Advice needed on whether I can sell my business!

[carrie g]

Hello.
I really need some advice and was wondering if any of you geeks have been in a similar position? I have built up and am running a very successful business based in a hairdressing salon. I am in the not too distant future hoping to move to a different area, which would make for a 2 hour commute to work each day! Is it possible for me to sell the business as a going concern? I have put so much work in to it and it turnsover about a thousand pounds a week. I have no idea where to start for advice. Help!!
Thank you so much for any answers in advance.

 

[AndyP]

Definetely sell it. there are a number of routes to go some costing more than others ie. agents. You can advertise on websites on the net but first you need to value the business. Get your books in order get a couple of agents along to value it don't sign anything and then decide what to do. If you do manage to sell it you can use the money to buy an established business where you are moving to. I have bought three businesses and being involved in the sale of one, and whilst it can be stressful and a pain it is certainly better than just closing the doors.

 

[carrie g]

Thanks Andy. Does that apply even if the business runs from a rented room in a salon? I have a meeting with the owner tomorrow and would like to bring it up with her. The contract I have with them runs for three years, but is renewable. There is nothing in there that says I can't sell, but I would like to make sure whoever (if) buys it can take over from my rental agreement.

 

[Kim Lawless]

Sounds as though you are selling the goodwill that you have built up, i.e. your client base. Have you thought about how much you want for it?

If you just rent a room, I don't know what guarantee the buyer would have that they wouldn't be turfed out if the current owners sold etc.

 

[collin]

Anything is saleable and any business type also...valuing your business is the difficult one and there are many many ways in doing so however as a guide take your net profit (before your wages) and use a multiplier...this can be anything from 2-10 times the net profit position....as a rule use x4...I.E. if your net profit is say 20k per annum then your business goodwill value is £80k plus fixed assets (equipment ,machines,etc etc)

Of course everything is negotiable and in a recession period you may only expect to receive 3x.

A business valuation takes two factors into account...what is the minimum sum you are willing to part with it and what is the maximum a buyer is prepared to pay for it

Once you have established a value the next hurdle is to find a buyer....if you google "selling my business" or "business valuations" there are many brokers on the Internet that do this for you for a commission.
By far the best way however is to find someone that's already close to the business...maybe the salon owner or even possibly a customer that's been made redundant recently etc.

Of course if you cant find a cash buyer...maybe find someone who could put some form of cash down payment in and the tie them into ongoing monthly/weekly/profit related payments...but do ensure your solicitors make a provision within the contract should the buyer default on payments..this is normally simply achieved by you holding a debenture on the business you have sold which is released once all payments have been received.

When you do come to sell it is important you do two things
1) use a solicitor and get the deal put in writing
2) get your accountants to submit a copy of the contract of sale before completion to the inland revenue for their approval..particularly when good will forms the majority of the amount being received...If you don't you could loose out when it comes to submitting your tax return and finding yourself with a capital gains tax bill you never anticipated.

HTH and good luck :hug:

 

[AndyP]

I generally agree with what Collin says, everything is saleable and how you start working out etc but.... I think you are being a bit gernerous with the 2 - 10 times and then certainly the average being 3x net profit especially in this case. I have generally noticed that the net profit to cost ratio for this industry is nearer 2x and that is just the asking price before negotiation happens. I think that this could be down to the fact there is a heavy risk that the goodwill will just go with the therapist/stylist etc if they leave. This doesn't tend to happen so much in other retail type industries and so the asking prices can be more robust. For example a beauticians near me (I am actually thinking about looking at this business) is claiming a £45k py net profit and is for sale for £30k hardly 10x earnings. There are obviously other examples that will prove the other way but i have found 2 x more common. As far as can you sell put yourself in the position of someone that would be buying the business and what securities would they want. If it was me I would want a contract allowing me to sat for 'x' period or a refund from you if they were forced out etc. A way round this might be to structure the sale on a small down payment and then a monthly payment say for 12 months so long as they were still there - no matter how small still better than closing the doors. Another avenue maybe to approach a local salon and ask if they wanted to buy your customer base from you and so they can just pick your clients up.

I personally would be nervous about buying a business in a rented room however you do seem to have built up a healty business, and if you were in my salon i would look to come to some agreement with you.

 

[carrie g]

Wow! Thanks guys. Thats all really helpful. I've looked into business valuations before and I know that at the end of the day a business is only worth what the buyer is willing to pay. Fortunately the salon I work from is part of a large franchise, so even if the present owner sold or even went bankrupt, ran away..... The salon will still be run by managers until they get someone else in, so I can be confident (as far as you can be) that the buyer is safe with the contract on the room and with my fabulously loyal, lovely clients.
Its mind boggling when you go along the valuation front. My accountant has thrown some figures around, which if I was able to achieve would quite frankly astonish me. She used the same principles that some of you mentioned. I quite honestly think that in this climate it's just not realistic and have worked out what I need to start up again in a new area, which is all I need.
Thank you all again, if you could all cross your fingers for me when I have my meeting to discuss it with the salon owner tomorrow!