sunvelocity128

I have the chance at another business opportunity,something that I have wanted to do for many years..Anyway to do so I will have to put my salon up for sale.Question,how do I figure the value of my salon & a asking price.I know what I would like but this doesnot mean I can get it,or I also dont want to sell myself short.I just got off the phone w/the real estate agent & she told me its 50% of my equipment cost,plus profit.Thanks

engfant

so my tanning salon is worth about $14. That's good news.

First off. If you are a sole proprietorship then PROFIT is gunna mean NOTHING. If my SALON revenues $100K/year (I wish) and my expenses INCLUDING PERSONAL (gotta pay those too) turn out to be $150K/year due to $700/month car payments, etc then the salon is worth nothing? If I then sold my salon for -$50K (actually -$40K for the value of the equip) to my rich friend and maintains the same revenue and only has $50K in expenses, the salon's value went UP $90K? What the ****? Did I F up somewhere or is this not what that person told you.
ANYONE that gives you such a simple answer for such a complicated question is a fool.

tanu01

There is no real way to put a set value on a salon.Manf. make it way to easy for anyone to open a salon.
According to my accountant my store is worth over 200 thousand. I say that even though none of my equipment is more than 4 years old,and we gross 250thous,I'd be lucky to get 100thous. for it.
4 years there were over 8 independent salons in mansfield Oh. A chain out of Cleveland wanted to buy them out.
None of them would sell.
The chain opened stores across the street from all of them,What are those 8 stores worth now? NOTHING. They all folded.
Flick

gripmarketing

Your salon is worth only what a buyer will pay for it.

How to determine a starting dialogue point for purchase value? Calculate your EBDIT (Earnings Before Depreciation, Interest and Taxes) (pronounced "EeeB-Dit") and multiply it times the going "multiple" for the tanning industry of 2-3 and voila!

The multiple is increased or discounted based on age of equipment, location, Lifetime Value number, competition nearby, and I could go on - but you get the picture. The multiple is how many years you would make the same earnings by keeping the salon. The multiple is also how many years the buyer would have to keep the salon at the same earnings level to make back the original investment. Both buyer and seller have risks.

A deal gets done when the seller feels he is giving away the salon and the buyer feels he is paying too much.

tanu01

WOW, MY SALONS WORTH OVER 2MIL WITH OUT ANY POSTCARDS!
Flick

sunvelocity128

gripmarketing~Thank you..This is similar to what I have read,actually your way is to the point.I thought it was times 4 or 5 for the return?My accountant said this to.My salon is the only salon in town within 10-15 mile radius,it has great parking w/great road frontage(main road),besides the fact that I started it almost 4 years ago.We put alot of sweat & time into it,so the real estate's way of valueing my business just didnot feel fair.Thank you for the reply..

tanu01

Thats cool,truths not allowed now. Ok, you own a small hardware store,The home depot opens a block away,How much is your store worht?
Flick

tanu01

Gary's post would be 100% correct in any bussiness except in tanning. Its whole diff story.
Gary sorry you felt you needed to delete my post because I never used postcards.
Flick

fan

Here a tanning business valuation method written by Bruce Schoenfelder (I simply copied and pasted here for everyones benefit). I believe that this method is very fair and takes some of the subjectivity out of valuation. However, as has been said above, in the end the business is only worth what someone will pay for it.

"There comes a day, eventually, when all your hard work, the sweat, the time, the money invested in opening, operating, and running your tanning salon has to end. You need to sell; either age, health, or other circumstances intervenes, or just the desire for more time for yourself becomes your goal.
So, what is your tanning salon really worth?

Most likely less than you think, unfortunately.

The key here is to understand what you have to sell, and what the buyer wants to buy. Essentially, the buyer is buying:

First: the customer base, repeat tanners and the income they can reasonably be expected to produce NEXT year. Customer acquisition and confidence costs money, you have invested that money in the past, the new buyer will automatically have a customer base in place that he can count on to market products to. I would value my customer base at $10 per tanner who has tanned with me in the past 6 months. Some will be steadies, there every month, others seasonal in nature. Those customers who have tanned in the past 24 months, but not in the past 6 months are worth $3 per name.

Secondly: the lease. A favorable lease is worth money, and unfavorable one can spoil the deal, and make the salon worthless. Favorable conditions are a below market rate, unusual landlord concessions, and a long remaining term, or unclaimed lease extension options. Unfavorable terms are above market rental rates, high CAM charges, deferred maintenance on the building, poor parking, a poor mix of tenants in the location you share, etc.

Third: the depreciated value of the beds and equipment. Tanning beds are machines, they wear out, they become obsolete, they even ugly out with age. I would value your beds at ½ of what you paid [not the list price] if they are under three years old, 1/3 of what you paid if over that. Unfortunately they don't appreciate, but most buyers won't value the beds highly, since many will want to upgrade the beds shortly after purchasing your salon to attract and excite new customers.

Your computers and furniture are worth 1/4 of the cost new.

Your buildout cost for construction, A/C are worth around 1/2 the cost your paid for the work and equipment regardless of the age of the salon.

Fourth: The potential cash flow of the salon. If you can document the income and expenses of the salon, it is better. If you tell the buyer that the salon made more money than you have documentation for he will discount your statements. I would estimate that the "cash flow" of a standard salon is around 20-30% of the gross annual income. A buyer will usually pay around one year's cash flow to obtain the income stream.

So, let's look at how a normal salon might price out.

Facts:

Beds: 7 standard 20 minute beds 5 years old cost new $4,000 ea.
Beds: 1 VHR w/facials 12 minute bed 2 years old cost new $14,000
Customer base: 3,000 of which 900 have tanned in last 6 mo and another 900 have tanned within a year.
Size of salon: 1,000 square feet, cost of build out $25,000, age of salon 5 years.
Computers and furniture cost new: $7,000
Last years documented gross sales: $150,000
Using our basic formula this salon would have a "value" of approximately $95,000 to a normal buyer. This may seem low to you, but consider that a buyer could sign a lease in another location and buy used equipment and be in business for less than you ask for. If you want CASH now, decrease the above by 20%. Cash buyers for tanning salons are rare, this is not a highly liquid market, and most with cash don't want to be in the health business with our seasonal fluctuations. If you "finance" the buyer by agreeing to carry back "paper" you will get more, suggest 30% down, and the balance over three years at 12% interest to maximize your potential yield. Suggest you DEMAND collateral such as his home or other assets to secure your interest and secure prompt payment as the note securing the salon demands. Make sure you engage a competent attorney to represent you in drafting the paperwork for the sale. Don't believe your salon is worth much more than this, or you will be disappointed and discouraged. Reality is the key to selling, and securing top dollar. Remember: the more flexible YOU are the more you get for the sale, and the greater the risk you take in selling for the increased price of the salon. Trust me, 25 years of commercial real estate work makes me THE source for valuations...and of REALITY. You see the sale in terms of what you have invested, but remember the buyer is terrified you are lying to him about everything. Both sides should have a good attorney, and you need a good accountant."

gripmarketing

sunvelocity128

“I thought it was times 4 or 5 for the return?My accountant said this to.” Accountants won’t know and can only guess with limited experience – business brokers do. There is no standard – only the going “rate” for an industry – which according to some very reliable business brokers we know is a 2-3 multiple.

If you can increase the multiple and get it from a buyer, great! Good luck.