When it comes to selling your salon business, you will be asked for 5 main things first. By having these ready at the time of putting it on the market, you will be ahead of the game and buyers will appreciate the efficiency therefore making the transaction easier and less time consuming.
1. Have your financials in order. Make sure you have at least 2 years of figures you can provide that are in digital format with no surprises. Buyers will do their due diligence so don’t lie or make up figures; they will first ask for a profit and loss for the last 2 years to see what is coming into the business and what is going out of the business. This includes your wages, so be sure to outline your wages as directors’ fees or owners’ wages, separate from the staff wages. You will also need company tax returns for the last 2 years, sales reports showing a breakdown of services that reflect the profit and losses, a rent receipt of the current rent being paid and a copy of your current lease. These are the basic things you will need to start, so make sure these are correct and clear for potential buyer to understand.
2. Work out who your buyer is. What type of business do you have? There are 3 main types of businesses, there is an owner operator, where the owner works full time in the salon and has 4 or less staff, then there is a partly managed salon, this is when the owner works part time in salon and has 4 or more staff that share the load of work evenly. A fully managed salon is a salon that runs day to day with no owner in the business at all, this must have systems and procedures in place that ensure the business can run with minimal owner input. Once you know what type of business you have then you can market your salon to the right type of buyer, there is no use selling a salon that is currently run by a hairdresser to someone with no experience in hair.
3. What is your plan after you sell? Many people come to us asking us to sell their business, when we ask what they want to do next they are not sure and perhaps want to continue working in the industry but don’t want the pressure of running a salon. This can cause conflict when selling. When you sell a business, part of the sale is that the buyer is buying the goodwill ( the clients) of that business, there will then be restrictions placed on you the seller as to what you can do next. It’s called a deed of restraint. This can be as minimal as 1 year and 5 kms radius of the salon and means you cannot contact anyone on the salon client list or work in the same industry within that time frame or radius. So, it’s important to have a plan for after you sell.
4. How much do you want? Selling your business that you have put so much effort into is so hard, it can be emotional and frustrating and there is so much involved in completing the deal. The first thing to think about is how much would you be happy to walk away with? Many business owners think their salon is better than anyone else’s, because the emotional tie to that salon is strong. The reality is, salon businesses don’t sell for a lot, the price is dependant on how the business is structured and where it is located. On average a salon that is owner operated will sell for a 1 x multiple of the total profit including owners wages, a partly managed salon will sell for a 1.5 x multiple and the fully managed, highly profitable with good market presence and full team in place can sometime reach a 2 x multiple of total profit. So if you are not happy with the multiple your salon would achieve then I would recommend having a look at scaling the business and making it a fully managed business that can be easily taken over by an investor therefor reaching the highest multiple of profit.
5. Present your salon well. Many salons I bring buyers to are not presented well, they have not been cleaned properly, the chairs and basins are colour stained and torn or worn out. This can deter buyers as they will start to question how much work is needed in replacing the worn-out equipment. By removing all clutter and cleaning the salon throughout the buyers will focus less on that and more on the potential of the salon. So, repair any damage, clean the salon thoroughly and ensure it’s presented well for an inspection.
Once you have these in order you are ready to work out how you will sell your business. I would start with the blog post on how to sell your salon to work out the best strategy in selling your salon business.