Purchasing a SunTanCity / 270k

[SunnyInPhili]

First, I have to thank everyone for the intelligent (sometimes labelled realistic or pessimistic) advice I've found here.

Looking for advice I've seen here already on this subject.

Ability to Purchase.
100k house title owned free & clear
Seller financing for portion (unknown amount)

Figures on Place
4200 square feet
26 beds, standard 5 levels, as most suntancity does (I'm told)
5k inventory included (not verified types, expiration dates, etc)

Moneys on Site
270k includes inventory
7k for Lease/CAM monthly

2010 sales 350k
2010 adjusted cash flow 94k
Unknown if cashflow includes manager as owner manager.

Staff
Includes 4 part time.

I am meeting with the seller through their broker (which I know works for the sale not me).

They came into the area end of 2009, basically killed the smaller 2 places in about 7 mile area.

Location
Area is suburb, small colleges, business centers all around, hardly even touched by recession for example. Lots of business / malls in 5 mile area. Strong economy (as I feel)

I havent done any deep research since I havent made an offer w/cash to do due diligence on the place yet.

Advice? Thoughts?

I know a few of you have given great "realistic" advice. Thats what I'm looking for?

Any advice on buying or not buying a suntancity franchise?

Of course I'll ask "why" and I'm sure I'll get the runaround a bit, its not a predictable death of owner or divorce or dissolving of a bad partnership or anything. Broker said owner was going to use money for another business (didnt say what, but there is a non compete on purchase info and completed sale)

Thanx in advance.

[OhBrian]

Asking price?

All applicable franchise related fees? (Royalty, advertising fees every franchisee must pay)

Number of tanners per day during busy season/ off season.

Current hours on all lamps/ acrylics. (Major cost involved if they are due for changing)

Talk to the landlord about rent concession... $7k is high. Should be able to negotiate about $5k, but this is without knowing the area...

ask them for Tax Returns and monthly sales reports from their POS system along with monthly EFT reports. This will show you the flow of cash through the year.

Look for UCC filings and make sure that they do not owe for taxes. Put a clause in your purchase agreement that all prior responsibilities for lawsuits, taxes, etc. pre purchase are the personal responsibility of them... NOT the business name.

If you are going to purchase.. Now is an EXCELLENT time. You won't miss busy season.

[House of Tan]

STC is BIG, It is the only franchise I would ever consider. Rick is a somewhat regular poster on another salon site.

[sunsally]

Originally Posted by House of Tan

STC is BIG, It is the only franchise I would ever consider. Rick is a somewhat regular poster on another salon site.

Agree. They are the best run operation in the country, bar none, in my opinion. Also, the group that has invested to-date is small and select. If they say they are leaving to run other businesses instead, I would take that at face value in this situation.

Look at the numbers, do your due diligence. But I would expect nothing other than 100% above board dealings with STC. Either it makes sense for you or it doesn't but the numbers and your particular financials will dictate that decision. FWIW, $270K for what you are getting in equip and the cash flow seems right on target and fair to me.

Good luck!

[movieking]

With 26 beds and 350K in gross sales you should have nowhere to go but up. Depending on the equipment I'd have no problem paying 270K.

[movieking]

My comment above was based on this being the Sun tan City we all know. www.suntancity.com

Was this a Tan World location that maybe just converted to Sun Tan City or is it a different company all together?

[ljtan]

With all due respect you have a ton of work ahead. Believing their business broker
without bringing in a good business accountant is foolish. The 94k cash flow seems
very high for a 350,000 gross. Plus it's highly unlikely a landlord will lower the rent
unless it's close to being up, even then if you are inexperienced in that line of work
the landlord may not work with you. ( but every market is different )

[OhBrian]

...for what it's worth... I negotiated a $5300 a month rent for another salon I purchased to $3500 after they were only open 18 months.

There is no reason not to ask. Period. If you only get a $500 a month rent concession, you just put $6000 in your pocket for the year. I am sure you can do the math for additional discounts.

[ljtan]

I have a store in a center with about 40 other businesses. There's not one vacancy.
Do you really think if I just asked for $500.00/mo in concessions they will give it to me.

[sunsally]

Originally Posted by ljtan

With all due respect you have a ton of work ahead. Believing their business broker
without bringing in a good business accountant is foolish. The 94k cash flow seems
very high for a 350,000 gross. Plus it's highly unlikely a landlord will lower the rent
unless it's close to being up, even then if you are inexperienced in that line of work
the landlord may not work with you. ( but every market is different )

$7K/mo RENT
$5K/mo PAYROLL (I would normally use $3k - this accounts for double staffing and managerial pay)
$2K/mo ELECTRIC
$1.5K/mo BANK/CC/EFT Processing Fees (high side)
$.5K/mo Phone, internet, POS tech support
$.5/mo Supplies, other

=$16.5K/mo ---> $198K
$2K/mo - Advertising/royalties - $24K

COGS - $15K
Relamping - $15K


I'm at $252K expenses on $350 Rev -- or $98k cashflow. That leaves $4K for towels and anything I've forgotten ;-)


Clearly you will have a business accountant and attorney involved. But I don't see anything unlikely about the numbers on face value.