Negotiating an Existing Salon???

[yohan12]

I am new to the forum. Hello everyone. I am about to put an offer on an existing tanning salon. I have read and reread lots of threads and information regarding an existing tanning salon. I am awaiting answers to several questions from the owner. In the meantime, I was hoping for some help with my negotiations. Now, the salon is in good shape, has been in business for 20 years and the owner is selling b/c she is a millionare and is a real estate agent and doesn't need the salon anymore. They are asking $89,000 for the salon. It is approximately 1250 sq feet and in good condition. There are 10 tanning rooms. The base beds are old but the bulbs are fairly new. Ideally I would want to rip up the flooring, replace 4 base beds, the stand up bed and put in a satellite music system. I believe the salon would do a lot better with these improvements. Now based on the price and what I need to remodel, should I negotiate the asking price?? The salon is in a great area and is the only salon for 20 miles or so and out here in Southern California, that is hard to come by. Any thoughts from existing owners?? Thanks for reading.

[RR@TT]

what are they grossing per year...? lease terms? cam charges,lease options..versus rent increase...(sorta small place) parking good? new salons opening up nearby? (do you know) why are they selling.....truth is sometimes hidden.
Don't be so anxious....season is going out..... JUST SO MANY QUESTIONS TO BE ANSWERED......if it looks too good to be TRUE... then something is hiding from you....two main things......what is the GROSS.....VERSUS .....operating expenses......plus.....will the lease remain the same.....and for how long? GET IT IN WRITING...

[yohan12]

Thanks for the advice. I have all those questions out to the owner right now. Being that we are out here in southern California, statistically the season never ends. Tanning out here is all year round so I'm not too worried about that. I appreciate your thoughts and I will post the answers after I receive them and then we can talk about negotiations. Thanks

[Ezliving_Jim]

Do you have a business plan?

How many amps in the panel?

[glo]

This sounds like my situation!! I'd want to know gross -vs- net, owner working how many hours, how many employees, etc. I'd base my offer on the net of the last year or 2. I'd offer somewhere between the yearly net and double the yearly net... if the shop nets $40,000 I'd offer $59,000, something like that. (but that is based on ME being a Realtor, and my wanting to buy a shop myself.=-) PS I'm on the other coast.

[yohan12]

HERE WERE MY QUESTIONS TO THE BROKER AND HERE ARE THE ANSWERS> ANY SUGGESTIONS????

) Is title to the assets free and clear? Are there any leases on the equipment?2) How many clients are there? What is the average membership? What is the liabilitly for unused tanning packages?
3) Who is, if anyone , the major competitors?
4) Can we obtain a copy of the lease? Will the existing lease be assumed?
5) What are the competitive advantages of the salon? Weaknesses?
6) Is the owner selling only because she is absent from the salon?
7) Will the owner provide historical financial statements, copies of tax returns to verify the salons sales and earnings?
8) What are the adjusted earnings of the salon after eliminating discretionary expenses or liabilities?

Thanks again,

May 3, 2006



She is getting those to me. I can answer most.
1. All free and clear
2.
3. No one. This is only salon in East Escondido. Others are West.
4. You will need new Lease. I have letter from Landlord granting new 3 year lease at $1,920 base plus triple nets.
5. Well established. Over 2000 customers in data base.
6. Retiring. Also, doesn't want to enter into new long-tern lease. Lives in
7. Yes. I already have 2003, 2004 Tax returns. 2005 P&L shows average monthly gross about $10,000+ a month. Needs more active owner and advertising.
8. Adding back owners' daughter's salary of $37,000, it shows $55,000+ in net to owner operator. With advertising, should be able to bring gross revenue back up to 2003-1004 levels of $14K-$16K month. Mostly profit.

I am expecting offer from other prospect soon.

Hope this helps.

[glo]

I'm no expert, but it sounds good to me. And I guessed right about the asking price, it is aprox yearly net + a half. I always start biddings about 10g less than I'd like to pay, (that's your 'remodeling' money) but make sure you let the broker know you're willing to go up in the case of competitive bids.
But, like I said, I'm no expert...

[Ezliving_Jim]

...but make sure you let the broker know you're willing to go up in the case of competitive bids.

Really a smart strategy. Not.

The broker represents the best interests of the seller.

Never negotiate through a broker. Always negotiate directly with the owner.

[glo]

Of course you are right, Jim. I'm in Realtor mode... thinking about houses, not businesses!! In houses, that's how I do it. But you're right... if you aren't represented, you don't have that luxury.....

[yohan12]

How do I bypass the broker to negotiate with the owner? So far all the contact has been between myself and the broker. He is a lawyer and a broker. He offered me 50% off if I decide to set up corporation for the business. How do you feel about all of that?? Thanks for your posts everyone.

[yohan12]

When approaching the whole loan process, I am deciphering whether or not I should get a home equity loan or get a small business loan. I have over $200,000 equity in my home so I could easily get 100,000 or should I proceed with a small business loan. I was told that the owner would rather negotiate with someone who has the money on the table, e.j. home equity. What are your thoughts? I don't have any cash to post up b/c of our recent home purchase.

[glo]

Yohan, I'm not sure about biz brokering or what the laws are in CA but as a Realtor in PA, it isn't considered ethical (I think its actually illegal) to bundle services like that broker is offering. Am I understanding you correctly that he'll discount his attorney service if you buy the biz thru him? Maybe I misunderstand...

And I am also curious as to negotiating with the owner. The owner of the shop I want to buy never returned my calls or messages. I had to dig and dig to find the listing at all. I gave a very low offer (verbally) at first and the biz brokers told me what number would probably get me the shop (more than 2x my 1st offer, but still about half asking price.)

Good luck to you too!! Curious to see how both our deals turn out!

[Ezliving_Jim]

yohan12, the broker doesn't pass the smell test. Beware.

Get a message to the seller that you will either negotiate directly or walk away. Use your own attorney, not the seller's or the broker.

Remember, it is a Buyer's Market. The only decision the seller has is to say "yes" or "no".

Home equity loan will be easier to get than a business loan. That's good and bad. The bad part is the decision to buy the place is all your's and you have no experience.

[yohan12]

Thanks for the advice. I do have an attorney /accountant that is going to deal with the broker today. Now why do you say that the broker doesn't pass the small test? Do you think he is shady? My friend is going to be my manager and her step father is a lawyer and an accountant so he is going to speak with the broker directly. Our plan is to make an offer subject to due diligence. He told me I would have 15 days to pull out. WHat do you think about that? Thanks again for the pointers. Did you look at all the figures I gave you???


yohan

[glo]

Don't you think its a little shady for an attorney to offfer a "half-price" deal? IMHO is is NOT ETHICAL to try to coerce you into buying one product in one industry by offering you a discount on another product in another industry. To me, this is like those TV offers where you buy one piece of junk and get a second for 'free,' but only if you pay a super-inflated shipping & handling.
How do you feel about that? Maybe I am misunderstanding this situation?
Anyhoo, this doesn't mean, as Jim says, that you shouldn't deal with him at all. If the owners won't deal with you (and they prob. won't as thei trust at this point prob. lies with the broker) and you have your heart set on this deal, and your FIL says its a smart move, well then you don't have a lot of choice! Maybe Jim has some experience with this and can tell you how to do it? (I'm learning so much from Jim!!)
I wouldn't let him set up the corp. for ME tho.

[glo]

Yohan, any updates???