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Old 01-29-2014, 05:12 PM   #1 (permalink)
 
Join Date: Jan 29 2014
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Potential Salon Purchase - Need Input

Hi everyone!
Just joined today so "take it easy" on the newbie!

We are looking at a small salon (11 beds and 1 Red Light Therapy) in the Midwest. It has been in business since the late 90's and always profitable. Sales have been growing slightly the last 3 years and they had $82k in sales for 2013 with a Sellers Discretionary Earnings of $22k.
Lease is decent at 1300/mo for 1600 sq ft.

It is in a small suburb with the closest competitor 7 miles away and has a very good following. 800 repeat customers and 2,000 total.

My question is while it is very clean and I know many people that go there, the beds are older. They have the following;

(7) Puretan Impact 28 bulb 2001-2004 mfr date
(2) Puretan California 36 bulb with 3 facials 2000 mfr date
(2) Puretan Aruba 24 bulb (1 is a redlight therapy) 1999 mfr date
(1) Puretan Quantum Stand-up 52 bulb 160w/bulb 2006 mfr

It is the original owner and she is looking to semi-retire. I can buy the Salon for around $50k-$60k. Would be a great business for my wife and her specialty is marketing/advertising. The current owner does ZERO marketing. She says the younger people love the lower bulb beds due to the fact she offers fairly cheap packages for them.

Just not sure about the beds, although they always seem pretty busy.

Thoughts would be appreciated, Thanks!!!
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Old 01-30-2014, 03:13 AM   #2 (permalink)
 
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Re: Potential Salon Purchase - Need Input

Truth is, not worth the 50-60K price

Beds are useless, out of date, no longer made..

800 REPEAT customers not enough to sustain cash flow..how often do they 'repeat'?

If really interested, wait until she 'folds', closes the place down. Negotiate with landlord for space for a lesser rent.

Keep in mind, additional AC/electric upgrades may be needed for better performing beds..this can cost 25K

You say, the younger people like the lower beds due to cheaper prices..RED FLAG
You can't sustain on 'cheap' prices..and lower 28lamp beds will not tan you

Numbers seem off. 82K in sales and growing with those beds? Doubt it...and 22K earnings? Request to see the last 5 years of tax returns..ask for utility records. If little spent on electric, then obviously beds/AC not being used much.

If 'sold' on this place, offer 10% less her 22K earnings...and that is a lot.

Personally, I would not do it. Her asking price is way to much for what little results are being achieved. I'd look elsewhere. For the 50K you'd spend on this, you could do better on your own
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Old 01-30-2014, 06:44 AM   #3 (permalink)
 
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Re: Potential Salon Purchase - Need Input

Quote:
Originally Posted by Black Sun View Post
Truth is, not worth the 50-60K price

Beds are useless, out of date, no longer made..

800 REPEAT customers not enough to sustain cash flow..how often do they 'repeat'?

If really interested, wait until she 'folds', closes the place down. Negotiate with landlord for space for a lesser rent.

Keep in mind, additional AC/electric upgrades may be needed for better performing beds..this can cost 25K

You say, the younger people like the lower beds due to cheaper prices..RED FLAG
You can't sustain on 'cheap' prices..and lower 28lamp beds will not tan you

Numbers seem off. 82K in sales and growing with those beds? Doubt it...and 22K earnings? Request to see the last 5 years of tax returns..ask for utility records. If little spent on electric, then obviously beds/AC not being used much.

If 'sold' on this place, offer 10% less her 22K earnings...and that is a lot.

Personally, I would not do it. Her asking price is way to much for what little results are being achieved. I'd look elsewhere. For the 50K you'd spend on this, you could do better on your own
Thanks Black Sun,

Appreciate the input. I have already asked for all the records you suggested. That voice in my head is really having a hard time with the beds, and you just helped me confirm. Also the potential for electrical upgrade if I go with higher end beds as well. $12k of her sales are in "products" at very high margins. Checking into this as well.
Utilities are about $500/mo which seems low to me.

Will post more detail as I get them.
Great Forum!!!!!!!!
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Old 01-30-2014, 08:33 AM   #4 (permalink)
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Re: Potential Salon Purchase - Need Input

I only do sunless at my salon but I personally UV tan. I tan at a salon just like this in the mid-west; I set it up in 1998 :) Old beds; same 1998 28 lamp purtans now running Midday sun + lamps. I have an awesome tan after just 4 sessions (10,12,12,15 min). I have yet to do a full session.

That said, I do agree that with beds like that you will be the “cheaper salon” option. However you can make money, but you must run efficiently and try to raise the Per Tan Average. It takes a min of $80k to run a salon of this size; I doubt their $22k of discretionary income. If you can map a route to hit $120k-$160k with this salon it may be worth it, but not for the price they want. I would offer closer to $20k and that could vary quite a bit.
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Old 01-30-2014, 03:09 PM   #5 (permalink)
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Re: Potential Salon Purchase - Need Input

Quote:
Originally Posted by Black Sun View Post

You say, the younger people like the lower beds due to cheaper prices..RED FLAG
You can't sustain on 'cheap' prices..and lower 28lamp beds will not tan you
This is a perfect example of how brained washed this industry has become.
There is nothing wrong with a 28 or even a 24 lamp base bed. You will get a tan and be happy unless told differently.

Manf. telling telling everyone you must go bigger to win - Bull
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Old 01-31-2014, 05:32 AM   #6 (permalink)
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Re: Potential Salon Purchase - Need Input

Quote:
Originally Posted by Edubw View Post
Hi everyone!
Just joined today so "take it easy" on the newbie!

We are looking at a small salon (11 beds and 1 Red Light Therapy) in the Midwest. It has been in business since the late 90's and always profitable. Sales have been growing slightly the last 3 years and they had $82k in sales for 2013 with a Sellers Discretionary Earnings of $22k.
Lease is decent at 1300/mo for 1600 sq ft.

It is in a small suburb with the closest competitor 7 miles away and has a very good following. 800 repeat customers and 2,000 total.

My question is while it is very clean and I know many people that go there, the beds are older. They have the following;

(7) Puretan Impact 28 bulb 2001-2004 mfr date
(2) Puretan California 36 bulb with 3 facials 2000 mfr date
(2) Puretan Aruba 24 bulb (1 is a redlight therapy) 1999 mfr date
(1) Puretan Quantum Stand-up 52 bulb 160w/bulb 2006 mfr

It is the original owner and she is looking to semi-retire. I can buy the Salon for around $50k-$60k. Would be a great business for my wife and her specialty is marketing/advertising. The current owner does ZERO marketing. She says the younger people love the lower bulb beds due to the fact she offers fairly cheap packages for them.

Just not sure about the beds, although they always seem pretty busy.

Thoughts would be appreciated, Thanks!!!
Rent $16,000
Insurance $2,000
Utilities $6,000
Cost of Goods $3,000
Phone,Internet $1,800
New Lamps $5,000
Other Maintenance $10,000
Labor $20,000
Marketing $2,000-$5,000
Accounting fees $1,000
Legal fees $1,000
Unforcasted expenses $10,000

TOTAL: $81,000

Reinvestment %10 of revenue

The value of the equipment is ZERO. The value of the build out is ZERO. You're buying the business only. I'd pay one year PROVABLE profits only for this salon at best if you really want it but think you can start a salon for equal or less money. This salon is most likely out of date (at the end of it's usable life) and in need of major upgrades to remain viable.
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Old 01-31-2014, 10:52 AM   #7 (permalink)
 
Join Date: Jan 29 2014
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Re: Potential Salon Purchase - Need Input

Quote:
Originally Posted by DH View Post
Rent $16,000
Insurance $2,000
Utilities $6,000
Cost of Goods $3,000
Phone,Internet $1,800
New Lamps $5,000
Other Maintenance $10,000
Labor $20,000
Marketing $2,000-$5,000
Accounting fees $1,000
Legal fees $1,000
Unforcasted expenses $10,000

TOTAL: $81,000

Reinvestment %10 of revenue

The value of the equipment is ZERO. The value of the build out is ZERO. You're buying the business only. I'd pay one year PROVABLE profits only for this salon at best if you really want it but think you can start a salon for equal or less money. This salon is most likely out of date (at the end of it's usable life) and in need of major upgrades to remain viable.
Pretty spot on. My thinking as well, at BEST offer of 1 year profits. Thanks to the information gathered on this forum I would also have an electrical issue if I upgrade. Single phase into the building and (2) 200 amp boxes. A/C is about at max now, 7.5 tons.
Will most likely pass,,,,,,,,,,,,,,I don't think the demographics support getting and ROI on the major upgrades I would need to do.
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Old 01-31-2014, 04:57 PM   #8 (permalink)
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Re: Potential Salon Purchase - Need Input

My place has 11 beds in 2000 square feet with 600amp 3 phase using 21 tons A/C and we MORE than double the $82k in revenue you are looking at. If your area can support a salon, start from scratch and forget this dog.
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Old 02-01-2014, 10:02 AM   #9 (permalink)
 
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Re: Potential Salon Purchase - Need Input

Run and hide, don't look back. How much do you realistically think you can make with 82k gross? I was offered a running salon that sounds like yours. I didn't get into profits or gross but I knew the volume. The salon was free just to finish lease. I didn't do it because it was to expensive.
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Old 02-01-2014, 01:08 PM   #10 (permalink)
 
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Re: Potential Salon Purchase - Need Input

Quote:
Originally Posted by Edubw View Post
Hi everyone!
Just joined today so "take it easy" on the newbie!

We are looking at a small salon (11 beds and 1 Red Light Therapy) in the Midwest. It has been in business since the late 90's and always profitable. Sales have been growing slightly the last 3 years and they had $82k in sales for 2013 with a Sellers Discretionary Earnings of $22k.
Lease is decent at 1300/mo for 1600 sq ft.

It is in a small suburb with the closest competitor 7 miles away and has a very good following. 800 repeat customers and 2,000 total.

My question is while it is very clean and I know many people that go there, the beds are older. They have the following;

(7) Puretan Impact 28 bulb 2001-2004 mfr date
(2) Puretan California 36 bulb with 3 facials 2000 mfr date
(2) Puretan Aruba 24 bulb (1 is a redlight therapy) 1999 mfr date
(1) Puretan Quantum Stand-up 52 bulb 160w/bulb 2006 mfr

It is the original owner and she is looking to semi-retire. I can buy the Salon for around $50k-$60k. Would be a great business for my wife and her specialty is marketing/advertising. The current owner does ZERO marketing. She says the younger people love the lower bulb beds due to the fact she offers fairly cheap packages for them.

Just not sure about the beds, although they always seem pretty busy.

Thoughts would be appreciated, Thanks!!!
There are a number of things to look at beyond what you have posted. This salon may or may not be worth asking price. With the proper questions this can be determined.

An 11 system salon should be doing a great deal more business than $82K, how much more can be determined by looking at a demographic report that I am happy to provide for you.

Now here are some more pressing issues. This is a very old salon with completely out dated equipment. The equipment mix will never allow you to generate substantial income. Being an old salon it surely does not have enough power or AC to make the appropriate equipment changes. The rooms are also not going to be large enough for the equipment you need. This can all be determined with the proper questions.

As is can this salon take you into the future? The answer is No, not without substantial changes. So you must determine if it is possible to make the changes at this location that are needed and what are the cost associated with those changes. That becomes part of the investment.

In short there is a whole lot more that you should take a close look at before you make any decisions. Being the only salon in the community is great but being a beat down old business is not great.

Make a smart decision. that will come by collecting a lot more information. People are not lined up to buy this salon so you have time to go about it correctly. The equipment has very little value if you are looking at an asset purchase. You have $38K in rent and owner payroll and there are a lot more expenses, so the salon is not showing a profit.

Lets get a closer look and see what the income potential is with restructure. After looking at this you can better determine if this is for you.
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