Purchasing a Salon; Advice Needed

[Salon.newbie]

Good Evening,
I'm in the process of purchasing a salon business. I'm struggling to get my head around all the costs. I'm trying to put together the financial business plan. I was sent these figures and just would like to ask your opinions on what else I should ask and check for if they have missed something out.

I have already noticed the insurances are not listed to start with.
The salon is up for 30k out of these figures do you think its worthwhile the possibility of a bank business loan. I'm looking at maybe asset finance as the assets are valued at 30k

What else should I be asking for or can you see any alarm bells. I welcome people to make any positive/negative comments with regards to these figures below.


Set out below to make it easy for you are the fixed outgoing plus last 6 months takings,
all figures are worked out over a month,

1. Rent £1,279.74 (paid quarterly on 25th £3,839.19)
2. Business Rates £267.18 paid monthly)
3. Water £35.00 (Yorkshire water paid quarterly)
4. Electric £400.00 (British Gas paid quarterly)
5. Gas £100.00 (British Gas paid quarterly)
6. Phone £19.00 (Unicom paid monthly)
7. Wages £4,120.00 (Paid weekly Friday)

There are further minimal various costs for stock, incidentals, light bulbs cleaning product etc. (normally get from wholesalers) these are usually covered by the sales of stock as it is roughly a 50% mark up on creams and hair products etc.

The taking for the salon are
May £7,833.78
June £8,309.62
July £8,460.19
August £7,396.91
September £6,834.39
October £7,128.42

Novembers takings are expected to be in line with these figures and a projected taking of around £12,000.00 for December dropping back in line with these figures in January.

Asset Value
We estimated the asset value to be £35,000.00, this is broke down in the following order
Ergoline laydown sunbed £7,500.00
Sunquest VTU £3,500.00
Aqua massage bed £1,500.00
Manual Spray tan equipment £2,000.00
2 x full beauty room set up, Couch's, massages, towel warmers etc £3,000.00
Nail Stations £1,000.00
Toning tables and gym equipment and vibroplate £5,000.00
Advanced beauty equipment Crystal clear machine, electrolysis machine, microdermabrasion machine £3,000.00
Hair dressing equipment Hair dryers, mirrors etc £1,000.00
Advanced hair equipment 2 x Halo dryers, Kitoko permanent hair straightening equipment, £1,500.00
Hair dressing furniture, chairs, backwash sinks, mirrors, £2,000.00
Reception furniture including computer, screen, pa system including speakers, £2,000.00
Kitchen and laundry £1,000.00
Fixtures and fitting light, shelves, cupboards etc £1,000.00
All these prices are based on a second hand purchase value.

Stock holding is an average of £5,000.00 this varies depending on time of year

Regards

 

[Nailjems]

Just a bit of advice if it helps?? Lending of £25k and below is classed as low value and therefore unsecured so is easier to arrange with most high street banks, asset finance is a lot more expensive as they secure on the asset and include depreciation in the calculations. Ideally if you can get the price down to £25k a straight business loan would suffice.
Asset finance has it's benefits but in my experience they prefer to finance new equipment rather than existing fixtures and fittings! Ignore this if you have arranged your loan! X

 

[Nailjems]

Meant to say also check the terms of the lease with a fine tooth comb. Your bank business manager will also look at this for you. X

 

[Salon.newbie]

@ Nailjems: That's awesome advice. I should have no problem at all at 25k as they are open to offers.

Thats great advice. Thank you kindly.

I forgot to metion the financial details include VAT on takings and reclaims on outgoings. Can anyone explain what this means?

Regards Kindly.

 

[Nailjems]

You need to have a look at the hmrc website which explains in great detail and speak to your accountant. If the business is already vat registered you have a few options to hopefully minimise vat payable on sale.
They might be "open to offers" as the valuation is based on what they want for the business rather than a professional valuation.
If it was me buying the business my biggest concern would be the wage roll? Seems a lot if it is per week and I would want to scrutinise the staff contracts! Employment law is a minefield.
The reason I say check the lease is so that you can cost in any likely rent rises as it should specify the term remaining at current rates and any renewal dates where increases could be applied! Xx

 

[Salon.newbie]

Again, Thank you kindly for your input.

As far as I'm aware and from my visit to the salon they employ 5 staff full time. The total wages is per month. So I'm guessing the weekly wage would be 1,030 per week Which I think is 206 per week per staff member.

For sure I'll get a solicitor to look through the lease as its rather expensive @ 16,000 per year. Its due for renewal in 3 years time. Apparently he has said he would reduce this on a renewal. But again no one can promise that.

I have my eyes wide open for the min and will be getting an accountant to look through the figures. With an investment like this I'd be stupid to cut corners on professionals. I'm already going down the right track asking for advice on here. Again many thank you's for your reply.

In the mean time. Just another quick one for your thoughts.
As I'm medically qualified and a medical professional, I am able to placemyself on a botox course and laser teeth whitening. Do you think this will benefit the salon or is there not really a market for this.

 

[Nailjems]

Definitely! I have my face frozen every 6 months haha! Also when you consider the cost, I pay £220 for 3 areas, it does more than any facial ever could! Good luck x

 

[Josie*]

Hi
Other costs just to take into consideration before you go ahead. Some might be obvious but ill write it anyway then add into your yearly costings
Vat
Tax
Printing ( be realistic )
Waste disposal
Music licence
Phone bill seems very low?
Accountant
Banking costs (switch machine and manual processing and account fees)
Does the wage bill include NI contributions?
Legal fees

Good luck with it all get and negotiating! Xxx

 

[Layrex9]

Hi
Other costs just to take into consideration before you go ahead. Some might be obvious but ill write it anyway then add into your yearly costings
Vat
Tax
Printing ( be realistic )
Waste disposal
Music licence
Phone bill seems very low?
Accountant
Banking costs (switch machine and manual processing and account fees)
Does the wage bill include NI contributions?
Legal fees

Good luck with it all get and negotiating! Xxx

Great post. Go through all this without a doubt!

The VAT will be the one to watch. The current threshold is £73k per annum and from the figures you provided it looks you should turnover around £90-95k per annum. If the business is not already VAT registered be even more wary.

 

[Salon.newbie]

Ladies,
Thank you kindly for your comments.

 

[diamondpuppy]

How long the salon has been established?

 

[Mike16300]

Assets are written down on an annual basis. In my opinion, if you are buying the assets, you should be paying the current asset value as it stands in the accounts, not the replacement cost.

As an example, It's easy to look around a business and see that they have 4 machines that cost £2000 new to buy, and think that the business asset value is £8000, but this is simply not the case.

Capital equipment is written down each year at varying percentages, some assets are written off annually, so have actually no asset value to the business.

You need to look into the accounts and see the asset value for each item of equipment, and then, if I were you, I would inspect the item and maybe even offer less depending on wear and tear.

There is a difference between setting up a business and buying new equipment and buying an existing business. Don't be fooled into paying the replacement cost for the assets.

The goodwill is harder to quantify. Is the seller opening up another salon? You may find that your "goodwill" disappears with the seller!

A note on the VAT, HMRC has fixed rate schemes available which simplify the records, look into that to decide if you will be saving money using such a scheme. For hair salons, it's a fixed rate of 13% I think.

Good luck

 

[Mike16300]

Just had a quick look at the figures: -

Monthly outgoings = £6220.92

As you say, there are items missing like insurance, music license, printing and advertising, web hosting, etc. and the telephone does look cheap.
Does the wage bill include the employers NI contributions of 11%?

Worst case monthly income = £7128.43

The first thing to subtract from that gross figure would be 13% VAT if you use a fixed rate scheme, so that leaves £6201.74

Therefore Income - Outgoings = Profit
So £6201.74 - £6220.92 = -£19.18

and you haven't bought any tea and coffee for your clients yet!!!

Do the accounts that you have seen show a profit?

Take a close look and do the figures again, on the example you gave, you couldn't service a loan, and does the wage bill include a salary for you?

 

[AmeliaR]

Also decorating? new equipment? staff training? re opening costs?

Is the salon busy do they have a good client base? ask to look at there diary see if the staff are sat doing nothing.

you are going to want to redecorate to suit your taste new sign out side price lists etc.

How good are the staff? have they all been trained correctly or did just one person do the training and show everyone els?

Hows there retail? does it sell? how old is it you dont want to be getting Out of date stock!

 

[bonderella]

Just to say thanks to the poster and the replies.
This has given me lots to think about as I have just taken on a lease and about to open my salon mid Dec.
I dont have the complications that you have but sympathise with the confusion you must be feeling while you get your head round it all.
I am on a massive learning curve at the moment,every day I'm learning more and more.
What a fantastic feeling it is to be on track to a new dream.
Good luck :lol: