gripmarketing

Jim, after having owned the biz for a while now, how close to accurate was the original representation the previous owner made in their sales pitch to you?

tanu01

I do not believe you can price on what a salon takes in. In most cases all your getting is the build out,and everyone that I have ever looked needed rebuilt.
Bob

Ezliving_Jim

Gary, nothing added up. Very little passed the smell test. He told me that the numbers he gave to his accountant were baloney. It was the most honest statement he made. Getting specifics from him was like getting teeth pulled without anesthetic. Employees were paid under the table.

I projected # of sessions on the tanning beds by personally checking the hours on the timers and forcing sessions numbers backwards over 8 years (that was the biggest clue.) I saw a couple electric bills. I saw a couple credit card statements. I went through thousands of cards to come up with some raw data. The interior and tanning beds were in excellant shape for an 8 year old operation. I talked to the landlord and was told of late rent payment history. There was no retail lotion business to speak of. I assumed a worst case scenario and I wasn't disappointed. It was a pure asset based purchase. IMHO, leasehold improvements are owned by the landlord, not the "business", and I did not factor them into my offer to purchase. I did not buy his corp. The lease was renegotiated. My attorney drew up the buy/sell agreement to my terms and specifications and performed the closing.

I wrote a pure startup business plan as if there was zero business history going in. I knew going in that I was buying assets and not a business. Today, it's a business. The price I paid for the assets was, I believe, fair.

I would do it again and, honestly, not do too much differently. In fact, I am looking for another distressed property to buy.

I understand that, as a new small business, one is allowed to make only a very limited number of small mistakes and no large ones.


_________________
Support the PTAF.

Jim.
Entrepreneur Extraordinaire since 1953



[ This Message was edited by: Ezliving_Jim on 2004-10-19 17:04 ][ This Message was edited by: Ezliving_Jim on 2004-10-19 19:34 ]

engfant

you know Jim, it REALLY peeES ME OFF when you start to make sense. I say if you make ANYTHING on the sale of your salon you should be happy. Everyone thinks they have "the winning ticket" (dam you jim) when in reality they have a WHOLE LOT of sentimental value that isn't worth SQUAT.

The ONLY way to make the real money is to know your clientelle and find someone that KNOWS that the place is worth what you are asking. I'm SURE we ALL have at least ONE customer that would DIE to have your salon and would probably pay anything you want.

Also, time of season you are selling SHOULD make a difference also.

Them coming up with the money is a different story.

tanu01

Very well said engfant.
Bob

Hansel

EzlivingJim

Let me explain why I was laughing above; the owner of the salon is a real firecracker. I can just see me offering $30k and her pulling out her mace, lol. You guys are right, owners have a real "sentimental" value attached and think their business is worth more than it is.

I'm here for advice, not to offend anyone. fyi, I certainly was NOT going to offer her anywhere in the ballpark of $120k! She is valuing her FF+E at $70k, which is way inflated! I'm getting a lot of good advice from you guys, keep it coming.

JohnnyComeLately

120 did sound a bit much. We're buying one in that ballpark, but they have mid and upper level beds and almost twice as many total. Add to that its in Southern California (San Diego) where the cost of everthing is higher (most expensive city to buy a home now, from what the papers say).

I'd agree with Jim. Plus, remember that when you buy a business the seller AND buyer each fill out a form that spells out the different types of assets being sold, and their value. They have to match somewhat, but more importantly, it shows you exactly how they evaluated the price. You then put everything on the books at those values, and the seller pays taxes. So if the seller values the beds at what he paid new, that's what you enter it into your books with (and start over on the depreciation tables).

Here's what we did:
Shopped the industry for the area. What are similar salons going for in the area? You'll never get an apples to apples comparison, but it gives you an idea. Approach and show some interest. They'll give some simple spreadsheets (which are about as good as pixie dust....a fantasy). If they pass the smell test, ask to go the next level and look at past 3 years taxes and books. I know you can't do this though. We took the lease, purchase agreement, etc to a lawyer and the books to a CPA. They won't make the decisions for you but will give good advice and an objective third party view. There's more to it, but this gives a good overview.

I don't know if this is the best way, since we're still in the midst of purchasing, but this is how we've approached it.

gripmarketing

Engant:

"you know Jim, it REALLY peeES ME OFF when you start to make sense." LOL!!!

engfant

There are some areas (like mine) that are so regulated that just getting a spot in town is worth more than the equipment.

Sherin

I did the same...When we started actually pricing out the equipment, I knew I could do better from scratch...They wanted too much for used out-dated equipment.