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Old 10-14-2009, 12:47 PM   #1 (permalink)
 
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HELP ME!!! Maybe Purchasing First Salon!!

I'm going to try and remember as many of the details as possible, please be honest in your replies as to what you think, this is a weird situation. I am 23 years old. I am learning so much in this process, so sorry in advance if I sound like I don't know what Iím talking about. Iím going to lay it out the best I can.

I have worked at this salon I want to purchase for 6 years and am now the manager, so I know everything, the books, the numbers, the bills, the clients, and everything else; the current owners have always been completely open with me. The salon first opened in 2000 and in our town there is two other salons that we don't really consider rival salons, but they are still competition. One caters to the high school crowd and is ridiculously cheap with crap beds, and the other is so ridiculously expensive for our town, that people don't even want to deal with them (population growing... but the population was 16,710 in 2008). Our salon is right in the middle pricing wise, we have a lot of older, well off clients, not many teenagers unless they come in with their parents. We have a pretty steady cliental also, we get about 1 new client coming from another salon a day, I think any new client is good, especially since itís our slow season.

The salon has 3 Ergoline 450 12 minute lay downs, 1 Sundash Radius 12minute stand-up, and 1 Sun Capsule 7 minute stand-up. The Ergolines and Sundash were purchased new in 2000 when the salon opened. They are still in GREAT condition, regularly maintained. Then Suncapsule was purchased in 2007.

The current owners are the second owners of this salon. I worked for the first owner before she sold to the current owners. It is my DREAM and my greatest ambition to be a salon owner, I went to school for small business, and feel so confident that I can do this. I have always known since I was 15 that I wanted to be in the tanning industry.

Now the current owners want to sell... So, hereís the story.

They purchased in November 2006. As far as I know (and I have researched) the books were in tip-top shape in 2006. They purchased with investors that loaned them the money. So no bank loan was involved. It was their choice to do that, so they didnít have a large loan payment and could pay smaller payments to their investors (which are family to them). In March of 2009, the owner told me they needed to sell, I told her I was interested and started the process of collecting the numbers, the books, and bill amounts... the information. I took all of this to a financial advisor to have them looked at. The advisor told me no way. He said everything in this salon was only worth maybe $70,000. And the asking price in March was $180,000. So I went back to my boss and told her what he said. She then tells me that when her husband was laid off they lived off of this salon and that she knew the books would look like crap. The financial advisor was astonished that she claimed on the books that she spent $10,000 on cleaning supplies in a year. So basically they were taking this money from the salon and saying it went to cleaning supplies last year on the books. On the sales tracers, I see how the money is there! I work here; I see the money in this salon EVERYDAY. This is what is frustrating. I see these year-end numbers from the last 3 years and wonder where the heck all this money is!! But they took it all to live off of, and in the process made the books like there is NO money at all. So this week my boss comes to me and says we need out and soon, and said she would sell to me for what the advisor said the salon was worth $70,000. They need out because the have massive debt in credit cards, and itís to the point where their house is in jeopardy. I would assume because when they purchased the salon, they went on spending sprees and thought they had all this money. NONE of this debt is related to the salon, itís all personal. If I were to buy, I WOULD START COMPLEATLY FRESH!!! It would be only me working, so I could cut back on payroll completely. My bills would only equal what the necessities are; they put themselves in this situation by the husband being laid off and trying to continue this lavish life style off the salon. So now the books look like crap and they accumulated all this personal debt to just try and survive, thanks to the economy. I donít believe they would just hand it over to me and let me make them payments because they need a lump sum to pay off this debt they have, and to give some to their family investors. If they sell, they will still just make payments to the investors out of their pocket, like I said I will have NO debt to anyone or anything (besides a investor if find one or a bank) if I make this purchase.

So I take all this once again to my parents, and they are interested in this salon. BUT they just bought a beach house (bad timing), so my dad and I go to talk to the bank, and Iím sure you can guess what they say. They see that the money is there and the numbers look good, but how can they loan on something when the profit and loss looks like ****. They said, how would we get our money back if the salon failed, because the beds are pretty much the only profit in here and they would just go to auction for nothing.

I thought Obama was all about small businesses, if so why wont the bank loan me the money!?
I donít really have a question. I just want to know what you all think. I think if I could come up with the money, (any ideas how) I could clean the books up, get everything looking peachy again, and not be dumb with the money like they were. I see so much potential for me and I hate to see the opportunity slip by. =(

I hope I got all the information in here, Iím probably missing some facts that I will remember later. Thank you all for reading my novel and for any advice you can give!
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Old 10-14-2009, 12:50 PM   #2 (permalink)
 
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Re: HELP ME!!! Maybe Purchasing First Salon!!

Offer em $25K and finance it through a couple credit cards.
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Old 10-14-2009, 01:35 PM   #3 (permalink)
 
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Re: HELP ME!!! Maybe Purchasing First Salon!!

Like the one Engfant posted- there are many options.

You provided the equipment info- but in order to give you advice, you need to post numbers.
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Old 10-14-2009, 01:40 PM   #4 (permalink)
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Re: HELP ME!!! Maybe Purchasing First Salon!!

The salon is only worth what the equipment value is and what it books according to IRS.

A rule of thumb is..if your intentions are to sell the salon one day,the books must reflect the actual sales.

If you plan on retiring a salon owner,you just need to show enough profit to make it look legit.

Not to say you can't turn the books around,but it takes a few years to do that to convince anyone,including banks what its worth.
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Old 10-14-2009, 01:45 PM   #5 (permalink)
 
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Re: HELP ME!!! Maybe Purchasing First Salon!!

What numbers should I post? I have them all here... like year ends or monthly? Sorry, this is all so new to me. =) I liked Engfants idea too...

Megatanman, I plan on always being a salon owner, and hopefully/wanting to expand to other loactions SOMEDAY down the road. I mean, you never know what could happend in life, so of course I want to turn the books around in case something should come up that I would need to sell and just because if I purchase this salon, I WANT my books to look good. But I never plan on it selling. I knew it would would probably take years to fix them. uhg. =)

THANK YOU!
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Old 10-14-2009, 02:14 PM   #6 (permalink)
 
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Re: HELP ME!!! Maybe Purchasing First Salon!!

Books look good for who? A potential buyer or the owner? 2 totally different situations. YOU are to only buy based on what their numbers are. If they are showing chump change for a yearly gross then unfortunately that's what you offer them
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Old 10-14-2009, 02:23 PM   #7 (permalink)
 
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Re: HELP ME!!! Maybe Purchasing First Salon!!

Right now, the books look like ****. The current owner knows this and so do I, and I'm the potential buyer. But they only looks so bad because of the reasons I posted in the original post. But as a current employee of the salon, I can see what we bring in daily, monthly, yearly, and the money is THERE. But because the books look so bad, I can't take them to a bank. Because they lied so much on the books, when they dipped into the money to live off.

Any other suggestions as to how to be financed? I'm thinking I'm definitely going to re-negotiate the price.
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Old 10-14-2009, 02:29 PM   #8 (permalink)
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Re: HELP ME!!! Maybe Purchasing First Salon!!

What were the 2007 and 2008 gross revenues?
How is the store trending this year? What % up or down?
What is the monthly rent?
What is the average utility bill?
Are there any financial obligations you'll have to assume such as yellow pages?
Is there room to expand for more beds or other services?
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Old 10-14-2009, 02:46 PM   #9 (permalink)
 
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Re: HELP ME!!! Maybe Purchasing First Salon!!

$70K for a excisting salon with 4 tanning units?? seriously??? uuuum,,,,wait it out, till they fold, contact landlord, renegotiate lease, and take the spot and add new equipment, great used equipment out there right now......
start fresh, new name , new look, new equipment,,,,,,,SAME location
you sound like you "know" what your doing as far as a manager, now start thinking like a owner.......this is not the nicest industry.....its business, not personal. you could open your own for less than purchase price
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Old 10-14-2009, 02:47 PM   #10 (permalink)
 
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Re: HELP ME!!! Maybe Purchasing First Salon!!

In 2007 the salon made $188,709.62 in 2008 the salon made $151,127.47
(so the economy was crappy durring those years)
I'm not sure the % is, but i'm sure it's down because of the economy. When I look at the like say September 2008, we made we $1,000 less this September 2009.
Monthly rent is $1,500 until January 2010, when I would have to re-negotiate. And Hope to keep it around $1,500 because they dont want empty spaces on this strip mall.
Average Utility bills for say June: Power/Water- $500.01, Gas- $15.91, Phone/Internet- $96.41, Accountant- $150.00, Salon Insurance- $145.67. So June is a busy month. So I used what the most expensive time in for bills are. Obviously everything drops when its slower.
There is one room open that I could put something in. I dont know what tho. I thought a Spary Booth. But no room to expand like knocking down walls kind of expand. There is a water cooler that could be a monthly obligation, but I plan on getting rid of it. I would have our number in the yellow pages, but not like a ad.
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