Selling Your Salon? What’s Your Plan?

by Marion G Shaw on March 22, 2016

For Sale SignMost people, when they open their salon, think of it as a life time business.

However, at some point you will want to move on and sell the salon that you have invested thousands of dollars, not to mention years of your life into building, nurturing and growing that business.

Few salon owners have an exit plan when they start their business, however you need to think about it at some point and here are some things to consider.

  • Your business must be a viable investment if you are going to get any return on your money.  You must be profitable, you must show sustainability and you must have a great business model with systems for success.  Who will give you their life savings and more if your business is not a success story.
  • You must keep good business records, have all of your financial information ready and easy to understand for any new owner.
  • Your Balance Sheet and Profit & Loss Statement tell the story of your leadership thinking and behavior. They tell if you’re paying attention to your company’s financial reality or putting your faith in the universe to keep your company financially viable If you don’t know what every line item means on your Balance Sheet and Profit & Loss Statement, make it your business to learn so you can show it to a potential buyer without fear.  (This great paragraph comes from Neil Ducoff one of the foremost leaders in our industry on salon financial health.)
  • Price your salon correctly.  How do you so this?  Firstly, understand what your potential buyer is paying for.  Your inventory, your fixtures and fittings and the goodwill of your business.  Fixtures, fittings and inventory will be on your balance sheet, however, you will need to do a complete physical inventory count on the day of completion.  The most difficult thing to calculate is the goodwill.  That is the expectation of future business for the new owner, the client records, the staff and the systems for success.  There is an accountant’s calculation for this.  Take the profit from your last annual profit and loss statement, add this to the amount you, as the owner, took out of the business as financial compensation, then multiply by 2 and that is the accountant’s method of calculating it.  However, be prepared to negotiate on this one.  Will the business continue to operate successfully under a new owner?  Will the staff stay? will the clients stay?
  • Be prepared to sigh a “Non Compete” agreement.  This will state that you may not work in, or be involved in, a business similar to that which you have just sold, within a specific area for a specific number of years.
  • Know how many gift certificates are outstanding and your redemption rate.  For example, if there are $5,000 worth of unredeemed ones, then that must come off the price.  However, it the redemption rate is 75%, then that figure is negotiable.  Be open and upfront about promotions outstanding and if there are any Groupon campaigns ongoing and how many are sold.
  • Several salon owners recognize potential staff members who may want to buy the business when the time comes.  They groom these people on ownership and prepare them for it.  They also make it easy by offering payment options.  Think about this one – it can work well and save you a lot of time and expense when you want to step back.  In this case, you may act as a mentor to the new owner to ensure that you get paid out for your investment.  Some will charge for this, some not.

So the bottom line is – prepare well.  Almost any salon is for sale at the right price and in the right circumstances.  What is your absolute bottom line if you have to sell quickly?  Having a plan in place will help you to make a return on your investment instead of taking a bath and walking away with very little.

Leave a Comment

Previous post:

Next post: