Purchasing a salon.....questions

[ThatGuy]

Ok, im looking at a 1900 sq. ft. salon with 11 beds (9 base, 2 vhrs) and a cal tan spray. Here is the info i know so far:
Was remodeled in 2006, new floors paint, fixtures.
Has an expresso bar in the lobby which i would be getting rid of for extra lounge space or possibly an extra room.
.Claims to have grossed 181k and netted 30k in 06'.
Expenses were high because of the remodel.
.Has 5 employees, all part time. Owner is an absentee
.3800 monthly rent, 5 year renewable
.10 tons of a/c, 400 amp 3 phase electrical
.8000+ clients in database, not sure how many are active.
.On a very busy main road, maybe a block away from a very large mall.
I am getting copies of tax returns and a breakdown of their expenses in a few days to look over with my cpa. My question is, if the numbers they gave me do check out, would it be worth buying? It is mostly a base bed salon, more than half of them are pretty old. The asking price is 70K. I would have to buy newer bigger beds and also convert the rooms to accomodate them, so im thinking her price is too high. I would let go of half the employees and work there full time, so that would save me a fairly large amount of $$$. What do you think?

[sunsally]

Good questions!

A few thoughts:

1. Don't think of it as "saving" lots of money to work there yourself. You have to put a "value" on your time. Plus - you probably have personal bills to pay too! Keep the payroll number as is - in your calculations - to see if this makes sense. Yes - you MAY be able to skip paying yourself one month to pay the electric bill instead, but that is as issue of cash flow, not extra "profit".

2. When in doubt - extra space should be extra revenue producing rooms! Not expresso bar, not lounge space!

3. Look carefully at the expenses to separate the "remodel" from typical. 3800 rent on 1900 s.f. is not cheap. Rule of thumb -- I'm guessing your "normal" yearly expenses (withOUT the equip and/or loan payments you might now be taking on) would be $144-160K. So his "report" of 181K with 30K net could be pretty accurate.

4. That said -- YOUR expenses will rise -- because you have to pay back whatever you borrow to buy the place (even if you use cash you have -- again - may not have to GIVE yourself a payment one month, but that is cash flow, not profit), as well as put in new equipment. Even if you pay less than she wants, do careful buying on new equip -- you're probably looking at about $3K/mon for this -- or the amount of profit this made last year. So you would be at "$0" -- unless you also RAISE the revenues with these changes!

5. 181K on 9 beds, mostly base - is a good start. Sounds like there IS room to improve revenues with a different equip mix.

6. In the end - "value" is in the eye of the beholder. Equip value may be low. If profits are indeed $31K/year - verifiable, repeated in multiple years - $70K could be right on target. You'll try to get it for less, they may or may not agree to sell for less!

Get the tax returns, get a better break down on the expenses. Could be a good deal.

[elitetanner]

Glad you realize the need for new equipment and the space it will need.. and electricitiy..financing costs..HVAC.. etc. I would be more concerned with the satisfaction of the clients they have rather than the number of active. If they have 100 active clients who have no complaints in the world, then the salon may just need some good advertising.

There are a lot of things to consider when purchasing a salon... I speak from experience. If the client files (contracts/release forms) are noncompliant and misorganized it will haunt you and cause possibly be a legal problem.

It's been over a year and half since we took over (the salon I worked at!!!) and the mishaps of the old owner and employees caused us so much grief. But that may be neither here nor there for you; just be forewarned, especially b/c of the absent ownership.

70k does sound a bit much.. considering your slightly descriptive desires to do some remodelings and new equipment.

Slaying the staff and putting your butt on full time is going to wear you down, quickly. Once again I speak from experience. Hire 18 uner for bed cleaners only, seek 18 and older with sales experience and decent resumes for positions that you hope will make you money. And surveillance the s.h.i.t out of them. Initially, it may be good to work a lot to get to know the day/night customers and be familiarized with the operations, but I advise you hire an assistant manager and spend a lot of time focusing on a good staff.

The success of your salon will be made or broken by them.

You question to buy if the numbers check out.. I mean that's hard very hard to advise you because I have no idea what the store looks like or the area. Who are your competitors?

[baskinthesuntanning]

Seems like a decent deal. Offer $50k and see where that goes. Sell 3-4 of the beds and upgrade them with the money you save from purchase price. Diversify the beds. Think about getting rid of a few beds for good and cutting down to 7-8 total. I think the way to go is have less beds, and keeping a few minute wait at all times for the beds. People love places that are always busy and a 10 minute wait is actually a good thing.

-Advertise like crazy to the 8k+ customers about "new top-of-the-line beds, must check them out", and also about "new ownership".

-Have a free weekend as soon as you buy it

-Decide if you want to work there hard for 6 mons-1 year to get it running better. If not hire a great manager and pay well. Your profits will at least double if you work there full time!

I'd buy any salon that is in a busy location and already has 8k customers. You just saved 2-3 years of the hardest part of the business.

[phattmatt]

Have to add 200amp to electrical and add another 10 tons of AC to pull all but 3 base beds for what I would do to the place=
3 high pressure units
4 big VHR laydowns
2 big Vhr stand ups
70k is a steal. The buildout alone is that.
It is not a steal if no upgrades are done

[BigLeo]

I like this salon because they have such a large customer database to work with. In a typical salon about 20% to 25% of those customers will be active, so you can guestimate that 1600 to 2000 are active, or tan regularly. That's an excellent starting point. I would definitely work on converting the other 6000 to 6400 customers that are inactive into active.

I don't know how much the present owner is spending on advertising and promotions, but I can tell you right now that the cost for acquiring a new customer is very expensive. Having an existing database to work with gives you an advantage.

First, upgrade some of the tanning equipment so you have a good mix of low-end, mid-range and high-end beds. Sell some of the older beds and get some more up-to-date equipment in there.

Second, spruce up the place, maybe give it a fresh coat of pain, put up some decorations, etc.

Third, find out more about those 8,000 names in that database. Break them down by age group: 18 to 29, 30 to 39, 40 to 49 and 50+. Determine the last time they tanned, how often they tanned, and how much they spent.

Fourth, find out who are the active customers and how much they are spending on tanning and ancillary products.

Fifth, put together a deal to entice the inactive tanners to come in again. Try to find out why they stopped tanning. Invite them to come in and tryout the NEW tanning salon. Give them a deal they can't refuse.

It is always more cost-effective to work from an existing customer list, because they know you, and more likely to respond to a good offer. If they tan somewhere else, you've probably lost them forever, but I bet the returns will be much higher than the industry average of 1% to 1.5%. You may get 2% to 3% of them to come back. If you have 6000 inactive's this could translate into 120 to 180 conversions into active customers.

I hope this helps

[ThatGuy]

Wow, thanks for all the responses. Where to start...As far as competitors in the area, there is a Desert Sun a little under a mile away on another street and several smaller salons 2 miles away or more.
For advertising, what i do know is that they have online coupons on different sites and also do the coupon mail out, valpak or whatever its called. These are things i discovered on my own, still have to find out what other advertising they are doing.
Can you print out the sales reports and such from helios? It would be nice to have it all on paper rather than going through it on the computer.
They arent offering an EFT program right now, would that be a good thing to offer or should that wait until i have better beds/more uprgrades?
I am also considering bringing in a Brite White system right away because there is an extra room. This way, when i do the free tan weekend, ill be able to introduce this service to people also. Good idea?
Also, the salon is closed on Sundays year round i believe. Im thinking i should definitely be open on Sundays, especially during busy season.
Once again i really appreciate all the helpful info. Ill be back with more questions.

[Matthew]

"On a very busy main road, maybe a block away from a very large mall"

What mall is it? Some in the Puget Sound are so poorly designed, traffic around them is a nightmare.

[ThatGuy]

Well, i toured the place and met the owner....all i can say is that the owner knew pretty much nothing about the business. I signed a non disclosure agreement expecting to see the tax returns i had asked for and all i ended up with were a bunch of documents he typed out himself on excel or something, so signing the agreement was pretty much pointless. I asked what current version of helios they were running, when the last time they changed the lamps, how many daily customers they were seeing on average, the date when they bought the place, etc......none of these was he able to answer. What a frustrating day, i go in there expecting some answers and they know nothing, on top of that the price they are asking is outrageous now that i have seen the place.You would laugh your @ss off at the equipment value they gave me, unbelievable. Come to find out, the price they are asking includes a bed lease. Let me remind you, more than half of their beds are 10 or more years old, and they are saying the beds are worth a total of over 50K!!!!! Now i understand when people talk about how the owners always think their salon is worth so much more than it really is. They are really in their own world. Theyll be lucky to get 10k for that place. wow

[Brian Oshman]

Tell him that you want to see the actual tax returns or walk.

[Brian Oshman]

Offer 5K.