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How to Add Value to a Salon Business to Maximize a Sale Price
Getting the most bang for your buck when selling a salon, spa or barber business is the utmost priority for owners in the beauty industry. As the leading brokerage for the beauty industry, we wanted to share our broker’s top tips on how to add value to a salon business to maximize a sale price, BEFORE you reach out to us to sell your beauty business.
Hi there. My name is Susan Wos, and I am the founder of Salonspa Connection, the #1 company for beauty industry business acquisitions. We help owners best prepare to exit salon ownership and find the best buyers for their salons. Below are tips from our expert beauty brokers on how to maximize your sale price and attract the best buyers!
Before we get into the best ways to add value to your beauty business, sellers need to understand which business category your salon falls into, and the buyer types that acquire beauty businesses.
Table of Contents
Salon Industry Business Seller and Buyer Types
We have broken beauty businesses and buyers into 3 different categories each, so you can gain the knowledge you need based on YOUR business type.
3 Main Beauty Business Types
Owner operator– This business type is where the owner is providing services, is in the business full time, and runs most of the day-to-day operations with a small staff of 2-3 other beauty service providers. These businesses thrive as a direct result of the owner’s efforts.
Partially managed– This business type is where the owner is in the business part-time, managing the business and sometimes providing services to clientele. These businesses have support for the owner in the form of a manager.
Fully managed– This business type is where the owner is not providing services and is not involved in the day-to-day operations. These businesses have management in place and the business does not depend on the owner to thrive.
Generally speaking, partially managed and fully managed businesses tend to yield a higher sales price.
Of course, there are always businesses that can fluctuate between these categories. The goal here is to help you understand where your business fits into and give you time to change if your goals are to have a partially or fully managed business model.
3 Beauty Business Buyer Types
Beauty professional buyers- These are individuals who are opening their first business or gaining a second location and innately understand the industry. These buyers typically seek owner-operator and partially managed salon, spa, and barber businesses.
Chain or multi-location salon, spa, and barber buyers- This buyer type acquires salons, spas, and barbershops in order to transition the business to be under their brand. This buyer type is the least common type of buyer. They tend to seek partially managed or fully managed salons, spas, and barbershops.
Investor buyers- These are typically non-industry buyers who are seeking profitable, well-run businesses to acquire to add to their portfolio or start a portfolio of companies. Investor buyers usually have the money for an all-cash sale or are liquid enough to obtain financing with ease. These buyers come in many different forms:
- Private equity companies
- Professionals who want out of the corporate world and the 9-5 grind
- Individuals or married couples who love the beauty industry (or recognize the general value in service-based businesses), that would like to venture out as entrepreneurs.
These buyers typically have little to no industry knowledge and are seeking fully managed to sometimes partially managed businesses they can grow. The current trend of Salonspa Connection’s buyers falls mainly into beauty professional buyers and investor buyers with a strong emphasis on investor buyers.
So, what does this mean for you?
In short, if you own an owner-operator salon, spa, or barbershop, your target buyer is a fellow beauty professional. Depending on your service offerings- hair stylists, estheticians, barbers, nail technicians, and massage therapists are usually the only individuals who can step into your shoes and operate your business.
If you own a partially managed beauty business, your buyers are in a larger pool. However, MOST investor buyers are seeking solid business infrastructure as they are not beauty professionals and cannot step in to perform services if need be.
If you own a fully managed salon industry business, you will likely attract a robust and well-funded pool of buyers, in addition to getting top dollar for the business.
Depending on your business and career goals, we have gathered several tips that will make ANY beauty business more valuable in the eyes of a buyer.
Adding Value to Your Salon Business: Streamline Operations
Imagine someone stepping into your role as a beauty business owner. In order to continue to run your business, they need to know everything they can about the day-to-day operations in addition to the nuances that are involved in your particular role in the business.
Below are our top recommendations on where to focus your energy to get your salon operations, sale ready.
Document Your Processes: Create detailed standard operating procedures (SOPs) for daily operations, marketing, employee relations, and customer service. Buyers appreciate a turnkey business, regardless of the shape and size.
Utilize online tools like Chat GPT to brain-dump everything you do and recreate your processes in streamlined, easy-to-read documents.
Invest in Technology: Use salon management software to track appointments, inventory, and financial performance. Buyers want key metrics for your business, this is much easier to accomplish using business management software that is specific to our industry.
Optimize Scheduling: Efficient staffing and scheduling reduce costs and ensure consistent customer service.
Secrets to Selling Your Salon for Top Dollar: Focus on Financial Health
As someone who has sold countless salons, spas, and barber businesses I can tell you that the dollars matter big time to buyers. Trimming the fat in your expenses, keeping clean books, and making sure you are profitable are of the utmost importance in a successful exit strategy.
Clean Financial Records: Maintain clear and accurate bookkeeping, including tax filings and profit/loss statements. Keep it current! When we do valuations for businesses, we take into account year-to-date financials as well as the past 3 years of the historical financial performance of the business. The cleaner and easier to understand your books are, the easier it will be for buyers to see the value!
Increase Profit Margins: Review pricing and reduce unnecessary expenses to improve profitability. Spending too much on color? Tighten it up! Haven’t raised prices in a few years? It’s time!
If you are trying to avoid paying taxes by spending as much as you make, this needs to come to an end, at least 3 years before you list your business for sale. Demonstrate profit on your P&Ls so buyers can see what your business can do!
Diversify Revenue Streams: Increase retail sales or offer memberships and package deals for services. The more ways people can spend money in the salon, the better!
Serve & Grow Your Loyal Customer Base
Unless you are an all-retail business, the clientele you’ve grown is extremely valuable. Consider the tips below to get even more value from your customer base.
Customer Retention Programs: Implement membership programs and keep client satisfaction high to maintain a predictable, monthly revenue stream of repeat customers.
Solid Customer Data: Maintain and frequently update your database of customers, including contact information, formulas, retail purchases, and preferences, as a valuable asset for the buyer.
Reviews and Testimonials: Encourage positive online reviews on platforms like Google and Yelp. Reviews that stay within your salon booking software do NOT translate- anyone can see these unless you specifically go to your software! They also don’t move to a new software platform should you decide to switch providers.
The added bonus of getting consistent, great reviews boosts the business’s online presence and gets more new clients coming through the door.
Build Strong Brand Equity: Make Your Salon Business Irresistible to Buyers
The perceived value in the eyes of the consumer directly translates into value for buyers. If you own a sought-after business, its strong brand equity can attract a larger pool of buyers, even if its exact monetary value is unclear. This often leads to higher multiples and generates significant positive interest from a large pool of buyers.
Consistent Branding: Ensure the salon has a strong, recognizable brand across its website, social media, and physical location. Great branding in the beauty industry yields clientele ready to spend and stylists clamoring to work with you.
Marketing Strategy: Have an active marketing plan, including a social media presence, email campaigns, and community involvement.
Signature Services and Products: Offer unique services that set your salon or spa apart from competitors. This can even be products that are sold exclusively in your business that consumers can find on Amazon.
Building Value in Your Salon: Invest in the Facility
Evoking a positive reaction the minute someone steps inside your salon is key to getting buyers emotionally involved in your business. NO ONE wants an outdated or ugly salon!
Keep it Updated: Regularly update the décor, furniture, and equipment to ensure the salon is modern and inviting. Even small updates can make a huge difference!
Maintain Cleanliness: A well-maintained, clean, and visually appealing salon attracts buyers and clients alike. A fresh coat of paint or even the smell of a clean salon is important!
Energy Efficiency: Consider energy-efficient upgrades, which can save on utility costs and appeal to eco-conscious buyers. Newer HVAC or lighting that saves on utility bills will appeal to buyers who are overly conscious of utility costs.
Maximizing Your Salon’s Worth: Retain and Train Staff
Without people, the value of your salon business is the contents of the salon. While there is no guarantee on people, there is much you can do to preserve the staff in any business model.
Partially and fully managed salons have the lowest flight risk for employees & booth renters. Owner-operator business types have the highest flight risk due to the staff being reliant on the owner for almost everything that is involved with the business.
Learn more about the “people factor” in salon businesses in this video.
Skilled & Loyal Team: Build a team of experienced and reliable stylists. Buyers value businesses with talented, long-term employees and or booth renters. I know, this is easier said than done but a beauty business full of veteran stylists speaks volumes about a buyer’s ability to retain staff, post-sale.
Ongoing Training: Invest in staff development and training to keep skills current and morale high. This includes training newer stylists. Having a training program that is not reliant on the owner is a huge bonus. Check out programs like Chris Baran’s Salon Team Training program to drastically reduce owner dependency and empower staff to conduct new hire technical training.
Employee Agreements: Have clear contracts or agreements in place to ensure key employees remain with the business after the sale. This means putting transferable language in anything you have employees or booth renters sign while onboarding or reworking employment agreements.
Scalability is Key in Salon Business
Investor buyers are typically growth-focused and want to expand brands. The more systemized your business is, the better buyers can envision expansion.
Focus on Systems: Create scalable systems that allow for expansion, such as adding more locations or services. This means having everything well documented and running smoothly!
Delegate Leadership: Reduce dependency on the owner by training managers or team leads. This is very important- buyers feel overwhelmed when they step into your shoes. The more support they will have in leadership outside of you, the better.
Tips for a Lucrative Salon Exit Strategy: Evaluate and Plan Ahead
Regular Valuations: Get periodic business valuations to understand the current worth and areas for improvement. Knowing where you are NOW, financially speaking, drastically increases your chances for a more lucrative exit.
I highly recommend using our free beauty business valuation calculator or hiring one of our brokers to do a professional valuation, long before you sell. Knowing the fair market of your beauty business really helps to get your head around how much you can get. When the time comes to sell your salon.
Exit Strategy: Develop a long-term exit strategy and timeline for selling. Reach out to us today for a free consultation on what you can do to get sale-ready.
Professional Guidance: Work with a beauty business broker early to prepare the business for sale. We see hundreds of salon, spa, and barber shop owners who have no idea how to sell their businesses. Knowing what to expect when selling helps to set expectations in line with reality and increase your chance for a successful exit.
Understand Your Lease and Barriers to Lease Transfers
The ability for a buyer to assume your lease is imperative to a successful sale if you do not own the building in which your business resides. If need be, get an attorney involved to fully understand potential barriers to transferring a lease to a buyer.
Negotiate Favorable Terms: Ensure the lease is transferable and competitive, as buyers will scrutinize lease terms closely. The longer you have left on your lease, the better. Waiting until your lease is about to expire puts your business at risk.
Consider Location: If you are in a prime location with high visibility and foot traffic, this is very appealing to buyers.
Reduce Risks for Buyers
Buyers want to feel they can step into your business, takeover, and profit. Reducing their risk is something you should focus on, long before you sell.
Diverse Clientele: Avoid over-reliance on a few key clients to minimize buyer concerns. This tends to not be as much of an issue in the beauty industry but customer concentration issues are possible.
Think of a chair massage business that contracts with corporations to provide services. If you have a few big contracts that pay all of your bills, that is very risky for a buyer to assume those contracts will last. If you do have a high customer concentration coming from a few sources, diversify this to the best of your ability!
Legal Compliance & Minimize Liabilities: Ensure the salon is compliant with all licenses, permits, and employment laws. Lawsuits, issues with state boards, or any legal trouble for the business can signal red flags to buyers.
Resolve any pending disputes, debts, or maintenance issues before listing the business.
Conclusion
In conclusion, maximizing the value of your salon, spa, or barber business requires careful planning, strategic improvements, and a focus on creating a seamless, scalable, and profitable operation. By streamlining operations, maintaining clean financial records, investing in staff, and building strong brand equity, you position your business as an attractive investment for potential buyers.
Understanding your business type and target buyer is key to a successful sale. Whether you are an owner-operator, partially managed, or fully managed business, implementing these strategies will not only increase your sales price but also make the transition smoother for the new owner.
