Skip to content
How to Sell a Spa Business: Tips from the Leading Beauty Broker
Selling a business can be a complex process, but it doesn’t have to be! Learn the best time to list, and how to sell a spa business, (or med spa business) the right way to maximize profitability! Hi there, my name is Susan Wos, I am the founder of Salonspa Connection, the ONLY beauty industry exclusive business brokerage.
Owners of spas, med spas, salons and barber businesses come to us to sell. The more you know before you sell, the better your results will be. Below is ideal the blueprint for how to have a successful sale, if you still have questions, please reach out to us for a free consultation!
Before we get too deep into this topic- hear me out. Businesses are worth what someone is willing to pay for it, and we sell a large variety of beauty businesses. So whether your business is worth 10 million dollars or ten thousand dollars, understanding how to sell a spa industry business is the same for every beauty business owner.
Table of Contents
Step 1- Readiness and Understanding of Your Spa Business
In a perfect world, you are selling your business as a strategic, well-thought-out exit. If you want to maximize your sale price, this is the best way to go. In reality, this tends to be only half of the businesses that go up for sale.
The best time to list your business for sale is when it is growing, not in a decline. This is not to say that businesses that aren’t growing don’t sell- they just tend to sell for less than if the business is showing growth, stability and profitability.
Life changes such as illness or relocation, tend to happen fast. So, if you are cruising along in your business and things happen that are out of your control and you need to sell, that is OK.
If you have had a walkout or are just sick and tired of owning a business, please know this can translate to the value of your business. The two most valuable things you have in your business is what is on your profit and loss statements and the value of the physical assets of your spa.
It’s important to understand your business type in order to visualize who will be buying your spa.
There are 3 types of Spa Businesses:
Owner operator
Partially managed
Fully managed
Owner Operated Spa Businesses
Spa owner operator businesses are where the owner provides services, is in the business full-time, and runs most of the day-to-day operations. These businesses thrive as a direct result of the owner’s efforts and they are almost always dependent upon the owner to operate. Buyers of owner-operator businesses are usually spa or medical spa professionals.
These are estheticians, med spa professionals, permanent makeup artists, laser hair removal professionals, or nurse injectors who are opening their first business. or gaining a second location and innately understand the industry.
Partially Managed Spa Industry Businesses
Partially managed businesses are where the owner is in the business part-time, managing the business and maybe providing some services to the clientele. These businesses have support for the owner in the form of a manager.
Buyers of partially managed spas are typically beauty professionals or established, multi-location spa owners. This buyer type acquires beauty businesses in order to transition the business to be under their brand OR to become first-time owners. We are seeing non-industry buyers buying partially managed businesses when they are able to visualize running the business as well or better than the current owners.
Fully Managed Spas
Fully managed businesses are 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’s direct involvement 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 things up, if your goals are to have a partially or fully managed business model.
Buyers of fully managed spas, salons and barber businesses are usually 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.
Spa Investor Buyers
Investor buyers usually have the money for an all-cash sale or are liquid enough to obtain financing with ease. These buyers come in different forms such as:
Private equity companies
Professionals who want out of the corporate world and the 9-5 grind
Individuals or married couples who love the spa 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 continue to grow.
After hearing all of this, ask yourself, am I ready to exit now, or should I hold onto the business to increase the value. If you are not sure, reach out to us for a free consultation to discuss!
Step 2- Assessing the Value in Your Beauty Business for Potential Buyers
The second thing beauty business owners need to do is focus on is where is the most value in your business. Do you have a spa full of people who are generating profit for the business, or is the value of your business more in the physical assets?
Whatever the case may be, the value of your business must be very clear to buyers. This means keeping excellent records of where the money is going and documenting purchases for inventory and equipment.
Buyers cannot understand how profitable your business is or the value of the contents of the business, it will be challenging to sell. Great bookkeeping and obvious profitability in your profit and loss statements yield the best results in selling. Hiring an experienced accountant who can help prepare the business to be sold id key to a lucrative sale.
Spa Furniture, Fixtures, Equipment & Inventory
If your equipment and furnishings are under 7 years old, the depreciation and amortization value should be reflected in your tax returns. Keep close tabs on your inventory- document how your inventory is being used and identify areas of potential waste.
If you are using the business to pay for personal expenses or items that are not business related- that is ok, just categorize these purchases effectively so the can be taken out of your business valuation.
While you may feel ready to sell, this may or may not be the right time.
Beauty Business Valuation
If you have a magic number in your head as to what you would like to walk away with in the sale of your business, the best thing you can do is get a professional business valuation as soon as possible. At the very least, use the free beauty business valuation calculator on our website to get a general idea of how much your business is worth.
Your valuation will allow us to guide you as to what the value is TODAY so you can either list or spend the next few years focused on maximizing the value of your business.
We can help you determine if you are ready to sell your business or if continuing to grow the business for a few more years, is the best way to proceed. The more you understand the value of your business, the better a sale will go!
Step 3- Set a Time Frame to Sell
Understanding two things about selling, as far as a timeframe is:
- What your plans will be after the sale is completed
- How long it may take to sell your spa business
Think through the amount of time it takes to list and close a spa business for sale. Visualizing what it looks like for you, after your business sells helps to avoid disappointment and regret.
Personal Spa Clientele, Non-Competes & Post Sale Plans
Reason #1 has to do with your personal client base if you are providing services. If you plan to walk away from your business and still perform services this can be a big problem when selling a med spa business if the buyer plans to retain your clientele.
Reason #2 is All business sales come with a non-compete clause. Before you come for me and say non-competes are illegal now, just know non-competes are completely legal when it comes to selling any business and are a part of 99.9% of business transactions.
Most of the time, non-competes serve to prevent you from opening another beauty business in the area and becoming a competitor to your buyer.
Reason #3 is sometimes people regret selling or fail to visualize what it looks like for them, post-sale. This is more of a personal struggle but definitely a consideration when pulling the trigger to sell. Having an idea of what you would like to do after the business sells is the best way to go.
How Long to List Your Spa Business to Closing the Deal
Understanding how long it takes to sell a business will help you get your mind around the best time to sell. We have sold businesses in two weeks, but some take up to two years to sell! How long it takes to sell a spa will depend on several different factors.
The general timeframe from when you list your spa for sale to closing is generally six months to a year. This is NOT because we struggle to find buyers, we find buyers fast with our marketing strategies! What takes so long is the sale process and the buyer.
Interested Buyers are Fulfilling a Want: Buying an Existing Business
Buyers are fulfilling a want, not a need and it is a big decision to buy a business. Buyers who have the cash to buy your business tend to move faster and don’t need to involve lenders or seek out funding.
People who are interested in buying and need to seek funding are faced with at least a 60-90 day wait. Once we involve lenders things can change should the lender not agree with the selling price. In order to help you set your expectations in line with what can happen, be prepared to renegotiate the terms. This is another reason to enlist the help of an experienced broker who has sold beauty businesses before and can help prepare your business to be sold.
Buyer funding, decisionmaking and research on your business takes time and there is little anyone can do to speed that along. The timeframe you place on your business to sell should include all of these aspects to help you manage expectations on how to exit the business.
Step 4- Contact Beauty Business Brokerage Service
Now that you know about readiness to sell a wellness and aesthetics business, assessing what you have to sell and the timeframe involved in completing a sale, now it’s time to choose how you are going to sell and who you want to work with.
Beauty Business Selling Options
There are a lot of options to sell a business- you can sell it on your own, or contact a business broker to help. Whatever you choose to do, please do not sell your business with a real estate agent or a commercial agent. I have seen disaster after disaster when business owners sell with agents who are only qualified to sell houses or buildings.
Selling a business is a completely different animal than real estate! If you have commercial real estate to sell, great! Work in tandem with a beauty business broker and a commercial agent, a lot of the time business brokers are also licensed to sell commercial real estate.
If you already have a buyer you likely just need legal help, an appraiser to help you determine the value of your practice and an advisor.
How to Achieve a Successful Sale: Sell a Spa Business with a Beauty Broker
If you do not have a buyer waiting in the wings, you will likely need help to evaluate the spa’s book of business, find and filter through buyers and negotiate terms of the sale. Selling a business is a complex process that works best when you have someone in your corner, getting you the best deal they can get while protecting the confidential nature of your business.
If you want to sell through the help of a broker, you are not alone! The digital marketing and company you choose to sell your business has a drastic impact on how the business’s sale will play out. Even when we meet with new business sellers who we would love to work with, we encourage sellers to explore all of their options.
Most of the time, beauty business owners find out that traditional business brokerages who sell gas stations, pizza restaurants or insurance companies are not the best candidates to sell salons, spas, med spas or barber businesses. The beauty industry is much different than other industries.
Medical spa’s and spa businesses are highly nuanced and that is why the Salonspa Connection team are industry experts turned brokers, trained by yours truly! This is your sign to give us a call or book a free consultation to discuss how we can best ensure a smooth exit strategy!
Step 5- Set The Sales Price: Get a Professional Valuation & Focus on Net Profit
Understanding the value of your business is key to effectively marketing the opportunity. It is rare to find a business owner who truly understands what the fair market value of their business really is.
Taking a stab in the dark and listing your business for sale without a third-party professional valuation service will likely result in buyers beating you up on price. The sale price must be backed up by facts, not what you would like to get for the business!
Ideally, you’ll want to make sure it’s priced to reflect true financial performance and is easy to understand for a new owner. Working through what the fair asking price is helps to sell your business faster and more effectively. Experts can advise on what they feel the business will sell for, even if we are selling the contents of the business, only.
If you haven’t had a professional valuation and you looking to sell, it is never too soon for a valuation! At the very least, check out our free valuation calculator to better understand cash flow prior to selling.
Step 6- List the Business for Sale
At this point, you should understand the selling process, and feel confident about listing your spa or medspa business for sale. If you are working with a brokerage, the more they know about your business, the better!
If you are selling the business on your own, it is best to have someone to talk to during this process. Finding qualified buyers and dealing with buyers can be stressful and overwhelming.
A good attorney is needed in every sale to draw up the agreement, even in the most simple sales, legal issues can and do arise.
You will Want to Do Everything You Can to Maintain the Business’s Financial Health
During this time it is best to focus on continued growth. That may sound a bit odd, why grow the business while you are trying to sell it? Maintaining the revenue you generated in the past helps to justify the sale price. Maintaining and growing the business is an ongoing effort, until it is no longer yours…
The last thing you want is to show buyers a once-strong business is now in decline. What the business “can” do or “might do” in the future does not matter to lenders nor to buyers. What the business has done, (profit margins, cashflows, net profits), in the last few years and what it is currently generating is what is important here.
When listing the business for sale, it is best to disclose to the good, the bad and the ugly. Surprises don’t bode well in this situation!
Step 7- Dealing With Buyers & Negotiating the Sale
If you are selling the business on your own, you will be dealing with a wide variety of buyers. If you are working with a broker, they will be dealing with buyers, sending only those who have signed a confidentiality agreement and are serious about buying your business to meet you and see the business.
You should have a strategy in place to tweak buyer conversations to meet each buyer’s wants and needs, NOT what you want and need.
Prepare Your Spa Business to SELL by Managing Your Emotions
Emotions and expectations on both sides of a business sale tend to run high. This often kills deals and leads to more problems than solutions.
A great example is a $1.2 million dollar spa, medspa & hair salon we just sold. The seller was very bright and had a robust business to sell. He had tried to sell it on his own and had gotten offers from multiple buyers before we came into the picture.
Each time signing the agreement came about, the buyers walked away. This seller finally called us to sell his business, which we did with much success. The problem with this sale was the seller himself.
He was difficult to deal with and absolutely NEEDED us to be the buffer or the middle man between the buyer and the seller. Negotiations are often tough and dealing with buyers is both complex and overwhelming.
Receiving the Offer: Letter of Intent
When offers start to come in, if the buyer knows what they are doing, you will receive an LOI or a letter of intent. This is a non-binding legal agreement that contains the terms of buying your business. Basically, an LOI is a financial and operational document outlining how the deal will go down.
This is also the starting point for negotiations and a revelation of what buyers feel your business is worth. Most of the time this is not how much you can get rather this is the first, not final offer for your business.
Negotiating with buyers in this stage is very important. As a seller you should be open to potentially some creative financing mixed in with a cash offer. This can be through an SBA loan or if the buyer has access to the funds.
Creative Buyer Financing: Make Sure You Get Compensated Fairly
Creative financing looks different for every business and it is common in most business transactions. Creative financing is almost always part of deals under $1,000,000 but is a smaller portion than the cash a seller will receive from a loan or cash injection.
Creative financing can be any number of things, such as:
The buyer agrees to pay the seller off over a year or two with interest- this is seller financing.
The buyer pays the seller based on earnings once the buyer takes over the business- this is called an earn out
Then there are ways that are specific to the beauty industry such as allowing a seller to rent a room or a space to perform services for a deeply discounted amount, or for free.
Sellers do not tend to love creative financing, but keeping an open mind and understanding that this is the way things are typically done will yield an excellent result.
If all goes well, you will get an offer that both you and the buyer can agree upon. Sellers should accept the LOI under the supervision of an attorney and your sale moves down the line to due diligence.
Step 8- The Due Diligence Process & Closing Out The Sale
Depending on the complexity of your business and if your buyer needs to seek funding to buy your business, you will experience a period of due diligence. This timeframe is a financial revelation outside of just showing your profit and loss statements to the buyers.
Even when buyers do not require detailed financial documents for the SBA, if they are buying your business, not just the med spa’s FF&E and inventory, they will need financial proof to justify paying you to take over the business.
Should a buyer not be able to prove the value of the business you agreed upon in the LOI or be unable to obtain financing, the deal will likely change. It is wise to expect more negotiation during and after due diligence, especially when sellers cannot provide the documentation needed for due diligence.
Occasionally sales last so long that things can change from the time you list to accepting an offer- so much so that the sale price needs to be renegotiated. Keep an open mind during due diligence and have a healthy stress outlet in mind when heading into this time period.
Once due diligence concludes you move toward closing the deal and signing the asset purchase agreement. From our past reports that the average time period from signing the LOI to closing the sale is anywhere from 2 months to 6 months. This all depends on the complexities of the sale and the buyer’s ability to obtain funding.
Step 9- Training Buyers & Fully Exiting Your Spa, Salon or Barber Business
If you have made it this far, congrats! Not only do you know a ton about selling your med spa but you are at the finish line (mostly) with your business!
Once the APA has been signed and funds have been transferred, you are officially a former business owner. Following the final transaction, there will be a predetermined amount of time where you will be training the new med spa owners on how to run your business.
This is usually 30-90 days depending on how much training is needed in order to effectively run your former business. After the training period, you should make yourself available to answer questions and help the buyer troubleshoot issues.
This is not to say you always need to help, just be reasonable and helpful, especially when creative financing is involved. The more you support your buyer, the quicker they will be able to pay you off.
New Opportunities to Generate Revenue, Post Sale
There may come a time when you can be an hourly consultant for your buyer- this makes sense once you are fully paid off or if your buyer is extra needy, not catching on to the training you have provided. Consulting for your buyer is a great way to make money and feel career satisfaction, well into retirement.
I hope you have found this blog helpful and feel as if you have a decent grasp on how to sell spa business. If you need further guidance in selling or you just want a private conversation with me or an expert on our team, do not hesitate to reach out!
Please connect with me on LinkedIn or follow Salonspa Connection on Instagram, Facebook or YouTube to get more tips on selling and buying beauty industry businesses!
Yours in Service,
