How to buy a hairdressing business
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Cutting, styling and colouring hair is a profitable business. Buying an established hairdressing salon bypasses the struggles and challenges of starting from scratch. There's no wasted time in finding a location, negotiating with vendors or hiring staff.
The salon has all the equipment it needs, an established client base and hairdressers already on staff or renting a chair. You'll be ready to take your hairstyling, organisation and management skills to the next level when purchasing an established hairdressing business.
Know exactly what you're buying. Hairdressing businesses may own their equipment or lease it. The building could be owned and part of the business, owned separately or simply rented by the salon. The business may be set up as sole proprietorship, partnership, limited liability corporation, a C corporation or an S corporation. If you buy the corporation you are buying all the outstanding liabilities and contractual obligations of the business as well as the assets.
- Cutting, styling and colouring hair is a profitable business.
- The salon has all the equipment it needs, an established client base and hairdressers already on staff or renting a chair.
Check the accounting statements and verify that the expenses and revenues are correct. Compare the salon's books with bank deposits, checks written and taxes paid. Check the merchant account transactions (credit card payments received by the business). Any discrepancies should be satisfactorily explained. For example, the revenues on the books should match the revenues reported on the forms to pay the state and city sales taxes.
Verify that what shows as accounts receivable on the accounting records actually are still outstanding and owed to the business. Discount the accounts receivables by a reasonable amount. How much is up to you based on the quality of the receivables. Some people and companies will drag their feet paying what they owe when they know a business has been sold. The discount is based on what you feel you will actually be paid for the receivable and factored into the purchase price of the business. In other words if the receivables total £32,500 ($50,000), but £6,500 ($10,000) are over 150 days old, the discounted value would be £26,000 ($40,000). Most hairdressing salons don't have a lot of receivables since customers most often pay by credit card, cash or check.
- Check the accounting statements and verify that the expenses and revenues are correct.
- For example, the revenues on the books should match the revenues reported on the forms to pay the state and city sales taxes.
Verify all required license fees have been paid and that licenses and permits are up to date. This includes the licenses of any hairdressers who are working at the salon as well as business licenses. The salon itself may need a separate cosmetology license. Check the state records to see if the salon has failed any inspections or has had any related problems.
Determine whether the hairdressers are employees of the salon or are renting their stations. If employees, verify that withholdings for Social Security and income taxes have been paid and are current. If the hairdressers are renting their stations, verify the rent is correct. Keep in mind that the hairdressers may not be under any obligation to stay under new ownership. If they leave they may take their clients with them.
- Verify all required license fees have been paid and that licenses and permits are up to date.
- Keep in mind that the hairdressers may not be under any obligation to stay under new ownership.
Set a price for the business based on the assets minus the liabilities plus a premium for income received in the future. Income is the revenues minus expenses. In other words, if the assets are £65,000($100,00) and the liabilities £16,250 ($25,000), the net value is £48,750 ($75,000). If the business has a profit of £32,500 (£50,000) a year, the premium would be from one to ten times that profit. There is no set formula for valuing a hairdressing business, but following the steps outlined here will help you determine a fair price to pay for an existing business.
Katie Jensen's first book was published in 2000. Since then she has written additional books as well as screenplays, website content and e-books. Rosehill holds a Master of Business Administration from Arizona State University. Her articles specialize in business and personal finance. Her passion includes cooking, eating and writing about food.