Marketing & Advertising Magazine

What You Need To Know Before Buying An Existing Salon

Posted on the 11 April 2018 by Jennquinn

Guest Article by Gloria Murray, Accountant and Director of Murray Associates Accountants

If you have even the slightest bit of entrepreneurship in you, it is very likely that there will be a time in your hairdresser, stylist or beauty therapist career where you think: “Right, it’s time. I’m ready to run my salon (or spa!).” And you know what, that’s fair enough. From there you might decide that opening a salon is the way you want to go, or you might instead consider buying an existing salon. While the latter might seem like a good bet, there’s a lot to take into consideration. In my 21 years in business, I’ve seen 90% of business owners overestimate how much their business is worth. So you need to be very careful, even if the said salon has been professionally valued.

Related | How To Make A Clear Financial Decision About Your Business

5 Things To Consider When Buying An Existing Salon

Just like when I wrote about expanding with a second location, there’s a myriad of things you need to think about before going ahead and investing your money in an existing salon. 

1. Is It Profitable?

Before you buy, get at least the last two years of the salon’s accounts (prepared by an accountant), so you can find out if it’s profitable. If it’s not, then you have to find out why it isn’t. It’s always a good idea to have a conversation with the current owner about this, but take what they say with a pinch of salt. Get the black on white paper evidence and leave the emotional decisions aside. Have a good look at point 3 for where to look.

2. What Are The Monthly Income Revenue And Expenses?

If when you’re looking into buying the salon spends more money than it brings in each month, you might, first of all, hold off from buying. If you still want to go ahead with the purchase, then consider that you might have to bail it out for several months before it starts to break even. The reason for this is that it can take a while for your marketing and PR efforts to pay off. Bear that in mind and plan for having some cash put aside to weather this.

3. Management Accounts & KPIs

Another thing to look into before buying an existing salon is the management accounts and the Key Performance Indicators (financial, marketing, etc.). If you’re buying from a salon that uses Phorest Salon Software, this will be easy to get a hold on. Digging into management accounts and KPIs will give you an excellent insight into which areas of the salon you can improve upon and will lead to my fourth point.

buying an existing salonClick to try Phorest Salon Software’s Interactive Demo.

4. Look Into HR & Staff Issues

Find out if there are any problem staff members. When you take over the business, one of the ongoing concerns will be that you will take over the staff too and their employment record will be unbroken. You need to be aware of this, because if you have to let go of someone who is underperforming, then you need to go through all the standard HR procedures and act accordingly to the SOP Manual that is currently in place. Check with your HR advisor before doing anything.

5. Know What You’re Buying

Think really hard before you buy the limited company rather than just the assets of the business. If you buy a limited company from another owner, then you inherit their liabilities, including disgruntled clients who may sue the company at a later date.

If looking at a P&L (profit and loss sheet) or cashflow is not your strength (and to be honest it’s not something many people feel good about), then get a really knowledgeable outsider to look at this for you and point out where the problems might arise. The last thing you want is to end up with a salon that’s nothing more than a strain on your resources.

Related | 12 Need-To-Know Salon Tips For Starting Your Business

As you can see, buying an existing salon is not as easy as it may look. If you’d like to learn more about your numbers and how to run a financially successful business, or, if you’d like advice regarding the P&L sheet, then join my Facebook group Knowing Your Numbers. It’s a safe place to ask questions and find out more about numbers in a supportive environment.

Thanks for reading! #LetsGrow

Gloria Murray, Murray Associates Accountants

Gloria Murray is a Glasgow-based triple award-winning accountant who has also been awarded the Most Innovative Business Advisor in the UK in the 2020 Annual Innovation Awards 2017. Director of Murray Associates Accountants, she specialises in helping small business owners grow sustainable and ethical companies that not only provide a better service to their customers but also contribute to local employment. If you would like to get more business tips from Gloria, you can get a free copy of her printed business magazine by sending an email to [email protected].

Featured imaged shot on location of Chipped, in Dublin. © 2018 Phorest Salon Software.

Back to Featured Articles on Logo Paperblog