There are many methods for valuating a busiess. The same applies to a tanning salon. A certain multiple of sales or profit after taxes on a cash flow basis. It's harder to place a value on a salon that has been around a short period of time, let's say 1 or 2 years. It's difficult to establish what future revenues are going to be and this will affect estimates of cash flow profitability. The other thing you need to take ito account is discretionary expenditures. The former owner maybe charging a new car, spending too little on advertising or paying himself a healthy bonus. You would have to make the necessary adjustments to the bottom line to determie what the regular cashflow would be if you ran the salon.
The other method is net book value of the salon. What does the balance sheet show? What are the real assets of value. Deduct non-cash assets. Take into account the market value of the assets. In a bad economy, assets have less value because there are generally less buyers for businesses. Look at the condition of the
equipment and other fixed assets, that's where most of the value is. The other is the client list, but be careful. You might have a large unused tanning
liability that hasn't even been booked. The lease might have some value if rentals are going up and you are assuming a lease with small increases. That has value and you should take that into consideration. The same with the
equipment leases. Will you be assuming unpaid
equipment leases? Not recommended, but if you do, the
liability should be deducted from the market value of the
equipment. In most cases you can determie the true value of the assets using the pointers.
But look beyond the balance sheet and market value. What is a good location worth to you. If the salon is run down, but in a great vacation, you have a better chance of turning it around by sprucing up the salon, maybe adding some newer
equipment and promoting the salon to get more traffic.
Whatever you do take all factors into account.
11-02-2005, 01:19 PM
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