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Old 11-21-2009, 10:20 PM   #1 (permalink)
 
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Oh no...Not another should I buy this salon thread?

Hey everyone. I've been trolling here for quite a while. I have researched and researched. I just wanted to get the insight of those that know whats up. So here is the salon that I want to buy:
  • Opened: 2000
  • Current owner bought in late 2006
  • 1600 sq.ft.
  • 2600/mo lease including CAM (Average for area)
  • lease expires in 6 months
  • 2007/2008 gross: 113K. Net: 86K
  • 2009YTD gross: 78K
  • 3PT employees
  • 5000 clients in data base (I will find out tomorrow how many visited in last 60,120, 180, 360 days)
  • 25% of sales were from lotions and products
  • Current owner spends 2K a year on advertising. Direct mailings, flyers in parking lot, and facebook/myspace
  • Insurance costs 2k/yr
  • Lease is transferable to new owner
  • No ETF's only prepaids
  • Doesn't know tons of AC, and electrical is 240 AMP panel
  • 12 beds as follows:
  • 2 level 1 beds. ETS. 4 years old. "half used" lamps
  • 4 level 2 beds. ETS. 4 years old. "half used" lamps
  • 1 stand up level 3. Sun source. 3 years old. "half used" lamps
  • 1 stand up level 3. Sun Capsule. 3 years old. "half used" lamps
  • 1 level 3 bed. Heartland. 2 years old. "half used" lamps
  • 1 level 4 bed. Prestige-Dr. 1 year old Kern "new" lamps
  • 1 level 5 bed. Power Maxx Sunvitable. 3 years old. "new" lamps
  • 1 spray booth. Mystic booth. 2 years old.
Current owner charges $8-$27/tan

Also included is the computer, furnishings, T-Max salon manager-controller for beds, and Tan Trax software.

The area around this salon is extremely rich. The "cheapest" house in the area is around 500K going up to 3 mil+

The owner is asking $140,000 for the salon, however I have heard that he will take much less for it.

SO.....Good deal or not? I firmly believe with effective marketing I could turn this salon around and make a decent profit off it.
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Old 11-22-2009, 10:20 AM   #2 (permalink)
 
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Re: Oh no...Not another should I buy this salon thread?

The place is worth about half that. The equipment is solid but nothing crazy but solid and clearly can make money and not that expensive to keep up with.

Offer him $70K.
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Old 11-22-2009, 11:00 AM   #3 (permalink)
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Re: Oh no...Not another should I buy this salon thread?

There is no profit in that salon at 85K for the year. Rent eats up $31,200 & labor will take another $15,000-$20,000 unless you work all the ours. Regardless of that though you still have to pay yourself. Add in utilities, insurace COG's, advertising, bank/merchant fees, etc... and there is not much of anything left. Determine the value of the equipment and offer that if you think you can turn it around.

Even if the salon can break is the infrastructure there to add bigger beds? The majority of salons being sold do not have adequate AC or electric for what is currently in place much less what is needed for the money making beds and even if they do the rooms aren't large enough.

You need to create a well thought out business plan and determine if this salon meets the needs of what you'll need.
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Old 11-22-2009, 12:09 PM   #4 (permalink)
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Re: Oh no...Not another should I buy this salon thread?

Run!!!!!!!!!!!

- Rent 31,200
-Payroll is going to be closer to 40k a year
- Insurance 2 to 3k
- Advertising you say he said he's spending 2k and doing direct mail and other stuff if he mailed his database of 5k it would cost him aprox 2k once

- 240 amps this is limited power for you to add bigger equipment and be succesfull to turn the place around your working with a limited amount of power you need to upgrade the power to the place.

- The salon has an odd bed mix.


Unless you want to buy a job and maybe make or loose 15k to 25k a year go for it. This place is not worth 140k it's not worth 70k it's worth the equipment is worth and not very much. People have this idea in thier heads that there going to buy a place and then turn it around and do much better then the old owner. Don't you think he' has exhausted all avenues of trying to make it profitable it's his investment. Now you would need to upgrade the electric, probably AC also (for him not to know how many tons of AC he has is absurd), upgrade the beds maybe upgrade the look of the place and you might be able to turn things around is it worth it?? No he has no membership base that he's drafting and is doing lousy numbers and he's probably doing half of this in reality.

Did he show you a tax return or just told you this is what he was doing?


I just assisted a client on a salon they were looking at. We were brought a gross revenue of 270k and the seller kept saying it's a cash buisness we make all the cash. Upon asking and looking at the tax return I was floored.


I'm not saying it's not possiable to turn this place around but defintely not worth it and you better be well funded to do so.


And he's not netting 86k if he's grossing 113k

Last edited by MATT A; 11-22-2009 at 01:03 PM.
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Old 11-22-2009, 12:15 PM   #5 (permalink)
 
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Re: Oh no...Not another should I buy this salon thread?

He said the place NETS 86K a year on 113K gross yet didn't include expenses???? I don't understand how NET is calculated I guess.
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Old 11-22-2009, 04:02 PM   #6 (permalink)
 
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Re: Oh no...Not another should I buy this salon thread?

The power alone I don't think is right. I have a 7 bed salon and 400 amps and I can only add 2 more beds. I have no High Pressure at this time so when I do add, it will be high pressure. That being said, with only 7 beds and already 400 amps of elect. I possibly may have to bring in more power.
I am also going to wonder how he can net 86K a year on 113K gross since as you say his lease is 2600.00 a month. That alone brings it down to 81,800.00 w/o anything else (utilities,insurance,payroll). Nothing less than the last 2 or 3 years tax returns would I base any information off of.
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Old 11-22-2009, 07:46 PM   #7 (permalink)
 
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Re: Oh no...Not another should I buy this salon thread?

Everyone thanks for the advice. I do have to apologize. I left the information sheets at work, so when I typed this I was going off memory.... Guess I was wrong. He says he is netting 68K not 86K.

I am meeting with him tomorrow to tour the salon, and confirm all the data that I have been given. I will also ask for 06/07/08 tax returns and ask to see 09 gross from the POS.

So assuming that he actually netted $68K in 2008, that is not including the lease at $31,200 and payroll of (est.) 25K, so that leaves $11.8K for net. Which is not a whole lot at all. So basically this salon is cash flowing not much.

So lets say that I offer him a number that is worth the price of the equipment. Should I also include a little bit for the cost of the build out?

I am doing this for "fun". I only work 3 1/2 days a week, and I am bored the other 3 1/2 days a week. If I made 20K a year I would be happy. However I want to turn it into a lot more than 20K a year. So.... In this economy, is it possible with some awesome advertising, to turn around a salon? Or is the whole industry waiting for the economy to turn?
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Old 11-23-2009, 10:40 AM   #8 (permalink)
 
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Re: Oh no...Not another should I buy this salon thread?

THe whole industry is waiting for people to start going on vacation again.
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Old 11-23-2009, 11:04 AM   #9 (permalink)
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Re: Oh no...Not another should I buy this salon thread?

Quote:
Originally Posted by caboarder2001 View Post
Everyone thanks for the advice. I do have to apologize. I left the information sheets at work, so when I typed this I was going off memory.... Guess I was wrong. He says he is netting 68K not 86K.

I am meeting with him tomorrow to tour the salon, and confirm all the data that I have been given. I will also ask for 06/07/08 tax returns and ask to see 09 gross from the POS.

So assuming that he actually netted $68K in 2008, that is not including the lease at $31,200 and payroll of (est.) 25K, so that leaves $11.8K for net. Which is not a whole lot at all. So basically this salon is cash flowing not much.

So lets say that I offer him a number that is worth the price of the equipment. Should I also include a little bit for the cost of the build out?

I am doing this for "fun". I only work 3 1/2 days a week, and I am bored the other 3 1/2 days a week. If I made 20K a year I would be happy. However I want to turn it into a lot more than 20K a year. So.... In this economy, is it possible with some awesome advertising, to turn around a salon? Or is the whole industry waiting for the economy to turn?
Rent - $32K
Payroll - $36K (avg for a salon paying min wage & commiss)
Utilities - $10-15K (at least)
Insurance - $2K
COGS (product) - $9K ($113K x .25 x .5 x .4) - trust me
Lamps/Maint - $5-8K/yr (and probably due immediately)
Advertising - $2-5K ($5K bare minimum to be effective)
Bank/CC fees - $3K
Atty/Acct - $1-2K min (set up co, file taxes,..)

Total $100-$112K so far -- and I don't have new signage, vendor license fees, "decorating/upgrading" supplies, daily cleaning supplies, new towels, software fees, computer (if needed to upgrade), etc etc etc


With these numbers, you will be paying $XX for a business that - at best - is breaking even. With your payment - plus all the upgrades you'll need to do to "make it yours" - it will be running at a loss. So any amount you are able to "improve it" (if you can) will go toward paying back your investment and your losses first.

If that is $20K/yr - and you pay $70K for the business and invest another $10K up front -- that means it'll take until the 5th year before you actually aren't just paying yourself back and are making any "profit". So the first 4 years of giving it 3.5days/week of your time would be done for free.

Could you do something else with your 3.5 days/week that you are free for "fun" that wouldn't take you 5 years to start getting paid for your time? Or would you rather just volunteer - but don't have the risk of your investment being lost as well?
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Old 11-23-2009, 02:46 PM   #10 (permalink)
 
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Re: Oh no...Not another should I buy this salon thread?

Ok so I spoke with a buddy of mine who runs a shop. And he said bare minimum it would cost 8K a month to run a shop, which would be 96K a year. Then Sunsally explained it all very well and said basically the same exact #'s within 10K of my buddy.

His 09 YTD according to the POS 78K. So looking at expenses of 96K min, he is going to loose 18K this year minus whatever he sells in Dec.

So here we are. I want a salon, but this one is loosing money, hence the sale. Lets assume that I buy the salon for only the value of the equiptment. Can I, with effective marketing, spending like 2K a month on marketing, turn this salon around in todays economic times? From those that are current owners that have fought hard to mitigate your losses, is it helping? Is advertising working, or is it really that bad out there?

And lastly, if I do decide to get this salon, when things eventually turn around to 04/05/06 sales, how much would a salon like this gross every year?
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