6 Ways to Determine Value In a Beauty Salon Before Selling
There are several major factors that can influence the sale of your beauty salon.
As the Charlotte, Greenville, Tampa, Asheville, and Charleston markets begin to grow significantly and influence the way that other cities are developing in the Southeast, more entrepreneurs are interested in acquiring their own businesses. The beauty salon industry has been a highly profitable industry over the past decade, and as new products begin to make way in the beauty industry, sales begin to increase. According to the Franchise Help Beauty Industry Analysis 2018, in 2015 the industry generated $56.2 billion in the United States, with hair care being the largest segment and skin care being the second largest segment with an expected revenue of $11 billion in 2018. There are several major factors that can influence the sale of your beauty salon, and making sure you receive the best price possible is ideal for moving on to your next business venture. If you own beauty salon and have been thinking about exploring exit options, the first step is getting a professional business valuation. If you are seriously thinking about selling your business, Viking Mergers & Acquisitions offers each prospective client a no-cost, no obligation valuation so that you will know within a 5-10 % range what your business is worth! Our valuations are comprehensive and the factors that drive the price we can obtain for you are as follows:
Profitability of the business
This is the most important factor. We look at the latest three-year performance of your business in determining what the “Sellers Discretionary Cash Flow” or SDC was in each of those years. We take a weighted average of that cash flow to determine a price. SDC consists of the owner’s salary, owners other benefits (if they are identifiable) and the bottom line profit. It is very important that you have good books and records on the business and it is equally important to be able to identify all the benefit an owner derives from the business. We sell salons for a multiple of the SDC and that multiple varies based on the level of SDC.
Curb appeal is extremely important for any retail business and the appearance and condition of your salon should be one of your highest priorities when beginning the process of selling your business. All the equipment should be in good working order and the salon should be clean and neat. The appearance affects the price you can obtain for the business. Fortunately, if your salon needs just a light cosmetic up-fit, the situation is easily remedied, and the costs are minimal. A little paint and a cleaning will go a long way. Motivating your staff to keep it that way is important also! Be aware that the use of modern beauty equipment and technology will also significantly raise the sale price and appeal to buyers.
If you are a sole proprietor with few or no stylists working in the store, it is very difficult to sell your business. If you are a stylist and have several seasoned and tenured stylists working with you, the business is saleable but the multiple of SDC will not be as high as when you are managing the business and not involved as a stylist. The point is utilizing the SDE (Seller’s Discretionary Earnings.)
If you are in a high traffic, well-known location, you have the ideal situation. If you are not in a popular location, but the area has a high density of people to draw from, that is also very desirable situation. Finally, if you have been successful for a 3 (or more) years at the location you are in, that will help increase the price multiple we can obtain for your business. The other factor that is extremely important is the availability of a long-term lease for a new owner. Typically, a new owner will want a 5-year lease with one 5-year option. If you are on a month to month lease or your lease has only a few years left, you should contact your landlord to ensure that when the lease is up you can obtain something longer than 5 years or more.
In today’s environment, a strong marketing presence will not only help grow your business, it will also help drive a higher multiple for your business. Email marketing, a decent website and use of social media (Facebook and Instagram) can be very inexpensive and very effective ways to draw people to your salon.
Products and Services Offered
What kind of services are you specializing in? If you are only providing one or two services for your customers, you might want to think about expanding further by offering other beauty services to stay ahead of the game. Are you carrying and selling high-end or wellness products? Natural based and organic salon products are extremely high in demand and are influencing competitors appeal, but traditional beauty products are still producing. Thinking about and answering these questions can put you ahead of other competitors in the salon industry.
For an owner of a successful beauty salon, it is an ideal time to sell your business. The economy is great, the consumer has more has more disposable income because of the lower taxes, and more people are looking to get into business for themselves than ever before! We hope the overview is of some help to you. If you would like to explore the possibilities of selling your business, please contact us. Anything we discuss will be held in strict confidence. We offer a no-cost, no-obligation valuation for business owners.