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8 Mistakes When Selling a Salon: How to Avoid Disaster When Selling a Beauty Industry Business
Want to have a successful sale of your beauty business? We do too! After selling countless salons, spas and barber businesses since 2019 I thought gathering a list of the top 8 mistakes when selling a salon will help you understand what not to do when selling.
My name is Susan Wos, and I am the founder of Salonspa Connection, the go-to company for the beauty industry to sell businesses! We help owners best prepare to exit beauty business ownership and find the best buyers for their salon, spa and barber businesses.
I asked our expert beauty broker team about what they are seeing with their sellers in order to help you have a successful sale!
OK, enough about us- Let’s get into it!
Table of Contents
Mistake #1- Not preparing the business to be sold, listing at the wrong time and not understanding what is involved in selling a business
Owners who plan out their exit and who understand what it takes to successfully sell a salon, spa or barber business get the best results when selling. Most of the time this means planning an exit 3-5 years in advance and listing the business for sale when it is the most profitable.
Buyers will uncover absolutely everything in your business before signing on the dotted line. If you are having an unusually great year, moreso than any other year, your buyers want to make sure they can replicate your magic and that this is not just a blip in time.
You will be required to reveal tax returns, profit and loss statements, balance sheets, and more to your broker and buyers. Sale readiness and a full understanding of what it takes to sell your business are the best ways to make the most money in a sale!
Mistake #2 Not understanding what it is you have to sell and the barriers to selling
You know how when you have a baby you think it is the cutest, best baby ever? That is often the way our sellers feel- they have something superior to offer a buyer. The truth is, there will only be a few buyers who accept that your baby is the best.
Business owners are emotionally invested in their business. All those years of blood, sweat and tears tend to make sellers have a colored vision of what it is they are selling and what the business is worth. It comes down to numbers and opportunity, regardless of how anyone “feels” about the business.
Owner-Operator Salons and Barriers to Selling
If your business is highly owner-dependent, this is a barrier for a lot of buyers. Your shoes may be too big to fill or buyers may feel the reason people work for you is YOU. This causes fears of a walkout or buyer hesitation on their ability to replicate your magic.
If you own a booth rental or salon suite rental business, even if your salon is full, it can be difficult to sell unless your buyer has the cash in the bank to pay for the business. The SBA is not too friendly to the rental business model which makes it tough to sell without SBA backing.
You could potentially have a landlord situation that may cause problems or can make your sale a breeze.
Salon Social Media & Digital Assets in a Sale
Some owners feel because they have a ton of social media followers or spent thousands of dollars on a beautiful website that their salon should fetch more…
If the social media or website is valuable you will certainly have the income to show how it pays off for your business. This is not to say that a high degree of brand equity does count towards your value.
Every business is unique and valuable, I always recommend talking to someone who has sold salons, spas and barber shops to truly understand what you are selling and the value associated with your business! Contact us to learn how buyers view your business!
Mistake #3 Thinking the Sale of your Salon will go FAST
I can recall 2 salons and one spa within the last year, we sold very quickly. What I mean by fast here is we got an offer within 2 weeks of listing, not how long it actually took to transfer the lease, secure funding and sign papers.
Each of these super fast sales with almost all full-price offers actually took 2 ½ months to 3 months each to close. Selling fast is possible, but definitely not the norm.
Most of the time, a popular listing will sell in 5-6 months.
So, why does it take so long?
First, we set up the marketing for your business, this can take a few weeks, depending on how fast you can get us the information we need.
Second, a buyer has to like your business enough to come see your salon.
Third, a buyer must scrutinize your P&Ls, or if it’s an asset sale, fully assess the value of your offerings.
Fourth, a buyer has to submit an offer and you must agree. Just the offer stage can really drag on until both parties feel they have a fair deal.
Fifth, buyers get the opportunity to do due diligence on your business. This means for 30-60 days straight you will be providing evidence of the value of your business. Buyers who are getting a loan need 3 years worth of bank statements, credit card statements, balance sheets, tax returns and much, much more. Loans take 60-90 days to obtain, sometimes more!
Sixth, sellers and buyers must come to a final agreement. This can go fast and sometimes this goes slow.
Expect 6 months to a year to sell your beauty business but hope for the best!
Mistake #4 When Selling a Salon Business: Being Stubborn Sinks Sales
Selling a business is a partnership between brokerages like ours and salon business owners. In that partnership, sellers have to continue to do their job, aka, keep the business growing or stable.
When you decide to sell, it’s important to be done, not just test the market to see what you can “get” for your business. We had three sellers recently that didn’t hold up their end of the bargain, meaning, their sales decreased, during the time it was for sale.
Your business value is FLUID, which means as things change and shift in your business, so does the value. If you aren’t willing to be realistic when negative changes happen, no one will be able to support you in the sale.
Changing your mind about holding onto a client base or social media accounts in a sale most certainly changes things- when you list, be ready to deal or you will likely be disappointed!
Mistake #5 in Selling a Beauty Business: Not Being Nice to Buyers
Ok, I know this sounds crazy, why would a seller not be nice to the person who is freeing you up of your business? Truthfully, it is because everyone is trying to get the best deal possible, and buyers are definitely included in that group!
Buyers have to protect themselves, advocate for themselves, involve legal counsel, and inspect every little thing your business has to offer. This can feel both stressful and irritating.
When working with a broker, they work to alleviate a lot of the stress by being the go-between. If you have an inkling that you may get hot during a sale, it is best to work with a professional who can guide both you and your buyers to success.
We’ve had several sales where we knew without a doubt that should our seller not have hired us, the business would not have sold! When you do actually meet your buyers, be ready to dazzle them and put your best foot forward at all times!
Mistake #6 When Selling a Spa, Salon or Barber Business: Underestimating Your Lease & Your Landlord
If you own your building, just skip past this part! If you lease space from a landlord- this is very important info.
Your lease and your landlord play a role in selling your business. Sometimes it’s all good and they help your buyer and other times it can be disastrous to a sale. You must tell your landlord you are selling, before you list.
If there are barriers to selling such as a mandatory sublease or a crazy big, future rent hike, you need to know this! We have seen all kinds of barriers landlords place on sellers- the more you know about potential issues for your buyer, the easier your sale will be!
If you don’t have at least one year left on your lease, you may be in danger of losing your space to a buyer. Contact Salonspa Connection if you need help navigating your lease and your landlord!
Mistake #7 When Selling a Spa Business, Salon or Barbershop: Improper Valuation and Documentation
If you have sought out information about selling your business, you have likely ran into several different opinions and loosely based facts around the fair market value of your spa, salon or barber business.
At the end of the day, your business is worth what someone will pay for it! Getting facts around the value in the eyes of a buyer should be left up to an expert who innately understands what buyers are looking for, and how to market your business.
Whether you utilize our free beauty business valuation tool or call us for a professional valuation, getting facts about your situation, is key to a successful sale.
Keeping Up with the Demands of Selling a Business
Remember earlier how I said the value of your business is fluid? In this case, it means you will have to keep us updated on your financials, at the very least, quarterly. We recently had a seller who refused to participate in getting us quarterly profit and loss statements. She had a great buyer who was ready to buy except for the fact she couldn’t produce what he wanted to see.
The buyer ended up walking away and it took her over a year to sell when she could have sold in less than three months! Paying for a good bookkeeper before and during the time your business is for sale is one of the wisest investments you can make.
Mistake #8 In Selling a Beauty Industry Business: Choosing the Wrong Broker, Platform to Sell, Attorney or Accountant
The people you hire and trust to help sell your beauty business are essential to a successful sale. I cannot tell you how many listings we get from other brokers that failed salon owners who just don’t understand the beauty industry!
One of my favorite conversations was with an esthetician who was selling her spa business that came with one employee. She told me another broker she had spoken with said a foreign investor, without industry experience looking to get into an American business was likely to buy her spa.
Think about that for a minute…
How in the world would someone without an esthetics license be able to effectively run a two-person spa business? Traditional brokers simply do not “get” our industry.
From marketing to buyer conversations to the value, we are constantly amazed at how being industry experts truly sets us apart from other brokerages. So much so that brokers call us for help!
Whomever you choose to work with to sell your business, make sure and find out how much they really know about your business! Same goes for the attorney you use. Using an attorney who has never done a business acquisition spells trouble when they don’t have the resources to help you navigate the selling process.
The accountant you use should be ready and able to answer questions from buyers about your books. Accountants who are hard to get a hold of can easily sink great business deals.
Conclusion
I hope you have found this information helpful and avoid these common mistakes when selling a beauty industry business! Please reach out to me or a broker on our team to chat about how we can help you successfully exit business ownership!
Yours in service,
