scooterbug

I have an opportunity to purchase fully functional saloon that has been in business for 20 yrs. The current owner has had it the last 12 yrs. Everything goes, including computer, updated softwear, TV, etc. It has the older 30 min beds-Wolff's dated 1983. It would have to be updated, painted, etc. The last 3 yrs she has only showed me 5000-6000 profit, but she says that she "doesn't report all the cash" so I could add 10,000 more to that. That still isn't much (to me) for a 5 bed saloon. It seems that there is a lot of potential, but we are sceptical. Any advice???

MJ

My first sign is that you said she had the business for the last 12 years..right?

We all know some people use these types of cash based business as a "shelter" to speak of..Basically a deduction.

However, heavy deductions/depreciations are allowed the FIRST 5 years. Without raising red flags with the IRS.

But wait..I am not done... she could depreciate new equipment to keep her "deductions" to offset say her husbands income/possible taxes due on bonuses, etc...

Is this her only form of income in her household?
The Second I would like to point out in case you are not aware of it. You said she does NOT have NEW equipment at all.

So that leads me to believe that that is not a "tucked" loss..it is a real loss. Sorry just my opinion here.

JMHO anyone showing that little or losses at 12 years in with no other visable means of income. Is not "tucking" as much as they claim.

What was her gross sales?..That is the key question.
(Basically what gross sales did she report to the IRS?)
Offer her that or negotiate it down a tadd...if you are still interested.
jmho

Just know you could be buying a problem child. Be prepared.





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[ This Message was edited by: MJ on 2004-02-10 22:18 ]

scooterbug

Thanks for your input! My thoughts exactly! Why would someone own a business for 12 years that isn't making more $$ than that? She gave me her last 3 yrs income reports, her gross was around 25,000 each yr and 5-6K total after all deductions. She says she is 'burned out', has family in FLA, and her and her spouse are retiring.
the shop is in ok shape-it needs a facelift, but overall ok. The beds are old 1983 models wolffs, but in good working condition. I would eventually replace them, but could use them for a while. My thoughts seem to be leaning toward they haven't kept up with the times and those old 30min beds/ways have hurt them to the point that no comes around anymore. My big question is could it be turned around enough with ads, newer bulbs, different look, etc AND am I not thinking of everything??? The potential seems to be there, there are 5 toning tables included, it is in a good location, rent is well priced @ $800/mon and the building owners are planning to upgrade/facelift all the shopping complex that it is in this summer. HELP, GIVE me tyour thoughts!

MJ

First...what is she asking?
Look everyone thinks they know a better way to re-event the wheel. You cannot get caught up in what you think she is not doing. Stay focaused on the important issues.

If she is asking close to what her gross sales are take it. If you have the time money and energy to bring it up to date and do the proper advertising to let the tanner know it is new owners.
Seems like it is a decent rent.( is that with CAM or a gross lease?)



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[ This Message was edited by: MJ on 2004-02-11 09:24 ]

scooterbug

I'm not sure what CAM or gross lease is??? She is asking 10,000 for it.

MJ

Common Area Maintenence: It means that any repairs, up keep costs. Are at your expense. You pay a base rent of XX.XX amount of dollars in rent + CAM per square foot.
It is refered to as a Triple NET lease. Gross lease means it is all included.
HMMM 10K Cheap!!
She must be close to going under?
Are you taking over her lease? If so how long of a lease is it?
This you judgement call...DO YOU have the MONEY and time to bring this salon back from its death bed?

How is the competition??
Maybe the area ia way over saturated with salons...

Have you checked out how many salon are in that area?
What are the demographics on traffic?
To name a few concerns I would have.

scooterbug

I'm checking into the lease but she says it is optional 1-5 yrs.

MJ

If you buy this salon, I would, If I were you,take a one year lease..IF it is gross. With one opinion of renewal.

This will give you a chance to get your feet wet. Learn the business, and decide to move it if the area is the problem...and not her business skill( or lack of I should say)
It is Not just the 10K investment.

I know that sounds very reasonable.

You need to know to get back the clients that she lost and get new clients in there.

You will need to change out at least 2-3 of the units immediately, give it a face lift and still be able to save for slow.

From what I have heard there is not that much of a slow in FL as it is up north here. Do You may do just fine. I want you to know you are taking on a neglected Puppie that need to be retrained and alllllot of investment of time money and energy will be required to get profitable again.
If you need any more advise I will be happy to help...Remember this is just MY opinion. Maybe others might want to chime in here.

Good luck.




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[ This Message was edited by: MJ on 2004-02-11 09:44 ]

scooterbug

I know, it all seems so...fishy. I have been thinking of opening a shop which would cost substantially and then this opportunity arose and I'm wondering if this could be less expensive and funtionable and/if enough advertising/newer updated bulbs, look, good packages, grand opening etc would overcome the yrs of past reputation. I think I'm so close to this thing and the price seems so cheap to me that I'm afraid I'm not seeing the whole picture and overlooking what might be a death trap! Can you think of anything that might trap me (besides the beds)???

MJ

A lease!!! So keep it short.And cheap.
Offer her 7,500..and she pay all closing cost.
It is none of my business but what kind of budget are you sitting on?
You can get a fresh coat of paint, new furniture for the rooms maybe, New acrylics for her beds, Lamps, a new sign, new "super" bed ( to upgrade to), a couple of med-big VHR beds,and do ample advertising..for approximately...40K
Or
30K if you only go with one VHR
And leave her units for the base beds(get them in the door specials)

JMHO



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[ This Message was edited by: MJ on 2004-02-11 09:55 ]