Buying an indoor tanning business can pay off for entrepreneurs

[Editor-in-Chief]

Buying a business can pay off for entrepreneurs

By Angela Tablac
ST. LOUIS POST-DISPATCH

11/23/2007

Steve Rabenberg, owner of Fiji Tan in St. Charles, changes out some of the 200 watt bulbs in a stand-up tanning unit.
(Tom McCarthy Jr. /P-D)

A serial entrepreneur who owned half a dozen companies, Steve Rabenberg knew the demands of starting a business. But when he scouted his next venture, Rabenberg wanted a quicker path to profit.

Instead of opening another company, he bought one: formerly Sunkiss Tan in St. Charles.

Although many small-business owners set up their own companies, some entrepreneurs take over existing ventures, forgoing control of startup decisions, like picking store locations and suppliers, for the comfort of a steady cash flow. Business experts caution potential owners to examine a company's profitability before taking the reins, but they said it could be a safer bet because the business already has customers.

"The day you buy an existing business, you have cash flow," said David Marlo, owner of the Saint Louis Group Business Brokers, a firm in south St. Louis County that helps buy and sell companies.

Most companies are easily transferable to a second owner, except for one-person professional practices like dentists' offices, Marlo said. Retail, janitorial, manufacturing and distribution companies are commonly sold through Marlo's firm.

Rabenberg knew he wanted a business that was profitable and "fairly easy" to operate but still had room for improvement. He was drawn to Sunkiss Tan's 20-year operations and the promise by the owner to train the buyer. Rabenberg bought the tanning salon in September and changed the name to Fiji Tan.

But there are downsides to taking over an existing company. New owners are paying for the name, customer base and supplier contacts of previous owners — and depending on the size of the company, that might cost more money than starting a business from scratch, Marlo said.

That comparison is essential, said Ron Mueller, a site director of the Small Business Development Center in St. Charles.

Rabenberg calculated what it would cost him to start a similar company on his own. He discovered that the cost of constructing tanning rooms and upgrading the electric panel of an empty building would be half of the price of an existing company. It was better to buy, he said.

Business buyers, Mueller said, also acquire the company's suppliers and customers — for good or for worse.

"You might have a lot of customers out there you don't want," he said.

Mueller encouraged potential owners to ask why an existing business is being sold and examine the income statements and balance sheets for the last five years to track trends.

Employees' attitudes and customer service are important, too, because buyers inherit the workers and the company's customer service reputation, Rabenberg said. Before buying Sunkiss Tan, he visited the tanning salon as a "secret shopper."

"I was looking for how I was treated," he said. "I looked for the condition of the premises, the condition of the equipment."

For Dustin Davis, a big draw of purchasing a business was the training opportunity. Davis bought a Dogtown-based commercial restroom sanitation business in December 2004, and, as part of the buyout, he hired the former owner to train him in 60 days.

"He was able to tell (me) … why he did things in a certain way, why he used certain chemicals, how he developed the process we use," said Davis, who owns Guardian Environmental Systems. "I would have had no way of knowing that without his knowledge."

Buyers of an existing business can skip the "growing pains" of a new company, said John C. Lee, who opened The Mobile Attic of St. Louis, a portable storage franchise, in February 2006. He sold it last month.

"Those first couple of years are (painful)," Lee said. "That's part of what they're buying, that system that works."

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