Another "Should I Buy?" Thread

[J2Tanning]

Hey guys. Just wondering if this purchase would be a good idea.

Here's some background: My business partner and I opened up a tanning salon back in March in a Michigan town with a lot of money. There is only one other salon and since our opening, we have done incredible. We are both previous tanners, but new to the tanning industry, although we are pretty business savvy. We offer a variety of services including UV tanning, spray tanning , red light, and massage.

A deal has pretty much fallen into our lap to purchase 2 existing salons in the same area. (Different suburbs of the city, no competition to us whatsoever). We were pretty excited until we starting looking at previous year sales and tax returns.

Here are the details:

$80,000 for both salons, $0 down, owner financed (Big plus)

Salon #1
One of three salons in a couple miles
Known as a dump, but awesome equipment
8 units - 6 beds, 2 standup
Couple of high powered beds - 12 and 9 minute
Gross sales 2010 - $125,000
On track to do about $3,000 more this year - general upward trend
Rent is cheap
Can squeeze about three more rooms

Salon #2
In a very blue collar town
Only one other competitor, but they have very old equipment
10 tanning units, updated equipment - good units
Gross Sales 2008 - $185,000
Gross Sales 2009 - $167,000
Gross Sales 2010 - $147,000
On track to do about $130,000 this year
Rent is expensive. $2,400 for a 1502 sq ft. space. ($15/sq ft/yr)
Landlord is in another state and says no to renegotiation.
Lease ends in July 2014

Both salons could use a lot of work. They both need about $10,000 - $15,000 of work put into them to make them pretty nice. We have noticed that both of them seem to be somewhat mismanaged. There is family working with each other and has been drama. One of the family members has even taken some cash deposits. One of the managers schedules 2 - 3 people in the summer because they are her friends and need more hours.

Just need some opinions. An answer and some supporting reasons. I would greatly appreciate it. If you have anymore questions about them, let me know.

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[parrot head]

Wow! In what city did you say these salons are located? If the equipment is as good as you say it is, it should be worth half that. Too bad the rent isn't month to month.

[J2Tanning]

Yes, the equipment is good. They spent $40,000 on 2 units a few years ago. Awesome units.

My thought is that with some money and time, we can make the salons look real nice and increase sales.

[Black Sun]

I am confused...this place has been on the skids since day 1.
When it opened, it made 185K, now less than 5years latter, 55K less...and you think this may be a good buy???

How do you plan on bringing it back. The business is not there, and I could certainly assure you, never will. No matter how much you invest or re-do. You say you could easily make an additional $3,000? Are you joking?? That is a bit more than $300.00 a month. Success is turning it around and doing $3,000 a week..


Another thing. You say the landlord is in another state and 'says no to renegotiation'. That should be a red flag in itself. Do you really want to invest in a biz with a landlord who will fight your success?
What if you took over the lease, to find out at the end he refuses to re-new?

IMO, you have a lot to learn..

[Shari]

You would have to generate 10k in profit combined per year to make this a better investment than a cd at the bank.

[sunlover71]

I agree with Black Sun the Landlord issue is key here, after 5 years of success in the tanning industry we are not renewing our lease do to Landlord issues, it is better to pass on that one.