How to Buy a Salon or Barbershop
Buying an existing beauty salon can be intimidating. We've created a step-by-step guide laying out all the steps, and highlighting the major pitfalls to avoid. We will work with you through every step of the way to a successful closing.
Summary of Steps
1. Identify a Location
2. Agree on a Purchase Price
3. Sign a Purchase Agreement
6. Become an Owner!
5. Transfer Assets
4. Sign a Lease Agreement
1. Identify a Location
The first step in your journey of purchasing an existing business is naturally finding the right business. You should consider the importance of foot traffic, clientele type and growth potential in analyzing any business. To find existing salons for sale, you can use a brokerage service such as BizBuySell which lists several businesses currently for sale on the market. Or if you have a particular location in mind already, you can approach the owner about a potential sale. Some of the best deals we've advised on have been off-market purchases.
2. Agree on a Purchase Price
Once you've located the right business, it's time to value it and determine how much it's worth. The price of a business will be determined by several factors, but most simply it will be some multiple of the yearly income the business produces, usually anywhere between 2 to 5 times annual income. An established salon that has been in business for several years, will command a higher premium that one that has only been in business for a few years.
The amount of income the salon produces is usually verified by looking at the seller's tax returns. However, it's important to note that salons are cash businesses, and it's likely the seller may not be reporting all of his income. A seller might promise you his salon is making $100,000 a year, but his tax returns only show $50,000. How do you value a business in this case? This is why it's important to buy from a trustworthy seller. It's important to get to know the seller on a personal level, and we advise having multiple conversations with them until you are comfortable. We can also structure the sale to mitigate such risk. For example, you can agree to pay only a portion of the purchase price at closing, and the remainder is paid a year later, so that you can confirm how much money the business is actually making. You can also ask to see the appointment logs, or even sit in one day and count the number of clients that come in on any given day, which you can use to approximate the salon's revenue.
3. Sign a Purchase Agreement
Once you've agreed on a price, the seller and buyer begin negotiating a purchase agreement, which contains all the terms of the sale. This is mainly handled by the lawyers. Importantly, the purchase agreement should always contain an anti-competition clause, preventing the seller from opening up a competing salon within a certain radius of your location. The last thing you want is for the seller to go around your back right after closing and open a salon next door!
4. Sign a Lease Agreement
Although you are buying the business from the seller, you also have to separately negotiate a lease agreement with the landlord. Sometimes the landlord will let you take over the seller's existing lease, and sometimes they will insist on negotiating a new lease.
5. Transfer Assets
Once all the above steps are completed you are ready to close the sale. Prior to this step, you should establish your own LLC, open up a bank account, and ensure you have obtained all necessary licenses.
The above is meant to serve as a general guide, and does not constitute legal advise. Please contact us for a free consultation to learn more.