Sale of Good Will --- your thoughts...?

[Tanya.]

Hi all,

Going in to speak to a salon owner this Friday regarding taking over her salon and clientele by the end of the year, as she is moving away. She would like some money for her equipment (manicure and pedicure station, probably some other stuff). Willing to train on her existing clients, as she is emphatic on making sure they will be happy when she leaves. Also willing to show me the ropes as to how to transition, what her books are like, et cetera.

It's a two hair station salon, with a mani and pedi room on a busy street. Parking is available, and is located in what looks like a small apartment building. She is saying the rent is reasonable.

In the past, I have taken over the rent of a one person salon as that owner had sold the building to someone else, leaving her client list and equipment, which I was grateful for. I built up my own clientele, as we were totally different in how we conducted business, only a few of her clients tried me out, which I was fine with. The business did well, I worked hard to build as I opened in the fall. I later left the location, as the landlord had a tragedy happen in one of his other buildings in the area (due to him being dodgy) and he was afraid he would be scrutinized being the building was insured residentially, even though I had my own business insurance. With much thought, I decided to rent a booth from a woman in business for 20 years until I could find a suitable spot to open up, only later to find out she had a wretched reputation in the community for her personal life. During this time I discovered my pregnancy was high risk, and with advice from my doctor, had to go on bed rest, then continuing on to do mobile work for a while even after my son was born. Needless to say, it devastated me to have to let go of my dream and hard work. I sometimes dream at night about how I could have made it better, what may have happened if I stayed open?

In the current situation, I have found the salon owner has been in business for 5 years, is renting the spot, and cannot find anything good or bad on the web as far as her reputation, which I like that she has kept a low profile. In doing other homework, I made some calls to the town and state and it seems as if it would be an easy transition, just minimal paperwork and inspection, as I would like to keep the name of the shop. There is no major road construction planned on the street this year or next.

My concerns? Her taking the money and opening up nearby.
The business slowly dying, with a bad reputation.
Crazy landlords.
Debts owed by the business that I wouldn't know about.
Why does she not have the extra booths rented?
Major repairs.
Could this be too good to be true?
Anything else I haven't thought of.
The positives? Great location, great visibility.
Reasonable rent.
Training with existing clientele.
Room for alot of growth potential.
Small shop.
Parking.
A chance to do this again, this time the wisdom of
my previous mistakes.

Going in for a much needed salon services Friday, and will be discussing and touring the spot. This must have been a tough decision for her, and I am curious to find out why.

Thanks so much for reading and offering any and all advice

 

[jes]

You're not only dealing with the salon owner, but a landlord and council (for planning permission etc).

As I think you realise, there's 101 things that could go wrong or turn around a bite you. I would, simply, recommend you invest in the services of a solicitor rather than take any chances.

hth
jes

 

[shedunlop]

I agree with Jes. I worked for a Commercial bank before coming into beauty and we would never allow a loan against goodwill. Goodwill does not really exist as it can change so quickly with any situation. As you said she might open up nearby and take the clients with her. They may not suit your type of business or you might not suit them. There are so many variables here.

Have a look at her accounts and value the business from there. Look for goodwill being added into the assets and deduct that amount. Look for a decline in income etc. Most importantly have your own accountant look at the figures.

Lots of other things to check, of course, but the money is important.

Good luck!

 

[persianista]

Normally a commercial sale contract contains a radius clause. You should engage a solicitor for the business purchase. Run the accounts past your accountant too. By buying an existing salon, you are giving yourself a decent head start over trying to build one from scratch. It is far less risky from the cashflow perspective.
There are no guarantees that it will work for you as well as it did for her, that is the question only you can answer.

 

[Tanya.]

Thanks so much for the input

 

[Tanya.]

Thought I would post an update...

Met with the salon owner Friday, and went well. Had my hair done and I like it very much. We are similar in how we conduct business and do hair, which was reassuring to me.

There is no lease, as a family member owns the building. Will be one if I take over.

Rent is reasonable, it is a great location, but the walls are all done in old wallpaper, which I am wondering how much work that will be to remove and will there be a problem underneath?

She hasn't gotten her numbers together yet, and no one knows of her plans to leave yet besides her husband.

We'll see what happens....

 

[persianista]

Really wouldnt worry about wallpaper! The important stuff is the location and the numbers. Everything but the location can be changed.
Personally I have always bought existing salons because
1 Someone else has had the risk in finding out if the location is right for a salon.
2 There is cashflow from day dot.
3 There may be staff in place which saves on recruiting
4 The changes you make are seen as improvements
5 Plumbing/electrics are in place, even if you want to upgrade them.
6 You can work there from day 1.
7 You can slowly upgrade the salon rather than laying out tens of thousands on an empty, untried shop before you even open.

 

[Tanya.]

This is very true, Persianista.

It really is a superb location, and the cosmetic stuff is easy considering the big picture.

Now, to get the numbers

 

[Tanya.]

The numbers are in.

She is saying her equipment is worth 2040 quid, but she wants 3700 because of her client list that she has built up over years. When we met, we agreed there was no guarantee her clients would stay, even though she is willing to train me on them.

I haven't seen her books yet, nor have I spoken to my accountant yet. Don't know what the lease is going to be like, or even if the rent will stay the same.

I have some questions to answer.

 

[mbbeauty]

hi, i took over an existing business two years ago and so far so good. just some advice: ask her about gift vouchers, how many did she sell at christmas and before and if you are supposed to honour them, get her to add them up and take the amount off the purchase price. if she says they are all used up i wouldnt believe that, ask for the record book, you dont want to take it over and have to wotk for nothing honouring her gift vouchers. also id get a contract drawn up by her solicitor and reviewed by your to say what exactly are you taking over, you dont want something like an old insurance claim cropping up. best of luck with it. hope it is a great success.

 

[persianista]

3700 is a givaway price. Even if she is making no profit I would buy it if the location is as good as you say. You would be hard pushed to fit a salon out in secondhand furniture for that. Unless the rent is very high, it's a very good deal.

 

[totalbirdbrain]

hi, i took over an existing business two years ago and so far so good. just some advice: ask her about gift vouchers, how many did she sell at christmas and before and if you are supposed to honour them, get her to add them up and take the amount off the purchase price. if she says they are all used up i wouldnt believe that, ask for the record book, you dont want to take it over and have to wotk for nothing honouring her gift vouchers. also id get a contract drawn up by her solicitor and reviewed by your to say what exactly are you taking over, you dont want something like an old insurance claim cropping up. best of luck with it. hope it is a great success.

This is an excellent idea, I ended up having nearly 3000 knocked off the asking price for my salon when i bought in, so that really helped and I didnt feel like i was working for nothing

 

[Tanya.]

I have decided not to do it.

There were alot of positives, but there were some parts that didn't add up.

I thank everyone here that reponded to my post, you all gave me some food for thought!

Cheers :hug:

 

[persianista]

Thats a shame, but there are always lots of salons for sale. The next one you look at may be the one for you.

 

[shedunlop]

It is a shame but good luck anyway Tanya, onwards and upwards eh?

 

[Tanya.]

Thanks, gals