Tips to know BEFORE you buy a salon!!

[sunsally]

Here are a list of things that come up over and over and over for salon owners looking to buy an existing salon or those who already did it. If you are lucky - you find this and read it BEFORE you buy!

Starting with the DON'Ts

1. DON'T fall in love with a decor! A salon that is dirty - can be cleaned. A salon with outdated decor - can be updated, usually fairly inexpensively.

Customers don't go to a salon for the decor - they go because they get the best performance for the best value at the greatest convenience.

You must analyze the "bones" of the business and make an unemotional, financially sound decision. All too often people come on here talking about how they bought the "nicest" salon - and then it turns out the equipment mix is bad or underperforming, the location is lousy, there are no customers and/or it isn't profitable, etc.

Decor should be about 10th on the list for the things you consider when choosing one salon over another, or buying a salon vs. not buying.

[sunsally]

2. Don't get caught up in a lame "reason" it is not profitable

Again, WAY too many folks come on here saying the reason the salon was for sale (and in all cases, NOT doing well financially) was because of some "excuse" by the seller:

a. They were getting a divorce/or have some illness

b. They were an absentee owner and weren't in the business often

c. It was run down/dirty (see #1 above)


Businesses that are NOT profitable and are for sale are for sale for the simple reason that they are NOT PROFITABLE!

Your focus here has to be on the FINANCIALS and what -- IF ANYTHING -- will allow the business to BE profitable!


Remember - when YOU buy it -- you will have all the same costs the seller had -- PLUS your added investment of whatever you pay to buy it. So it has to make even MORE money in order to "pay back" and be profitable for what you have in it.

It will NOT be profitable just by you owning it instead of them, you cleaning it up or redecorating (can't tell you how many new salon purchasers START with the decor -- again, see #1 above....), you "caring" about it more, etc.

If the equipment mix, pricing and marketing are not set up to allow it to profitable then it won't work. And many salons for sale - MANY - are for sale because the original owners never set it up properly in the first place! Which means to correct it- IF it can be corrected - you will have to start by investing MORE money into it in different equipment, upgraded electrical, advertising, etc....

Your purchase price MUST reflect this -- do not buy something that can't make money and don't overpay for something that needs too much additional investment.

[sunsally]

3. DON'T accept undocumented funds as part of the "value" of the business and count them in your equation


If a salon owner tells you "well, this is a cash business, you know, wink wink" and tries to suggest that the business makes "a lot more than you see here on paper --- I don't want to give everything to the government" then that is nice -- BUT DO NOT PAY FOR THAT "STORY".

The business is only "worth" what it makes ON PAPER - tax returns, computer software sales records (but unless you know how to look through these carefully they COULD be altered). If "on paper" it is not making a profit -- then the business is only worth the 'asset value' of the equipment in the salon. There is no need to pay for "goodwill" or a customer base for a salon that is NOT turning a profit -- that salon is worth no more than one opening its doors from scratch.

[sunsally]

4. Don't START with the idea of "well, I'm not trying to get rich from this" or "We don't need to make a lot of money from this".

WHY would you invest your money in something and take the risk, if you don't want to make money????


If you "love tanning" or "like people" or are "just looking for something to do now that the kids are in school" --- take a job working at someone else's salon, do volunteer work, etc.

Buying a tanning salon or any business should be looked at as an INVESTMENT - just like buying stocks or anything else. If it isn't going to give you a good "return" --- you should do something else with your money!

A tanning salon is opening 7 days/week, almost all 365 days/year, typically 10-14 hrs/day. This is a HUGE commitment!! And you will be paying/managing staff across all those times, paying electric, etc.

If an employee calls off or quits on a Saturday morning at the last minute and you had plans -- YOU drop your plans to go cover!

If nobody can/will work Mother's Day, Father's Day, 4th of July, Day after Thanksgiving, Easter, etc etc etc --- YOU work or shut down the business --- and don't make money and risk unhappy customers!

If it is "slow season" and money is barely trickling in.....rent still is due, electric bills are still being generated, staff still expect paychecks,....

If it FAILS - you probably signed a "personal guarantee" for the building lease, and the landlord may still be able to go after you personally for the remaining rent on the lease - even if you are no longer in business.

Don't buy a salon unless you want - and expect - it to be a good financial investment.

[sunsally]

5. DON'T GO INTO IT WITH NOT ENOUGH MONEY!!!!

This should be #1. But if you can just BARELY scrape the money together to buy the place --- it isn't the right time for you to make this investment!


Once you buy, there will be MORE costs.

You may need to relamp some/all of the beds - and this can cost from a couple hundred to a couple thousand per bed!

Changing the name? New signage, new business cards, gift cards, etc

When salons are for sale, they often run down the inventory. If so, need to invest in that.

Legal costs you may incur - a lawyer to review/prepare the sale documents, setting up a corporation, etc

Advertising -- it is not "if you build it they will come". Have to let people know you are there, give them reasons to try you.

If you buy between July and January -- it is the "slow season" and the salon MAY not make enough money in those months to cover costs. If so, you will have to invest your own money to "carry it" until you get back to the busy season.

The number one reason businesses fail is they do NOT have the money needed to make it successful. Period.

[sunsally]

Switching Gears -- some DO'S


1. DO count your hours worked as part of the "investment" -- as well as the price you pay. And factor in full time hours as an "expense" of the business you are looking at buying -- even if the seller doesn't include it as part of the equation!


Many, many, many times buyers or prospective buyers come on here with the "expenses" side and it only shows rent and maybe electric. There are a LOT more expenses than that. And the number one NOT included - is payroll.

EVEN IF YOU ARE NOT GOING TO TAKE A CHECK AT FIRST FOR "CASHFLOW REASONS" -- you MUST COUNT PAYROLL AS PART OF THE EXPENSES IN DETERMINING IF THIS IS A GOOD INVESTMENT!

The rule of thumb to use -- $3k/month or $36k/year.

This is approx $8/hour, for the typical hours a salon would be open in a year, single staffed (e.g. only one employee working at a time), including payroll and other taxes, plus some minimal commission.

NOBODY SHOULD INVEST EVEN A $1 TO WORK FOR FREE! And if you get hurt, tired, etc etc and can't work for "free" - you have to hire someone else. Bottom line - payroll is an 'expense' and needs to be part of the equation to see if this is a good INVESTMENT or not -- even if you don't take a check at first.

Any PROFIT - is AFTER all expenses -- including payroll AND the cost of paying back yourself the money you paid to buy the business.

[sunsally]

2 DO know WHAT you are buying in terms of equipment and it's value!


You need to know:

a. brand
b. model number
c. year
d. number of hours for each piece

Some manufacturers have gone out of business and parts are hard to get. Some equipment is less sturdy/reliable than others. Some will run forever if you keep them up. Some you could sell if you wanted to upgrade. Some are worth just the price of the scrap metal in them.

Research all this BEFORE you buy! You can't know the true "value" of the business unless you know the value of the assets in it!

[sunsally]

3. DO understand that owning a tanning salon is about (in order):

a. Business

b. Sales

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.
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c. Tanning

Tanning is the LEAST important part of the equation. You don't have to "love tanning" or be passionate about tanning. You DO have to know how to run a business and how to sell!! You can teach the ins and outs of tanning a LOT easier than how to run a successful business or how to sell!

Take tanning OUT of the equation for a minute. Would you buy this business if it was a restaurant? A dry cleaners? A day care center? A auto repair shop? A clothing store? Why or why not?

It should make sense as an INVESTMENT no matter what industry it was in. If you are in love with it because you think tanning will be "easy" or "fun" --- walk away.

[sunsally]

4. DO "Have a Plan" --- even though that may not seem "fun"!


Even if you aren't going to a bank for money, you need to sit down and have a plan - for yourself!

Get the numbers from the seller --- put together a spreadsheet of what they say the expenses have been and the revenues. See if they add up and make sense. Then project out what yours will be.

See what is missing -- payroll, advertising, the cost you are paying to buy it, relamping, computer software, more inventory, higher electric bills when it is busier, etc etc etc. Figure this in.

Be specific!!! Don't just put in a generic number for Advertising that you pull out of the air! WHERE would you want to advertise? What kind of advertising would you want to do and how often? Get prices on this - realistic ones! Call the local newspaper, call someone about doing a 5000 postcard mailout, etc. Don't just put in "$500" every month and think you have a "budget".


If this is hard. Boring. Not what you are good at. Not as "fun" as picking out a new shade of paint for the walls or a new bed. Then do NOT go forward on being an entrepreneur and buying this business. Period.

[sunsally]

5. DO know the specs of the salon itself to know what options you have down the road to improve/upgrade.


How many amps of electricity? 3 phase or single phase?

How many tons of HVAC?

What are the room sizes for each room?

What size breaker/wire is running to each room?


These things are critical to estimate the cost - and feasibility - of upgrading equipment, if you would want to do that.