JulieBates

I have the opportunity to purchase an existing salon which does approximately 180k gross sales. It's been in business for 17 years in a great location and they recently purchased equipment as follows: Purchased in 1996...1 Puretan VHR 24 lamp 10 min bed, 3 Puretan 24 lamp 12/15 min bed, 2 VHR SunCapsules 48 lamp (1 min). Purchased in 2001 1 Starship SunCapsule 50 lamp (8 min);1 Sunstar 32 lamp 3 HP face; 2 Sunvision pro 28LE 28 lamp (20 min) purchased in 2000, and 2 HP facial tanners (20 min) in 1989. His net income is $110,000. The salon did 32,000 sessions in 2002. Salon is located in highly-populated residental area with the closest competition 5 miles away. He's asking $220,000...does that seem high. What is a rule of thumb. I'm interested, but don't want to insult the guy by coming in with too low of an offer. What's a good offer?

Rich

I wonder how he grossed 180K and netted 110K. Think about it, all of his overhead only ran 70K a year? That dog don't hunt.

tanu01

If you have 220,000 you be better off starting new. With new equipment.

JulieBates

Do you have a salon, did you purchase existing or start new? My concern is that starting new, I'd have to find a site, develop a customer base, etc. when this opportunity seems pretty much turn-key. And I guess I'm wondering how much is the customer list really worth, what am I really paying $220,000 for? And, just curious, why do you think it's not possible to net $110,000 with $180,000 gross.

redhot

Does he want you to pay cash? If you can swing it with all cash, you may get him to come down on the price. I would just try and make an offer and see what happens. It'll start the negotiating process. Does he have a broker? Ask the broker if he has lowered the price since it's been on the market. Try offering him 15% off - $187,000, and go from there. He might say "maybe" - but then you can find something non-money to bargin with.
Is there anything about the salon that is in need of repair? Anything that you would want to change right away - he could go lower and then give you an allowance for the changes.
How much debt does he want you to assume? Are there any leases outstanding? How much of the asking price is he allowing for "inventory"? That number may go down at the time of purchase - you'll have to get a current, accurate inventory of all retail items.
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1% of the people cause 99% of the problems![ This Message was edited by: redhot on 2003-03-12 16:09 ]

Rich

The reason I don't think he can net the kind of money he is talking about is simple. Have him give you a copy of his income statement. If he is grossing 180K he has to be paying rent, utilities, insurance, supplies, payroll for himself and staff, debt service, interest, advertising and such. There is no way in the world he is running a 180K a year salon on 6K a month in overhead. His payroll alone would be in the 2-3K a month range. Get a complete P&L and have it evaluated by someone who knows what they are doing. I have bought businesses before and the owners told me that they had complete records. They literally pulled out a big chief notebook and had hand written entries on it. Nothing of substance at all. They also told me they owed nothing in bills and in fact we ended up having to escrow over 80% of the purchase price for outstanding bills and unpaid sales tax that I would have been liable for. I would recommend that you hire an accountant and lawyer to help you with this, that would be the best money you ever spent.

Rich

The best thing to do also is to have the person show you a copy of their tax return for the salon. Nobody is going to inflate the profit figure for the IRS. Again though, a tax return can be hard to understand if you do not understand all of the ins and outs of it. As my college accounting teachers used to say, "Every year we use the same questions, we just change the answers"