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Thoughts on possible new venture please?

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GranCanMan

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Hi All,
I've just joined today in the hope of gaining some honest feedback.
I live on Gran Canaria and know nothing of the hair and beauty industry but I've an opportunity to buy an existing salon here whose owner of the last ten years is moving to mainland Spain.
She will be leaving no staff as the place was run by herself and mother.
A nice salon, 3 chairs, 2 wash stations and a treatment room fully kitted out for various treatments......
Price is very interesting at £25,000 to buy the business complete with a rental contract on the premises for 5 yrs....
I'm able to employ a former employee to hopefully run the show single handed in the first month or so.
Monthly overhead all in is circa £2,000 so would need this to break even without me taking anything.
In a nice resort village with a good reputation, busiest period here being Jan to May when apparently the shop is usually flat out.
Currently due to covid weekly takings are between £700/£1100....
Question for you pro's is....
Am I bonkers even considering this or is it worth a gamble?
Look forward to honest replies...
Thanks, Rob.
 

BannerPenguin

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Not sure how much value is in the business as the staff was the owner so realistically the business needs to have someone hands on to step back into that role to be honest to be successful. Without them the business is worth not much at all.
 

GranCanMan

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Not sure how much value is in the business as the staff was the owner so realistically the business needs to have someone hands on to step back into that role to be honest to be successful. Without them the business is worth not much at all.
Thanks, the person I'd intend to employ is an ex employee who only finished in March due to lockdown!
Experienced in all facets of the business.
 

Trinity

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I don't want to rain on anyone's parade but I would suggest reading this thread - specifically @TheDuchess posts about her salon and the impact if C-19.

 

BannerPenguin

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Thanks, the person I'd intend to employ is an ex employee who only finished in March due to lockdown!
Experienced in all facets of the business.
Why would they want to run your whole salon for you for a wage when they could run their own? :)
 

GranCanMan

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Why would they want to run your whole salon for you for a wage when they could run their own? :)
Because the said person has no money to No1 buy the business and No2 pay the deposit on the 5 yr lease.
Hence there you go....
 

BannerPenguin

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Because the said person has no money to No1 buy the business and No2 pay the deposit on the 5 yr lease.
Hence there you go....
That makes sense.

Personally it’s not an investment I’d make but if you are so inclined;

1. I would negotiate a yearly get out clause on the rental agreement. No way in hell I’d sign 5 years right now.

2. It’s no way worth £25k. It’s literally a good will gesture for the fixtures and fittings, brand etc. To me I’d aim for £5k. Client book isn’t worth anything in this industry usually.
 

Haircutz

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Watch this episode of ‘Tabatha takes over’ on YouTube and see if it helps you to decide. If you have no hairdressing experience then your only option is to employ the best Salon Manager that you can afford and ensure their wages include a bonus for increasing retention figures. If clients don’t return regularly, you have no business.

 

TheDuchess

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Hi GranCanMan!

some questions for you.
Your employee is sick - maybe she hurts her shoulder and needs a couple of weeks off. What happens to your turnover?
She needs rehab and can’t cut hair but can come in every day and tell customers that unfortunately she can’t book them for 6 weeks. What happens to your client base? Will they just let their roots show and grow their hair long or will they go elsewhere? Will they come back next haircut or will they rebook in the new place “just to be sure”
Your employee becomes pregnant, see above
Your employee gets fed-up and leaves to work for another business, see above
Your employee decides to work from home instead, see above.

Alternative scenarios. Someone else sees the business for sale, realises that with the lynchpin of the business leaving there will be plenty of clients unable to book back in and so looking for alternative salons and decides to set up in competition without the overhead of £25k goodwill and fixtures.

Alternative scenario 2 Several new businesses pop up over the next 12 months, all run by experienced industry professionals with a small but growing client base. They have great social media, wonderful photos, videos and QnA’s offering a whole new level of interaction with their potential customers, creating customer engagement, excitement and experience.

Alternative scenario 3, There’s a global pandemic and services are prohibited for 5 months out of 12.

Other thoughts. You’ve been employed in a great business, doing what you love. You lose your job and then six months later see that it’s for sale. You have the chance to own your own destiny for the price of one year’s salary. (Just so that you know, you usually expect to take 3-4X your gross earnings in revenue.) What would you do?

Another thought, you’ve got a great little business but you decide you’d like to step back and do other things. You had a management quality employee whom customers loved but you regretfully let her go a few months previously through no fault of her own. You decide to sell for a bargain price, far less than you’ve invested - a deal you’d have been crazy to pass up yourself when you were setting up. You believe in her and feel that this is the time for her to step into the limelight. What would you do? Would you cut her a profit sharing deal in return for a nice little income stream over several years? Or would you focus on finding an entrepreneur who might employ her?

In general terms, your initial investment is a percentage of your overall investment, because there are always other costs to follow. Overall capital invested in the business is usually between 200-400% of initial start up costs.

As a minimum you should consider the possibility that the business fails to break even for 18 months. And you should have the means to survive for 6 months without any turnover because it can take 3 months to replace an employee and 3 more to rebuild lost custom.

If you’re interested in an Award winning beauty salon in Bath, with a great employee I have a deal you might be interested in...
 

GranCanMan

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Thanks all for the comprehensive replies, I've just informed the seller that due to current global conditions surrounding covid my Risk v Reward are not viable at this time hence i'll not be taking the matter any further.
Hence thread here closed....
PS....Bath v Gran Canaria....... only one winner and it's not Bath but thanks for the reply.
 

SUGARFLICK

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Absolutely, don't do it, stay in employment until the new year with rumours of another lockdown, taking on new leases or new jobs probably not a good idea.
 

Chriss87

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What part of Gran Canaria is It in? I agree the price sounds high but there is a market for a targeted audience business in the right area.
 
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