alcazark

I'm in Los Angeles area and looking to acquire an existing salon in a very busy street on a shopping plaza.. Salon has been established since 1991 and has 18 rooms. Here's a breakdown of what the seller has provided..

Revenue : $ 253,000.00
Cost of sales : $ 26,500.00

Gross Margin : $ 226,500.00

EXPENSES :
Wages : $ 42,000.00
Rent w/ CAM : 49,200.00
Utilities : 22,500.00
Telephone : 2,400.00
Insurance : 2,000.00
Payroll taxes : 8,600.00
Bank charges : 6,000.00
Other expenses : 8,000.00

NET Profit : $ 85,800.00

Equipments :

1 Suncapsule Stand up 200
1 UWE Cayanne
2 Ergoline Evolution 600 Turbo w/ HP
1 MIsc. VHR bed w/ 3 High pressure
1 Sunliner professinal turbo 41/3
4 SCA Wolff System Bararium
6 SCA Wolff System 224SL
1 Legacy Leg tanner
1 Sunless Express Spray Tan Booth

I want to know how these equipments are and how much would they cost in the used market..All the equipments are paid for. They just started adding airbrush service which would add to the revenue..Pls. help me in figuring out what price would be reasonable to offer..Thanks...

jkonturas

Offer them $125,000 and they will decline it, and make a counter offer. At that point meet them at $150,000 and its sold. Any more, and your a sap. The usual formula is profit times 3 years..... That would be $240,000..... But the equipment is old, so they should be MORE than happy with $150K.

__________________
http://www.extremetanri.com

alcazark

Thanks for the quick response..You said that the formula is 3x profit..If profit for 2008 is $ 85,800.00. it comes out to around $ 257k..I was actually thinking of offering $ 150k and settle at 2x profit, if due diligence pans out...Do you know anything about the equipment that it has now and how they are ? What should I look for when I do my due diligence ? Thanks again..

jkonturas

They will not just take what you offer them, they will want to counter, so thats why you offer low. If you were to offer $125K like I said, and they come back with $170K, then you come back at $150 and thats that.....

As for the Equipment......

The Suncapsule Booth is good, the Ergoline beds are Great, The Cayenne is good, misc. VHR bed is good, the Sunless Express isnt that great of a machine, but it will work, The Legacy comes in handy at times...... As for the other 10 Wolf Beds... They probably have been there since the place opened in 1991, so they are really not that great at all...

Question.... where are you getting your Numbers?? Did you actually SEE on PAPER (like in their program or their tax returns) that the place Grosses $253K? Also, where are you getting your expense numbers from?? They seem WAAAY off.... The insurance for an 18 Bed Salon is gonna be way more than $2K.... And $2400 on telephone?? Are you calling china daily? LOL.. Payroll seems high... Bank Charges??? Other expenses $8K? How about I spend over 8K a year on lamps alone, and I have a 7 unit salon. Then there is Towels, Trash bags, Soda, water, toilet paper, paper towels etc... the list goes on..

Truthfully, it sounds to me like you need to sit down and seriously do some research, and crunch some numbers for REAL. You dont know enough about the industry to just buy a place, get trained, and make $80K a year. If that were the case, this person wouldnt even be selling. YOu need to see actual numbers on paper from these people, and if they are not willing to show that, then its all BS. Those numbers dont even make sense for an 18 unit salon in your area. You better do some investigating and get back... In the meantime, start learning about the industry if your serious about doing it. This site can be a great source of help if you search the old posts...

__________________
http://www.extremetanri.com

alcazark

Cost of sales of $26,500.00 is for the bulbs,glass, solution , lotions and repairs..As for wages, they have 1 full time and 4 part time..It's a semi absentee owner , which is in the process of divorce.. As for the insurance, it's probably cheaper for them, since they have a total of 9 salons .I'll have to check how much it's gonna be with just 1. Bank charges are for credit card fees. As for the other expenses, they're for office supplies, professional fees ,outside services and misc. stuff.. The numbers are just based on what the owner has given the agent...He's showing gross revenue of $ 287k for 2007 and $ 253k for 2008..

I really appreciate all your input..He's trying to sell it now for $227k, which I think is high..I'm thinking somewhere between $ 150k - $ 170k, depending on how much he'll finance.. I'll definitely make a low offer , just like what you suggested and ask for a 3 week due diligence to look at all the figures to be supported...

Thanks again.. KEN

Robert K

Hello Ken,

You got some good advice above. The #'s do seem realistic. Pay 2x earnings unless he is showing an increase in sales and then maybe 3x. Ask for the last couple of years #'s to deteremine the trend. Also keep in mind that you are buying it at the worst time of year. Busy season is wrapping up next month. 2x earnings and no more. Some of the equipment is still very good some of it is ready for the junk yard.

__________________
Robert Klem
Superior UV Technologies
(888) 526-7712 x77
robertk@superioruv.com

sunsally

Ask for:

1. Last 3 years tax returns
2. Last 3 years computer records re. revenues
3. 12 most recent months electric bills


Look for:

1. Are salon revenues growing, declining, or stagnant
2. Do the computer records and the tax records match?
3. What is the "mix" on the equipment - e.g. what percentage of tans for each? This tells you if they are worth keeping or should consider being replaced.


Other things to know:

1. What is the competition in the area? Any new ones in the last 3 years? Any leave?

2. Are they selling just this location or all 9? If just this one, why?

3. Anything significant going on in the 1-3 mile area - road construction ahead, new malls opening, .....

4. The equipment is fine, but most seems dated. How many hours? What is the condition of the beds and the acrylics?


Understand that as 1 of 9 salons, they will have significant cost economies that you will NOT have! They can advertise all 9 for about the same price you will advertise just 1 (p.s. where is advertising expense??). Their cost of goods, payroll processing, bank fees and everything else will be less than what it will cost you.

Also - you will be paying off a $150K+ loan before you ever start "profiting". So expect 2-3 years before you actually start making money from the place -- longer if you invest additional money into upgrading the equipment.


BTW - in terms of the equipment "value" on the used market - maybe $40-50K tops.

djs90

Here's my take on this post: Hard to believe credibility based on tone. Sounds a little arrogant suggesting he's not either done, or isn't going to "sit down and seriously do some research". The guy just wants some feedback, which you gave him, just should have left off the "I'm the expert and your not" editorial at the end.

djs90

Since the equipment is old, I'd offer no more than 2x.
I disagree with the post above that wages/payroll seems high. Looks in line from a percent of revenues. Most owners don't include their salaries, or FTE.
However, the rent/cam does look about 10k high. These are based on some industry averages I've seen. Perhaps there are some opportunities to improve some margins here.
Other than these items, looks like Sunsally has laid out some good suggestions on due-diligence.
Good luck!

Woodlands

I pay $2400 a year for telephone charges - it actually includes cable and Yellow Pages ad. And I don't gross $200K+ a year - a larger salon could easily hit $200 a month.

I pay about $1200 a year for insurance. The bulk of it is liability insurance, not replacement coverage for the beds. I don't sell insurance but it wouldn't surprise me if $2K a year would cover the salon described - $3M in liability is $3M in liability - no matter how big your salon is or how much you bring in.

I think I would shoot myself if I spent $8K each year in lamps for my 6 beds :(