E-Tan

I am in need of some help! I am currently looking at buying an established tanning salon and have some Numbers questions. The salon has been in business for 4 1/2 years. It's located in a high traffic strip mall, with 2400 square feet. There are 13 tanning beds, and plenty of room to add more. Most of the beds were purchased in 2002, with one that was purchased in 2003. My first question is: They say the salon does $125,000 in Gross sales, and that they bring home $60,000 in net income. Does this seem right? Also, they are currenly asking $100,000 as the purchase price. I thought that this seemed high. Can someone lend me some of there expertise? I really appreciate any feedback and help!!!!

sbtan

$60K net seems high unless rent is free. Cost out monthly: rent, electricity, payroll (don't forget to add your share of payroll expenses), insurance, phone, gas, software support, equipment maintainance (bulbs, etc), store maintainance (cleaning, paper products, etc), office supplies (paper, printing supplies, etc) and if any loan repayment. 4.5 years, customer base better be 5K+.

sbtanning

$125K in gross sales and taking home $60K, that definitely does not seem right to me. What are their expenses? You should be able to see utility bills, rent, phone, insurance etc. Start figuring this out for yourself. If you purchased the salon for $100K what would your expenses be? How would you finance it? What would that payment be? Unless this salon is paid for, the owners are running it, and rent is cheap, I would have a hard time believing the figures you were given. They should be able to provide you with 4 years of tax returns to back up their numbers.

sbtan

Husband and wife looking and thinking the say way at the same time!

JeffinKC

Have you seen tax returns? That will give you a much better picture of how they are doing. If they won't show you those I would walk away.

sizzlestan

Tax returns and actual bank statements is what you need to see. Tell them you will sign a confidentiality agreement and a non-competition clause to view these documents. If they wont show them, then run and run FAST.

studio 102

Asking price should never be close to gross...rather less, like 75K.
When buying, the most valuable asset is the client base. Is it active? % of current tanners.etc. Beds are worthless if clients not active. Is the salon on computer? Look at client history. How many tanned in/out season. Call Power company, ask for record of highest mont bill, lowest bill. Do they seem to be in par with the seasons?. A big bill generates many tanners. Product sales high in/out season. No sales means nobody entering the salon. Many clues to look at. Don't be impressed by #'s they hand you..anyone could put any figure on anything for sale.
What state are you in? If you go to this site, it is FREE, you may find salons for sale in your area. This would give you an idea on price/value. www.salonsforsale.com

You did not mention what kind of equipment, it all depreciates faster than a new car. 2002 beds are old in this fast tech industry. How many hours on the beds gives an indication of use as well..another clue. Also, # lamp changes over the kast 2 years. A good salon, would have changed those lamps at least twice by now.
Offer 75k..and stand firm!

movieking

IMO the only way to value a business is to know the cash flow for the past 24 months. Not only do you need to know the cash flow after all expenses for the last year but you need to know if the salon is trending up or down fron the previous year. After you know the previous 12 monthss cash flow you can add or subtract the amount the store is trending. Be sure to calculate ALL expenses associated with the salon including payroll for yourself or a manager. I would bet that the $60k you were told did not take into account the hours the owner worked.

Example:
+120,000 sales
-75,000 expenses (do not include your loan payments or leases on equipment)
=45,000 cash flow
-12,000 salon trending 10% down from previous year
=33,000 expected cash flow if the salon continued on it's present course for the next year

Based on this you should be able to purchase this salon for 2 to 3 times expected cash flow

If the salon is trending down you will have to spend alot of money on marketing as well as possibly purchasing some new equipment. Be sure to take this into account because getting guests back is hard to do and expensive. The current owner will have to accept this fact when you make an offer to him.


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[ This Message was edited by: movieking on 2004-09-17 08:12 ]

anna_tanna

What is the total value of the equipment and contents? I'm thinking the sale price should be between $50K and $75K and $75 is high. The present owners may still owe an awful lot and their first concern is to pay off what they owe without going into another slow season and racking up more bills. Good luck with it all!

TanningEmporium

Seems the net is high, (no, you wont get rich owning a tanning salon) the asking price based on what you tell us, actually is not bad.
I would ask for bank statements and tax returns and ask for a income statement for each year. You would also want to know how many clients are actually active, not how many are in the system.