Hansel

First let me say i'm new here, and you have a great board! Second, I've read almost every thread and page on the newbie section BEFORE posting any question.

I'm looking at an existing salon for purchase. It has 8 beds, all tan america. Bulbs are brand new, beds seem a bit older. The facility is on a heavily traveled street that sees upwards of 70k cars PER DAY in a major metropolitan area. She claims to have 2,000 current members...4,000 inactive.

She is asking $120k. She claims her net is $64k per year, with gross sales of $118k. Her rent is $1395/mo. She is still on the card system, and her salon may need a fresh coat of paint and some new furniture. Rent is reasonable for the location at $10 per Sq ft.

I plan on: looking at her member cards, watching the location for a few days, looking at her utility bills ($500 per mo was the one I saw), and receipts and credit transactions. Regarding the "current members" some salon owners i've talked to seem to call current members people that have been in in 6 months, others call current members 2 years or less...which is acceptable?

Her net income seems like it will be hard to prove. Since they've hinted that she files for a "break even" on her tax return, i'm not expecting that to give me any indicator on performance. She has been in business 10 years. I suspect she is also over valuing her equipment. The tan america beds she has I priced out at $6,495 each IF you were to buy them new, but of course we need to account for depreciation.

SO, does this seem like it has potential? I personally think the price is a bit high, and that her salon will need updating as far as appearance goes, a computer system, etc.

She claims she is retiring.

Any other tips for evaluating this place?

engfant

Seems like it does to me. Seems like it could be bringing in at least $120K/year if run properly with the potential of over 200K with 8 beds. Also possible you could do 50K/year if incorrectly run.

tanu01

Sounds like a small store. Is there room to expand?
Bob

DWhite6872

uggg . tanuo1 that picture is driving me nuts.....anyway...you could build your own salon for that kind of money....120 gross and net 64k? Does she work there 80 hours a week? That is a great net percentage. Can you get financed on your own?

Ezliving_Jim

Her business has been operating "off the books" so there is absolutely nothing that she tells you that can be verified. So all you can do is give her a net asset valuation. She is selling assets, not a business. $120k is not even in the ballpark.
What is the cash liquidation value of the equipment? (Maybe $1200. each)
Of the "2000 active members", how many individuals tanned at least once March - August, 2004? How many tanned 5+ times?
How many sessions total March - August, 2004.
Have you read the lease? Is it acceptable or renegotiable?
What is the condition of the buildout? (Leasehold improvements are owned by the landlord, not her.)
Age and condition of HVAC? Available power?
Go any pictures you can post?
Maybe I would pay her $30k. Maybe, if I liked everything I saw.

Hansel

ROFLMAO@ $30k offer.

KnxTan

Jim has the right idea. You cannot evaluate a business that runs off the books. I would wait a month and offer 35-42,000. You don't know if any of those clients will tan there after you buy it.

JOLEE

I looked into purchasing a few existing salons in my area, and found that I could start my own with NEW equipment for the same amount or even less than what they were asking. I would consider looking into it on your own...she probably won't sell for a while. Out of the two I looked into about 2 years ago, one just up and closed, and the other is still trying to sell!

gripmarketing

Agree with these guys.

"She is asking $120k. She claims her net is $64k per" - If the $64k is a real EBDIT number (Earnings Before Interest Depreciation and Taxes), then she is asking a multiple of 1.88 of EBDIT when the going multiple in the industry is 2-3. The fact that verification of this EBDIT is not audited or even unaudited, but rather "off the books", then the multiple must be discounted heavily. Add in another discount for operating on cards with their attendant loss of control and lack of reliability to assess her business, and you're down to a multiple of less than 1.

Too many owners tell us that their purchase of an existing salon in this type of situation...the owner misrepresented the truth and the closing docs didn't reflect any of the misrepresentation because none of it was in writing.

Be very careful.

Ezliving_Jim

Hansel: go write her a check for $120K or whatever you think it's worth and let me know in a year if you are still laughing.

I am offering my experience. I bought a 12 unit salon 2 years ago. The owner also thought he was holding a winning lottery ticket; asking $175K.

There are many similarities in our scenarios. All level 1 beds; 8 years old; card system; off the books; main street; similar traffic; close to the same rent.

I paid less than $30K after renegotiating the lease.

Keep laughing, Hansel. It's your money. You're clueless!




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Jim.
Entrepreneur Extraordinaire since 1953

[ This Message was edited by: Ezliving_Jim on 2004-10-19 12:34 ]