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Old 06-02-2009, 04:03 PM   #1 (permalink)
 
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Question Looking at purchasing - Input appreciated

I can't believe how informative this site has been. I have spent days reading all the posts. What a tremendous group of professionals and the willingness to give input and advise, WoW!!
We are currently going through all the financials of the salon we would like to purchase and also doing as much research as we can on the industry. I would appreciate any input anyone might have on wheather this salon looks like a winner. Nine bed salon, approx. 1900sqft with 2 rooms that are not being used. 3 ergoline 300 classic ruva, 1 emerald 28 plus wolff, 2 super sundash 240G ultra ruva, 1 sundash endurance 424, 1 sca wolff and 1 st. tropez ruva. Helios system, survaliance, washer/dryer, lotion inventory etc., etc. The salon is very nice and very well maintained.
Total monthly expenses including monies set aside for relamps is approx.
$7900.00 Includes labor for 3 part time employees.
gross sales for past three years(tax return verified) 2006 132K, 2007 144k and 2008 134k. 2009 is currently running about 7% up over last year. 7th year of operation 8000+ client base, approx. 3500 active. asking in the 100k range
I would appreciate your opinions and any insights anyone might have.
Again, what a resource and great group of people

Thanks in advance

Last edited by tanrookie; 06-02-2009 at 05:36 PM. Reason: updated info
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Old 06-02-2009, 06:02 PM   #2 (permalink)
 
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Re: Looking at purchasing - Input appreciated

Looks good. The beds are starting to age but you know what, the used market for tanning beds is OUT OF CONTROL as in when you are ready you can get good stuff for CHEAP. Also it's a bad idea to get rid of hard workers like those beds. They are usually "retired" when YOU feel it's time cause they'll tan forever.

$7900 monthly expenses seems a little high but not really cause you can lose a worker or 2 if need be.

Offer em $75K and you'll be in good shape.
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Old 06-02-2009, 06:28 PM   #3 (permalink)
 
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Re: Looking at purchasing - Input appreciated

Appreciate the input. I did go a little high on some estimates, such as lamp replacement and did add a little more for labor. But thanks again. will see what happens.
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Old 06-03-2009, 11:08 AM   #4 (permalink)
 
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Re: Looking at purchasing - Input appreciated

I agree with Engfant.... Not that Id ever srgue with him, hes about the only other REAL person on here... It does look pretty good, and you did some homework instead of just asking a dumb question.... Therefore you get responses. The equipment is aging, but thats no problem. Gross sales are a bit low for a 10 unit salon, but you may be ably to change that. If your spending $8K per month on expenses, and gross $140K per year, you profit around $40K..... High price to buy this bisiness would ne $100-120K, as Engfant said, get it for like $70K, and your doin well.
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Old 06-03-2009, 10:26 PM   #5 (permalink)
 
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Re: Looking at purchasing - Input appreciated

Sure do appreciate your input and advise. Yea, I did figure in extra for labor. I will do a lot of time in the salon, but these people have been there for awhile and I don't want to disrupt the show. I would rather be a little overstaffed for awhile during my learning period. Thanks again I will look at a lower offer in the range that you think might be more in line. I appreciate your input.
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Old 06-04-2009, 05:17 PM   #6 (permalink)
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Re: Looking at purchasing - Input appreciated

Here's another angle:

Using the figures offered, the difference between the yearly expenses and the gross is approximately $47,000. If you are offering and financing anywhere near $75,000, the yearly interest will be in the neighborhood of $5,000. That leaves approx. $42,000. Out of that $42,000, you should take a manager's salary for yourself because it sounds like you will be working the salon full time. For grins, let's say you take a low salary of $30,000. The employee and employer's share of FICA and Medicare would be $4,590. Now you have $42,000 minus $30,000 minus $4,590. That would leave a profit of $7,410 if the salon maintained its 7% increase throughout the year. Does $7,410 dollars a year compensate you for risking $75,000? If you are not financing, you could add $5,000 back, but $12,410 is not much of a yearly payback for a risky $75,000 investment.

If you don't take a salary, you might think your profit is $42,000 but you'll have to pay self-employment tax of $6,426 on that.

What would you say to a potential employer who offered you a job and said "Here's my offer, you buy your job for $75,000 and I'll pay you $18.00 an hour with no vacation or insurance"? Oh, and if the employer should be forced to close for whatever reason, he might get to keep your 75 grand.
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Old 06-06-2009, 08:20 AM   #7 (permalink)
 
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Re: Looking at purchasing - Input appreciated

Wow Ken, how depressing.

My parents always told me it's just $$.
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Old 06-07-2009, 08:09 AM   #8 (permalink)
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Re: Looking at purchasing - Input appreciated

Ken nailed it 100%. Go back and re-read his post 3 times. And if you can't understand it, you are already at a disadvantage because the biggest key to running a business is being able to understand the business side of things!

It isn't "profit" to work for free. You can't figure any "investment" worth without putting in full figures for payroll.

Assume $3000/mo for payroll. This is paying basic wages (e.g. about $8/hr) plus taxes, payroll fees, commission etc for a salon open about 70 hrs/week. If you CHOOSE not to take a paycheck, that is a matter of changing your CASH FLOW - not profitability. Working for free doesn't change the value of the "investment".

The beds you outline are all basically Level 1/Level 2 beds. The "strongest" bed you have is the 240 with VHR lamps on the top and 100W on the bottom. The good news is that customers seem to be "ok" with these. The bad news is - you aren't going to make it grow any more than it is without investing in bigger/better equipment. ASSUMING you can do that without having bigger rooms/more electric/more HVAC, (all more money), then above and beyond what you are paying for the business now - you would invest more.

Do your numbers again. Put in $3K/mo for payroll, the electric, rent, taxes, other utilities, supplies, cost of product sold/inventory, cleaning, theft,....

The bottom line is that the "equipment" value here is basically $0. If you had to liquidate the business, you would get less than $10K for all this equipment. So any money you invest needs to be for the profitability of the salon. Make sure you have an accurate assessment of what that is, or as Ken notes, you are investing a lot of money that it will see a long time to return - which is risky!
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Old 06-17-2009, 10:55 AM   #9 (permalink)
 
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Re: Looking at purchasing - Input appreciated

Purchasing An Existing Salon Can Be A Good Investment

A quicker less expensive way of getting into the indoor tanning industry is to purchase an existing salon. However you must be cautious because there are many potential pit falls.

90% of all tanning salons are struggling or failing, typically if a salon is for sale it falls into this category. This alarming statistic is not due to a week industry, instead it is a result of new salon owners not being properly educated and prepared for success.

When evaluating the purchase of an existing salon you must approach it as though you are opening a new salon from the ground up. You must first determine the potential of the salon by evaluating the demographics. If the demographics are good you can now evaluate the salon further. Always look at the parking situation and how easy it is to access the location. You should determine all of the changes that must be made to create a successful salon. To do this you must again have the information and knowledge required to be successful. You must determine the cost associated with making these changes.

You must determine the value of the salon by asking a number of very important questions. Net profit of the salon, equipment value or a combination of both will determine the value.

Very old salons can be a problem because the rooms are typically too small. With proper evaluation, a proven plan for success that the previous owner did not have and the proper funding to make the appropriate changes will allow you to own and operate a successful salon saving a great deal of money over opening a new salon from the ground up. Major mistakes made by people that purchase failing salons: Paying more than the salon is worth, not being any more qualified to operate a successful salon than the previous owner, not identifying or making the changes necessary to create a successful salon, not being properly funded. It is just as easy to succeed as it is to fail, knowledge is power. Get qualified assistance or become a part of an alarming statistic.
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