alcazark

Need advice on buying an existing salon in the Los Angeles, CA area..It's established in 2000 and is 1,200 sq.ft. located next to a Fitness gym on a major strip mall on a main street...Here are the details..

Equipments :

1 UWE Cayanne
1 Suncapsule VHO Euro Stand up unit
1 Suncapsule Professional Turbo 48/8
1 Suncapsule Cyclone VHR 200
1 Sunliner 5002 VHR
3 SCA Wolff System series 2
2 Sundash Platinum R32
1 Sun Spitz Spray Tan Booth.
2 200 amp

Revenue - $ 175,000.00

Espenses :
Rent is $ 30,000.00
Payroll - $ 48,000.00
COGS - $ 7,400.00
Utilities- $ 15,400.00
Other expenses - $ 21,000.00

Net income : $ 53,200.00

All equipments are paid for... What do you guys think is the a good price to pay for this Salon.. I was thinking $ 100,000.00 would be a good price..I have no knowledge whatsoever on how to run the salon, but owner is willing to train for at least 2 - 4 weeks at 20 hrs. a week..I would appreciate all the input I can get.. Thanks...

sunsally

1. Have you verified all these numbers? Rent seems VERY low for LA - but if legit, that's a good thing! You should back these up by seeing/doing:

a. Call landlord - see if lease is assumable or what your terms will be

b. See 1 yr actual utility bills (these seem very low for $175K in revenue)

c. Ask to see last 3 years of tax returns

d. If on computer software, ask to see reports from this, including year-to-year sales

e. Breakdown the "miscellaneous" to see what is there. Missing now is advertising, new lamps, cleaning supplies, phone/internet/software (unless in utilities, but see other comment on how that seems low), insurance,


2. Look for the "trends" -- are revenues stable over the last few years - or declining? If declining, how fast? Also - does the Fitness Center there off tanning to their members. In your conversation with the landlord, if the current owner has an "exclusive" for tanning in the strip, want to make sure you would keep this.

3. Your equipment "value" at this point is basically $0. That is - the beds still work, run etc so have a 'value' to you - but to sell, or replace them on the used market, the value is negligible. So you are paying for the revenue potential.


Given all of that:

You said you know nothing about tanning. Do you know anything about retail and selling? Business? If you aren't strong in at least 2 of those 3 areas - I would think seriously about not investing that kind of money!

You are going into the "slow season" for tanning. Look at their cash flow. If they aren't bringing in more than they are making every month - will you have extra cash to "float" it?

Finally:

What are they asking? 100K might be reasonable (depending on how the other things above check out) - but if they would accept 50K, why pay 100k?

Bottom line is if you pay 100K, you work 2 years just to "make back" your investment. Then, at the 3rd year - you begin to "profit". Do you think this is a strong location and do the trends suggest it will continue for another 2 years? In that time, you will probably have to start replacing a significant portion of the equipment. So that will be more "investment" - and a further delay of your ability to profit. So then you are investing 100K in the hopes of starting to see a return in the 4th or 5th year.....

It may have potential - but I'd do a lot more homework before I plunked down 100K as a newcomer to this industry.

Hope that helps!