Follow-up to Buying a Salon (Opinions? thread)

[RCKnep3]

Well I have the financials and it does seem like everything is as stated. The sales show about $50k in sales for 2007 and 2006. They said there is also about 11k additional both years which was never reported (cash) and have documention, it was simply paid out direcly for payroll. I know that does go on, though I have no plans to continue if I purchase. Their total expenses work out to about $1900/mth + payroll to cover 70 hours per week. During that time they were open 11 months each year, closing the month before college starts. During the school year they are open M-F 10am-9pm and Sat 11-5. There was little lotion sales. There is also about 600 sq ft of empty space which was set up for nails and could be easily set up for hair with just a chair. 4 Prosun Lumina A (2005) and a 2006 Solaris 442, All decor, Computer system with quickbooks, Tmax system, Desk,Display, Massage table, Little inventory (they do lotion on a consignment plan with current vendor), 3 ac units, Washer Dryer.

Everyone states 2-2.5 times net profit. They extremely overpaid to refurnish the salon at startup and bought everything brand new in 2005 (over 70k). Looking over the returns for 2006 (2007 is not completed yet) they show a net profit of just $5000 due to depriciation. The P&L shows him earning $14,000 after all expenses. 2007 shows he should be slightly higher. Is 2-2.5 based on net profit before or after depriciation? He was asking $50k and said there was another buyer (doubtful). At those figures I said I felt he had a great company and did a great job building it, but felt it was more $ than I could risk and I would look for a cheaper investment in the $30-35k range. His response that he would be willing to consider $35k but to let him know what I felt was reasonable. He had been willing to finance $25k of the $50k. I could probably get him to agree to $30k by paying him everything. He's a nice kid who opened this up right out of college, refinished to a level higher than needed, and has since started another company that makes alot more than this business and realized that he can't deal with both (He might even need this capital for the other business as he mentioned expanding).

A long (but probably my last on here unless I go through with the purchase) message, but any final thoughts on this?