When a majority of salon owners decide they don’t want to be an owner anymore, one of two things happen:
They close their doors or they sell the business.
And more often than not, there’s not a massive financial payoff for either.
But is it possible to build a salon that can sell when you’re ready to move on?
100%.
Let’s dig into what it looks like to build a business that could be sold and what you need to know before you do.
Is your business viable?
Step 1: Is your cash flow positive or negative?
Whenever a buyer invests or takes ownership of a business, they’re looking for cash flow. Not opportunity, responsibility, or even potential, but the cold, hard cash flow. Meaning trying to sell a business that’s a sinking ship, breaks even, or does less than 10% is tough.
If you want to sell, consider whether your business is cash flow positive and where it comes from.
Step 2: Determine if you have single channel dependence
In other words, how many different ways do new customers find your business?
If it’s only one or two ways, your salon may be a risky sell.
Think of it this way: if all salon’s clients come from Instagram, that might not be a business you want to invest in, right? Especially since Instagram, at the time of this post, is currently unstable.
This can affect what your clientele flow looks like as well as how well you retain clients and staff.
That’s why single channel dependence is seen as a risk, not an asset.
Step 3: Assess the keyman risk
Most salon owners are the glue that holds it all together and that is keyman risk. For example, if the owner’s behind-the-chair revenue supports the bottom line, that’s keyman risk.
And keyman risk is something that can scare away potential buyers.
The solution? Think about what structure you can put into place to remove yourself as the secret sauce. If you as the owner are responsible for a lot of the salon’s magic, it’ll be a tough sell. What can you put into place to improve your marketability so you’re not dependent on any channel or word of mouth?
But what are potential buyers and brokers looking for?
In short, a well-run business with a positive cash flow, low keyman risk, multiple channel dependence, and…
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Clean bookkeeping. Trust us, any potential buyer worth their salt will do an audit and any shady bookkeeping will come up. Anything that looks ambiguous or seems off can kill a sale.
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Illegal practices like employees not being paid properly.
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Improper or no employee contracts and paperwork. For example. f you have leaseholders working under you who aren’t in clean, one-year leases, you’ll have a problem.
If you want to build a salon to sell, make sure everything (and we mean everything) is clean and above board.
Want to sell your salon? You need a valuator
No, that’s not a typo. You need a valuator, not an evaluator.
A valuator is a person who comes in and values any given business. It might seem like an extra expense, but a valuator is worth the investment on both sides. Why? Both the buyer and the seller need to know the actual valuation of the business.
The valuator will look at everything, from overall sales, debts, and your tangible (inventory, equipment, furniture, building [if applicable]) and intangible (your brand, reputation, intellectual property, copyrights and patents, customer lists) assets.
P.S. Before you get excited about your client roster, know that these have a low value because, most often, clients are loyal to the stylist, not the salon.
What would your business’s valuation be?
It depends. Often, if the owner hasn’t properly prepared/run their business, it can be under $20K. Ideally, you want a valuation that’s much higher.
But if you have a well-built salon with low to no keyman risk, strong revenue that grows year after year, and multiple channels that clients come through, the offer usually one to five times your last 12 months of top-line revenue (a.k.a., trailing top line).
For example, if your salon did $500K in the trailing 12 months, the buyout could be anywhere from half a million to $2.5 million.
Like anything else, perceived value will dictate the ofer. Anything is only ever worth what somebody’s willing to pay for it.
What types of sales are there?
Let’s say you decided to sell your salon, found a buyer, and got a great offer. Congratulations! Next, there’s one of two types of sales you’ll go through.
Asset Sale
In this type of sale, the seller retains possession of the legal entity and the buyer forms a new one.
In an asset sale, the buyer invests in the tangible and intangible assets, such as:
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Business name
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Equipment
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Fixtures
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Leaseholds
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Licenses
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Phone number
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Website
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Branding
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Inventory
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Brand reputation and goodwill
This type of sale does not include any cash or debts. Whatever is in the salon’s bank account is not part of the sale and the buyer does not take on debts.
Stock Sale
In a stock sale, the buyer takes the seller’s shareholder stock and takes over the legal entity. Essentially, the buyer takes on the business and the existing owner walks away. The buyer receives both tangible and intangible assets, including profit/debts and the original entity. .
Around 70% of transactions are down as asset sales, so that’s likely what you would experience.
If you own a business, consider if you’re doing this as something to sell and walk away from? Or if you’re doing this to fulfill your working career and life?
There is no wrong answer. If you want to build an empire that you’ll get a paycheck for when you’re ready to r move on, put these things in place to make it possible.
When you’re ready to learn how to create a salon that can truly sell, join us in Thriving Leadership Method!
