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As asked a few times I am sure, I would like some feedback as to a realistic price I should offer to purchase the following salon: (Expenses itemized under "are these numbers typical?" posting)

Has been in business for 5 years. They have a data base of 13,500 customers. Close to big campus, town of 150,000. No others within 2 miles. I am unware of "active" tanners within the last year for the time being. This is a question I will be asking. But I own a gym next door and see they have consistent traffic. They have 16 beds. (4 ETS Solaris 42, 4 ETS Sun Star Zx30, 6 ETS Sunvision Pro 28LE, 2 ETS Sundome XL 48, 1 Magic Tan sunless spray booth) All the beds are 5 years old, except 2 Sun Star's, 1 Sunvision, and the Magic which are 3 years old. Use Helios software with a TMax controller. Interior needs some remodel (10,000 maybe) Onsite laundry.

Tax returns show income of 209,000 and 207,000 for last two years. Expenes are 182,022.00 per owner-need to be verified. Of that 182,022.00 38,890 is paid to owners. My calculation shows 64,000 cash flow.

Additonal note: Due to the physical arrangement of my gym and their salon I will be able to use my staff to run the salon and get rid of a majority of their payroll expenses.

In general conversation the owner is throwing around a price of 325,000.00 but we have yet to negotiate officially.

Please help, brokers here haven't dealt with tanning specific deal. FYI.. I do have a CPA and Lawyer involved.

Mama Tan

I think that is extrememly high for an asking price. You could build a brand new gym/tanning salon down the road for that much and own the building! You even said yourself there's no competition within a 2 mile radius........then you would have all new equipment also.........those 5 year old beds aren't going to last more than a few more years if you're lucky........so you'd have to replace soon anyway.

TheBeachStop

Based on the returns, your CPA will find out why they aren't making ("showing") total revenue. You obviously know business and this would compliment very nicely. You have a tremendous opportunity here. A client list that large for 5 years is pretty significant. Our numbers are similar but we have about 1/2 the equipment and do retail also. For 5 years and those client numbers and that gross revenue, what are they doing? It sounds like a price war situation here or a lot of cheap tans. If in fact you can pull about $60-70k out (which sounds even low for what it should be doing based on my location), 3 to 5 times net is not unreasonable. Location, state, weather, competition, etc. all play a part here. If the owner is stating $39k net, at 4x net you could easily offer $160k. It may be worth $325k, but not all the factors are known here.

My take on this is the expenses appear inflated as *stuff* is carried by the company that probably should not be. The gross could be higher with better marketing and pricing. The equipment, although older, can be a great work horse for you if you clean them up, perhaps paint them to match the new interior scheme and put new lamps in them. There are a lot of old cars out there performing very well in car shows. Your *older* beds can just as easily be restored to factory new. If not, dump it for new. Don't have to do it all at once now, do you? Seriously, if you have the cash flow and can afford to purchase this asset and maintain it, you've got a real winner situation. Good luck and let us know how well it goes.

sunsally

See my other post re costs. I wouldn't "take out" the amount of $$ paid to owners as I believe that is actually for "time spent" working the salon. If you would not PERSONALLY be able to do those hours (with your gym commitment), plan on still paying that to someone else to run the salon. Ditto my other "missing costs". In the end, I anticipate the cash flow, at the moment, to be not much over break-even if it were "run right" (advertising, proper lamp changes,...)

IF you can really use your gym personnel - that would be great! Open the same hours? You have gym personnel that are "on hand" now that would be available to clean beds promptly (or have someone extra around for this). Ones that could leave the desk to offer tours of the salon for new customers? Could check in gym customers, tanning customers, answer both phone lines, run laundry loads, clean, etc? If so - makes me think you must have a bunch of gym staff paid to just sit around right now! So seriously - they might be able to "span" both areas, but realistically, I'd guess you will still need "extra" around much of the time (busy season, busy times of day) but indeed could cut the "babysitter" hours when the salon is open but with little/no traffic. I have a salon client that does just this in MI - gyms and tanning are nice complements.

My biggest concern about this opportunity from what you've shared? Low revenues are a function of the equipment - this is too low end. 28 and 30 lamp units are more "home grade" than commercial anymore in almost any market. That means you can't charge as much, so no matter HOW great the traffic flow/client counts, your max profit is severely limited.

The asking price is currently WAY too high for what you would be getting. A "build out" that belongs to the landlord and you say needs work. 3-5 yr old equipment that is among the "cheapest" you can buy in the industry. If you had to sell this used, MIGHT get 50K, plus the spray booth. Their customer base, while impressive, is likely VERY similar to your own since you are next door and probably share pretty similar client demographics.

That said - could you turn it into a goldmine? Absolutely! Pay MUCH less than they are asking, make sure you have enough electric and air (or add) to switch out equipment for higher end (more profitable) units and when remodeling make rooms to accomodate this.

I'd have to look at the specific numbers for the salon to say for SURE, but one scenario I could clearly see would be dumping most (all?) of the 28 unit beds, keeping the 30 lamp as your "base beds" (they don't have facials, do they?) and adding equipment better than the current "top end", including maybe even High Pressure if your market would support it. IF this could work - you could be talking about investing another 100K in equipment, but seeing the max revenues jump MUCH higher with the "costs" remaining about the same, other than the new equipment loans/leases. But - that 100K I would invest in equipment would be INSTEAD of paying them 100K so a wash if you think about it that way.

I'm with The Beach Stop - without more info, MAYBE 150K, but I couldn't see anymore than that, and 100K would be more like it. With another 100K invested you now have an established, high-end profitability salon located right next to your gym which will allow natural cross-promotions and joint advertising. Both very seasonal, so hang onto your pennies for the Fall (!), but the location alone certainly makes it a better "investment" than building one from scratch down the street.

PM me with any questions - sounds like an interesting opportunity!

ramcat

I'll repeat what I said in another post. Purchasing an existing salon takes research. The equipment is valued at 1/2 to 1/3 of the original cost. The data base has a value depending upon the type of tanners.

You already see that you can reduce the payroll, but that is only one area. You've stated that you need to spend $10K in a re-do. I'd hold off on new equipment until you see what the salon is doing. However, the most important thing to do now is to do research before you sign on that dotted line.

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Sunsally: We are able to "take out" the owner's compensation from the expenses due to the fact neither of them work any hours at the desk. These payments are just out of cash flow in addition to their regular payroll. We do plan on using our current gym personnel and staying open the same hours for both gym and tanning. We will have a centralized FD checkin for both. We have seperate sales staff for gym that would still allow the FD to be available to check in tanners and clean beds during slow time. We have budgeted in an additional person during the busy season to help strictly with the tanning operations. Gym checkins are pretty self sufficient unless the FD needs to talk with a bad account etc. I think the staff could handle the phones, and we (owners) would be around to handle laundry, etc. if it gets real busy.

On revenues: they don't do any advertising and have built the business on location/word of mouth up to this point, so with some addtional advertising piggyback on my current marketing budget wouldn't add any cost and bring in more revenue. Also, they are priced pretty low from what I can tell... 4.00 per tan or of course packages with a 1 month being 30.00. They don't have levels of tanning, customer can use any bed for same pricing. We could raise the prices .25 cents and get an extra 12,000 to the revenues. We do plan to upgrade to different beds and offer levels down the road to open up the max revenue possiblity. We have budgeted out 20,000 for improvments per year after a year as is. We also hope to increase revenue without much cost due to the extra hours we will be open, and extra 6 per day, by getting more tans in per day.

1st, I agree the price he is asking is high. To explain it however, he is taking his profit (after giving up a portion of his space which is unused but paying rent on currently) to be 65,000 and using a multiple of 5. I am trying to get him to agree to a lower multiple for valuation.

Customer base crossover has been looked at and will only account for about 100 clients. A lot of our members go elsewhere because the current staff of the tanning salon has bad customer skills. I think we can increase the number of gym members that tan if we take it over and can get a lot on EFT by adding it in their membership dues. We may also reaquire old clients simply by advertising under new ownership.

Yes the 30 lamp beds have facials as do the 42's, the 28's don't.

West Side Tanner

So.....how is it going?

A Salon Near You

____3x net is standard and I would say tanning salons get 1.75x net. _____________
[ This Message was edited by: A Salon Near You on 2005-09-05 21:27 ]

West Side Tanner

Maybe in your area.

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An update for West Side Tanner and anyone else interested. We have negotiated the price down to 200,000.00. We still feel it is higher then anyone who doesn't have the payroll and cross promotion capability would pay, but have bitten the bullet and signed a contract to close on the 15th of this month. I will be a tanning salon owner!! Wish my team luck. Thanks for everyones feedback to this point.