003 Posts: 137 Rep Power: 0	But, the bottom line on the p&l stmt is that the net profit is what the owner has essentially earned ..the business is currently run as a sole prop. I am looking at buying the salon not selling it but that point you made is good. I just am a little confused now. That is why I have posted this subject. I am not trying to doubt the professional wisdom of the attorney or cpa. I just don't know what to think.

10-02-2003, 06:48 PM	#4 (permalink)
tansource Join Date: Sep 18 2003 Posts: 125 Rep Power: 21	On the P&L it should have payroll. If the owners salary is not included in this figure then the business "profit" is basically zero. A business should cashflow after salaries. That salary should be within reason for managing a salon. If you are still at 35k and you think you can definitely grow the business then you have to determine how much it will grow. If you think you can run it better and be say 10% ahead of current trend then 2.3 times cashflow is not so bad. You could grow the business and reduce that multiple to less than 2. So basically you are able to own the salon and turn 35k+ per year. If you work it you make another 20-30k in salary. You can write off cars and a billion other things. That seems a no brainer to me. But we don't have enough info here.

10-02-2003, 06:59 PM	#5 (permalink)
susanlatte Waiting Confirmation Join Date: Sep 1 2003 Posts: 137 Rep Power: 0	The owners salary is zero and not included in the figure. Monthly draws are what the current owner does. Yes...I haven't been able to provide enough info. But..thanks for the reply.

10-02-2003, 08:18 PM	#6 (permalink)
Rich Join Date: Jan 27 2000 Location: Topeka Kansas Age: 68 Posts: 564 Rep Power: 25	Check out the P&L to see what else the owner is running through the business that you might not such as personal insurance, car payments, etc. Even at $35K bottomline with no owner payroll I think it is still worth it.

10-02-2003, 09:02 PM	#7 (permalink)
sunlists Join Date: Jul 23 2003 Posts: 50 Rep Power: 0	Simple - Cash flow + assets + good will. Total the following: - 1x annual cash flow - assets at what you can sell them for (beds 30 to 50% of cost new depending on age and of course condition, electronic stuff-computers-furniture 25% of cost new, supplies at present value being mindful of expiration dates and adjusting accordingly and $0 for the stuff that doesn't sell) - buildout and equipment (AC/Electric upgrade) 50% of cost - customer list $10-12 for each unique customer that has tanned in the last 6 mos. and $3-4 for each that has tanned in the last 7-18 mos. Take the total. Reduce it if the owner will receive a cash buyout, maybe by 20%. Must have a good lease. If it's a great lease add a few bucks. Have an attorney and CPA watch your back and watch your own by checking in with the local zoning/building department to make sure someone isn't in the process of opening next door Get a non compete from the seller.

10-03-2003, 11:32 AM	#8 (permalink)
susanlatte Waiting Confirmation Join Date: Sep 1 2003 Posts: 137 Rep Power: 0	Hey thanks for the info! Well after much discussion I deceided to go against the deal took my attorney's advice. Probably has saved me much grief. I called the owner and explained it. We chatted briefly and then she hung up on me. Oh well.

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