How to Prepare and Exit Salon Business Ownership
How to Prepare and Exit Salon Business Ownership: Learn everything you need to know to have a successful beauty industry business sale! Watch or read our strategy session below to and gain a better understanding of what the sale of salon, spa and barber industry businesses entails, and what you can expect.
Get the most from your hard work with top expert advice from the leader in salon industry businesses for sale, below!
How to Prepare and Exit Salon Industry Ownership
Ready to sell your salon or just thinking about how to navigate this challenge?
Welcome to the only niche business brokerage for the beauty industry- Salonspa Connection. We were inspired to create this space for the industry after our founder sold her salon on her own in 2001 after a failed adventure working with a traditional broker. Today, Salonspa Connection helps beauty industry owners exit their businesses across the US!
We have worked with and sold a wide variety of salons, spas, barber shops, schools and niche beauty businesses throughout the industry since 2019. We handle commission, booth rental, team based, hourly, suites, med spas, online businesses and both on market and off market deals- the beauty industry comes to us to exit their businesses.
One of the most common things we encounter is that business owners don’t necessarily understand the selling process, how to prepare the business to be sold, nor how to determine what the business’s worth really is.
Below are education and facts about selling your beauty business in an effort to help you prepare to list and to have a successful exit, on your terms. This article includes information for any business type in the beauty industry, whether your business is worth $10,000 or $30 million dollars.
Topics we will be discussing:
- How to handle the emotional side of selling.
- What is the best time to list your beauty business for sale.
- How beauty service based businesses are valued.
- How owner dependency affects the sale of a business
- How long it takes to sell a business
- The landlord’s role in the sale of any brick and mortar business
- What it means to list privately or publicly
- And finally, the steps to take when selling
This video should be watched in its entirety, however, if you already have a lot of knowledge on selling, feel free to skip to the topics you need the most help with!
First, let’s start off by saying there are a few different ways to sell your business. The path you take largely depends on what it is you have to sell, and how much work you want to put into the sale.
Around half of businesses we sell, opt for our broker services, however, in effort to serve owners of various needs and preferences, we do have effective alternatives to the full service brokerage option. In our experience, we found there is no one-size-fits all service for sellers, so we structured our seller options to fit your individual needs. If you need help in determining which way to go when selling, we offer a complimentary business seller consultation– if you would like to speak with a salon industry expert broker on our team to privately discuss your situation.
Handling the Emotional Side of Selling
Exiting your business is often coupled with emotions. You might feel anxious or excited about your exit. Most of the time, emotions run high for sellers. One of the best things you can do is start to disconnect, emotionally, from your business.
Selling is a transactional process and high emotions tend to cause problems. Almost never does the sale of a salon industry business go exactly as a seller wants it to, or how you think it should go. Most business owners have a significant time, energy and financial investment into your beauty business.
This investment can do things like make you overestimate, (or sometimes underestimate) a selling price, idealize buyers, or place restrictions on what is actually for sale.
Listing your business for sale is a big damn deal and we understand the feelings associated with selling. Owners want to exit for a wide variety of reasons- some want to retire, some are moving out of the area, occasionally sellers need to exit due to health reasons, and often sellers are simply tired of being business owners.
Whatever your situation is, please know we have seen it ALL! Nothing surprises us anymore and we certainly do not place judgment on what you have to sell nor why you want to sell. What we do ask of you is try to get a grip on the emotional side of the exit before you list your business for sale. This makes pulling the trigger and dealing with buyers much less difficult in the long run, for everyone involved.
Selling a house is very different from selling a business, except for a few small details. Anyone who buys a house wants it to feel like their home and will change a variety of things in the house, to suit their tastes and needs. Same goes for someone buying your business- an important piece of this puzzle is to allow and encourage buyers to envision their dreams in your business.
Afterall, we are selling a dream… We want buyers to like the business enough to compensate you for helping to get their career goals on the fast track!
What is the Best Time to List a Beauty Business for Sale?
When is the best time to sell a beauty business? Best case scenario is to sell when your business is growing and or stable.
I know this may not make complete sense… why would you sell when things are going well?
A business that is growing or steady, is a much more attractive option for buyers than a business on the decline. As a matter of fact, when we work with multi million dollar acquisitions, a thriving and profitable business is the only kind of business investors and private equity firms want to see. Businesses that are stressed tend to be unattractive to buyers, unless we are selling the assets only, meaning the contents, buildout and digital assets of your salon business.
What Buyers Want When Buying a Beauty Business
Qualified buyers will be privy to the business’s financial performance, IF we are selling the business, not just the contents of the salon. If you want to sell the business, not just the contents of your salon, be ready to provide anywhere from 3-6 years of P&Ls and current year profit and loss statements as well as tax returns. A business showing stability and growth are much easier and quicker to sell than a business in significant decline.
It is wise to chat with or hire a good bookkeeper before listing your business for sale and focus on selling the business while it is stable and profitable. The more clear the money a buyer can see flowing through your business, the better.
With that said, about half of our business owners that come to us, ready to sell, are not on the rise. The important thing is not to wait too long to sell your salon, spa or barber shop– be proactive about your exit strategy, and please reach out to us for a complimentary, one on one, private consultation if you need some help navigating this process.
Businesses that Run Smoothly are Easier to Sell
Creating an environment where your business runs smoothly, without you there, is also an important aspect of a successful sale.
Businesses can take a good amount of time to sell, and some sell rather fast- selling a business is NOT typically a fast process. Allow yourself at least one year to exit your business and be very careful of anyone who has not sold beauty businesses or anyone that tells you they can sell your business fast.
Lower priced businesses- listings under $200,000 do tend to sell faster as it is much easier for buyers to access capital under $200,000. Of course, we hope that your valuation comes out higher than $200,000, but I felt this was a good thing for you to know.
Finding Buyers for Your Salon Business
There’s a big difference between finding buyers, and buyers saying yes to your business. Just like it’s a big decision to sell, it’s also a big decision to buy, and many things need to take shape for buyers, before they sign on the dotted line.
There is a fair amount of controversy and discussion about selling employees, booth renters and clients. “People” are not for sale, but the business’s historical financial performance, is. Uneducated buyers want guarantees- there are very few guarantees in life and even less guarantees in any business, as most of us know.
If you have an employment or booth rental agreement, not a non-compete agreement, that states that the current employment relationship- the perks, benefits, pay or rental agreement and systems will transfer in the sale of your business, this is a very good thing. If you don’t have an agreement that includes transfer to a new owner, it is a good idea to work towards including this in your employment or rental agreement as soon as possible.
Before you list your business for sale, ensuring you have this transferable language in your agreement will help to assure buyers that employees are more likely to stay with the sale of your business, but again, there is no guarantee of this.
Are You in or Are You Out?
Before we wrap up what the best time to sell is, it’s worth mentioning situations where owners are kind of, you know, half in and half out. This would be owners who want to possibly stay on in the business at a lower capacity or exit the business and stay in the industry.
Half in or half out type of situations are harder to sell, but not impossible by any means. Most of the time a business exit should be an exit, not a downgrade to working in the same business at a lower capacity.
Let us give you an example of a salon we sold in the Dallas area, last year. The owner was about 5 years out from retirement and wanted to sell the salon but still maintain her clientele.
There were a variety of ways she was willing to structure this opportunity but it was a bit confusing to buyers as to why she wanted to sell, but still do hair. Obviously, they were tired of being an owner which made buyers skeptical of this business.
What ended up happening is we found a buyer who wanted to open a hybrid salon who kept the owner on as a renter, but this took 10 months to close the sale. The owner got free rent for one year to offset the sales price of the business but this was met with some difficulty with the staff.
In the end, it all turned out great, but the half in and half out type of sale is often more complex and sometimes unattractive to buyers. Viable and clear cut reasons for selling, or a “clean break from ownership” not only makes our job easier but it makes your business more attractive to buyers. Flexibility and transition options in selling is always a plus, but try and envision your business through the eyes of a buyer- think what would you want if you were purchasing your business?
HOW TO DETERMINE A SALES PRICE FOR YOUR BEAUTY BUSINESS
How do you determine a price to list your business for, or what is your business worth?
This all depends on what it is we will be selling. Are we selling the assets only, or are we selling the actual business plus your tangible assets? Other factors such as offering seller financing, employee or stakeholder buyouts or an acquisition through an SBA loan can all affect the final sale price. For the most part, the considerations for pricing are your physical and digital assets, inventory on hand and the business’s past financial performance.
Generally speaking, unless your business is profitable, you are looking at a pure asset sale. You can still walk away with a pocket full of cash with an asset sale.
We have sold several beauty businesses where the value lies in the contents of the salon as well as the digital assets- most of the time these are easier and faster sales for everyone involved. BUT, the goal here would be to sell both the book of business as well as the assets, however, every situation is unique!
Selling a Business When Owners Provide Beauty Services
If you are thinking about selling, and your service income is tied into the business’s finances, this is a consideration on how we determine a fair selling price.
If you provide services to clients, and are staying in the industry, meaning you plan on taking your clientele with you, none of that income should be counted into the valuation of the business. What we are looking for in a valuation is what a buyer will inherit- your personal income from services cannot be included if you plan on taking that income with you in a sale.
It is possible to value and leave behind a client base, if you will no longer be providing services, after the sale of your business. If you are moving, retiring, or leaving behind a client base for whatever reason, this does go toward the value of your business.
If you do provide services, but you are leaving your clientele behind in a sale- you have nothing to worry about.
Think of it this way, if your business valuation comes back at $500,000, and your services make up a good amount of that valuation, a buyer will quickly understand that business will walk out the door with you, in the sale.
This scenario is very common with sellers who want to exit business ownership, but not leave the industry. If separating out your service income from the rest of the business is a possibility, please do so before you reach out to us to sell, so everyone is clear on your sales, or any business partner’s sales versus the rest of the business’s income.
In a business valuation, we assess how much money the owners had access to, over the last 3 years. This would be things like your salary, net profit and any personal expenses you paid for through the business. Under the table cash or unreported income cannot be counted in the valuation of your business.
If you are paying for several personal expenses such as car insurance, travel or subscriptions unrelated to the business, that is OK, we add owner benefit expenses back into the cash flow of your business.
Assessing The Value
Please know the way we assess value differs slightly to lenders such as the SBA. Whenever possible, pay yourself and utilize your income to pay for personal expenses in order to make the value of your business very clear to lenders and to buyers.
To determine a fair market selling price, we also factor in things like equipment and leasehold improvements, depreciation and interest on a loan- those items do not count against you, they are extracted as a non-mandatory expense for a new owner.
Depreciation expense is an absolute must have for your taxes- if you aren’t writing off or including depreciation in your taxes, please start doing this, as soon as possible! To arrive at a fair selling price, we assess your earnings and the money you have access to through the business- this is called seller discretionary earnings or SDE.
Formula for Fair Market Value of a Salon Business
Once we determine what your discretionary earnings are, we take into account the average amount of inventory you have on hand as well as the value of the contents of the business. We then use comps, just like in real estate, that help us determine what “multiple” your particular business model sells for, in your area.
If you have outstanding debt or loans, this stays with you- rarely do buyers assume the owner’s debt. Debt does not play into the business valuation as it is yours to handle and settle. Most of the time debt is settled within a short period of time after the sale is completed.
If you would like to know TODAY what your business might sell for, a good place to start is with our free salon, spa and barber business valuation– this is an automated calculator that is super easy to use and provides an immediate result.
If you would like the formula we use for brick and mortar beauty businesses, it is generally an average of 3 years of Seller Discretionary Earnings, times your business model multiple, plus the value of your inventory, furniture, fixtures and equipment.
Every business is unique, digital businesses tend to have a higher multiple than the standard brick and mortar businesses often yield. I always recommend getting a business valuation, long before you are ready to sell. Knowing what you will get in a sale helps to get your mind around how to add value and what the best time to list the business for sale will be.
NDAs and Buyer Prequalification
If providing financial information to virtual strangers feels scary, please know we fully screen buyers as well as require a confidentiality agreement when you opt for our broker or consulting services.
When we work one on one with sellers, we ask every seller how much they would like to get for their business- what we are looking for is a bottom dollar amount you are willing to accept, as well as your “dream” selling price once you get the valuation back from our team.
Most of the time, we build a little cushion into the list price order for effective negotiation. Listing your business too high rarely gets great results- reducing the price in a non-urgent sale also does not tend to get the results selling a house would yield.
The first price the business is listed at should be close to the target, final sale price. For our broker services, we reserve the right to tell you no, if the price you want to list for is unrealistic, but ultimately we are here to provide guidance and you are the person who determines the list price.
As brokers, we are invested both emotionally and financially in a successful sale of your business. The last thing we all want are issues, our goal is to find great buyers and make this a wonderful experience for everyone involved.
Owner Dependency
On the heels of how much you can get from the sale of your business, how dependent the business is on you, as an owner, does play into how much you can get for your business.
The absolute best thing you can do is create an environment where your business is not dependent on you. If your business’s training program, systems and day to day activity are all reliant on you, this can be a barrier for buyers.
Why Salon Franchises Can Yield a Higher Multiple
Think about the franchise business model for a moment…a franchise location is ideal to sell, and this is why:
Typically none of the employees or clients care or sometimes even know who owns the franchise salon, spa or barber shop. This situation is ideal in many ways and attractive to a wide variety of buyers.
A new owner of a franchise business model walks into tried and true systems, employees are not affected by the loss of the owner, and business generally continues on, as is. Employee flight risk is extremely low in the sale of a franchise model, which is a value add we can all learn from the franchises.
Calm Walkout Fears by Planning Your Exit
Buyers fear a walkout or losing staff in a sale. There are many ways you can reduce this risk and we suggest taking steps toward reducing your business’s dependency on you, as soon as possible.
If your staff is in your business because they love you, this can be problematic…
This is counterintuitive to the way you grow a beauty business BUT- If a buyer thinks your employees or renters will leave if you aren’t in the business, we will have a more difficult time finding the right buyer. The absolute best thing you can do is allow your business to grow and thrive by empowering leaders who can ensure if you go, the business does not suffer or is disrupted.
Salon Buyer POV
Think of this from a buyer’s point of view- if you do absolutely everything- the hiring, payroll, training, services and or day to day operations, this feels intimidating to buyers. It is a wonderful thing when you have the admiration and respect of your team, don’t get me wrong!
The problem lies in dependency and loyalty between you as an owner with your staff.
A buyer wants to know employees and renters will stay when they take over, as you would feel the same in their position. I know we aren’t all in the position to be able to have a manager or pay others to run our businesses. But, if you are able to delegate and remove yourself from the business, this is a good thing, AND adds to the value of your business- especially in the eyes of a buyer.
Telling Staff the Business is For Sale
Most salon industry business owners do not tell the staff about the sale, for fear of negative consequences. While we completely understand that- employee’s behavior in ANY industry can be quite unpredictable, especially in a sale. Whenever possible, we do encourage you to be transparent for several reasons.
Here is a good example: We sold a salon to the manager of the business. The owner could have saved a ton of time, money and energy, if they would have been transparent about wanting to exit, from the beginning. That conversation should have happened long before the business went up for sale.
Buyers May Be Right Under Your Nose
Often, a team member has thought of buying your business. Test the waters with this theory over time, without giving away your plan just yet. Some of the best buyers are someone who is already invested and familiar with your business!
If you do have a buyer waiting in the wings, we also offer salon employee buyout services. If you need help understanding your business’s value or need an experienced go-between for the sale, reach out to us for a free consultation to see how we can serve you, if you already have a buyer and need a bit of help getting to the finish line.
If a buyer knows you have told the staff about the sale, this removes several objections as well as assures buyers that your business is solid. This is often the case when business owners retire, move or have a reason for selling, other than they are just tired of owning a salon.
If you have a good relationship with your employees, telling them you are selling is often better received than a surprise. If this feels scary… we do have resources and recommendations on industry experts who can help you through this process if this is something that feels possible in your situation. Reach out to Salonspa Connection if you would like someone to talk to about telling your staff the business is going up for sale.
Public Sales are Rare
It is rare to sell a business when the staff is aware of the sale- it’s OK if this is the situation you are in, just know you do have options and a secret or private sale is not the “only way” businesses are sold.
How long it takes to sell a salon, spa, barber shop
While our beauty businesses tend to sell faster than with traditional business brokers, generally speaking, it often takes 6 months to a year to complete a sale. This is not because it takes that long to find buyers- we find buyers fairly fast, the thing that takes so much time is the buyer themselves.
Specialty or niche businesses such as a children’s salon or a mobile business tend to take a bit longer to sell. This type of business appeals to a very specific buyer and often we cannot disclose in ads what the business actually is, for fear of compromising privacy.
Buyers often need to secure funding and always conduct thorough research on your business, to ensure it’s a viable fit for what they need. Buying a business with employees or independent contractors means a buyer must feel comfortable in the fact that the staff won’t jump ship the minute the sale is complete.
Ensuring that won’t happen for a buyer affects what you do as an owner, prior to listing the business for sale.
Give Yourself Enough Time
Taking on an existing business is not an easy decision for most, the decision making process takes time, research and a lot of conversation. Please be wary of anyone that tells you they can sell your business fast- literally no one knows or can predict how a sale will go nor what the buyer’s behavior will be.
It’s very important to give yourself enough time for a successful sale. When we get sellers who come in hot, it’s often disappointing for them to hear that selling is typically not a fast process. Everything takes time, and selling a business is a much longer process than in a typical real estate transaction.
Heck, business brokers call US to help them sell their salon industry businesses if that tells you anything about our marketing efforts! But buyer behavior is still the common denominator here- no one can control how fast or how slow a buyer will move through the selling process.
Salon Acquisitions by Private Equity
The exception to this rule is when you work with private equity firms or high net worth corporations. These entities move fairly quickly when compared to individual buyers- they will conduct due diligence and acquire target beauty businesses typically in less than 3 months.
Buyers are just like most people- some are quick to make decisions, some take their sweet time and some lose interest in businesses for personal reasons. It is truly an emotional journey for both buyers and sellers and it’s important to allow enough time for the deal to take shape and get everyone on the same page.
Leases and Landlords Role in the Sale of Beauty Business
If you are leasing space from a landlord, telling the landlord when you decide to sell is a good idea and a requirement if you choose to work under a broker agreement. A buyer will need to be screened by the landlord to qualify as a new tenant.
Landlords can play a significant role in the sale of any brick and mortar business. Sometimes as a supportive and helpful person in the sale, and other times landlords can be detrimental to a sale.
If you lease your space, and have even thought once about selling your business, you need to have a conversation with your landlord about what it looks like when the time comes to sell your business. I would even go so far as to have an attorney review your lease to help identify any potential issues when the time comes to sell your beauty business, and transfer your lease to a buyer.
Long Term Leases are the Way to GO When Selling
The best thing you can do as a seller is to have a long term lease in place or have the first right of refusal to exercise a renewal, written into your lease. The last thing you want to do is have a lease that is about to expire!
Landlord/ Salon Owner Selling Issues
We’ve had 3 experiences with sellers and landlords that you should know about, in order to understand how important leases and landlords are in a sale of a brick and mortar business.
Buyer Snags the Space Leaving the Salon Owner Out in the Cold
We had a salon owner that came to us too late. Her lease was ending, she was worn out from ownership and placed a very narrow timeframe on us to find a buyer.
Luckily a salon owner nearby wanted a bigger space and she loved the salon the seller had created. During the negotiation process, the buyer stopped communicating. We soon found out the buyer went to the landlord behind the seller’s back and offered to sign a new lease if the landlord would cooperate in getting the seller out.
That is exactly what happened! The seller ended up having to list her equipment for sale on Facebook marketplace and didn’t get anywhere close to what she would have received from the buyer, if her lease was not about to expire.
Blocked From Selling
One of our most recent sellers was ready to list when she approached her landlord to let him know. She had 6 months left on the lease and he told her he was going to do “something else” with the space. Instead of making $150,000 on her super cute, 4 chair salon she was faced with an expensive legal fight to get rights to her own space, if she wanted to move forward with the sale.
Ridiculous Landlord Requests
Another salon owner we worked with was told by his landlord he couldn’t publicly post the rental price. We received multiple buyers for this gorgeous salon that all fled when they figured out how much rent was in the exclusive shopping center.
It’s normal to think, hey, I’ll sell when my lease is about to expire. I am here to tell you, that is probably not the best strategy. You will want to have at a bare minimum, one year left on your lease when you list your business for sale, with solid extension, renewal and transfer options, built into the agreement.
List a Beauty Business for Sale Privately or Publicly?
If you have poked around the beauty businesses for sale on our website or seen some of our for sale opportunities on YouTube, you probably noticed that not all of our listings are private. This is due to the fact we provide sellers with the ability to exit their business on their terms.
Some sellers have no problem telling the world who and where they are. This is definitely more common in an asset sale, however, we do occasionally work with sellers who are selling a business who do not mind if anyone knows.
If you are unsure of the best way to go, we are happy to talk through choosing a public or a private sale. Public and semi-private sales do tend to go faster but this is not a reasonable option for most sellers.
Know Your Selling Options
Working with us means you have options and expert guidance on the best way to sell your beauty business… It is OK to list your business for sale privately and then move to a public sale. We are here to support you and guide you throughout the entire selling process and get you the success you have dreamed about.
Steps to Take to Sell Your Business
What are the first steps to take when thinking about selling your salon industry business? The first thing you need to do is make sure your bookkeeping is solid. This means reviewing transactions with your bookkeeper or accountant to ensure everything is accurately categorized for the current year and at least three years prior.
After you have ensured your books are clear and easy to understand for buyers, it’s time to reach out to us for an assessment or as we call it a business valuation. If this is an asset sale, meaning, we are not including the book of business in the sale, please have a list of the furniture, fixtures, equipment and inventory in your business.
A business valuation takes a week or so to complete. Most of the time, we will have questions for you after you provide 3 years worth of profit and loss statements and tax returns. After the valuation is complete, listing the business is now much easier to do.
Get Your Salon Looking GREAT
Next, focus on your space. Afterall, your physical assets are a big part of a sale. Get your salon, spa, barber shop or school spruced up and looking as good as possible for buyers. Remember, we want to evoke positive emotions for those interested in taking over your business from the moment they walk in the door.
You know how when you go to sell a house, the realtor stages your home? The same principles apply when selling a salon industry business. Beefing up your online assets or maintaining active social media accounts, google business profile and a good website also helps to add value to your business.
Buying a business can often start by evoking emotions from buyers with the look and feel of your business. While buyers will likely change things, the way your opportunity makes them “feel” is key to a successful sale.
After your valuation comes back, we agree on a list price and your space is all spruced up looking great, the next steps largely depend on which option you choose to sell.
Work With The Experts
We hope you walk away from this article today with a better idea of what needs to be done to prepare your beauty business to be sold! We have several free resources for beauty industry owners to help in this process.
Anyone who owns a beauty industry business and would like a general idea of what it is worth can utilize our free calculator- this is an instant valuation tool that lives on our website. In addition to the valuation tool, we are also happy to discuss your business and your situation with a free consultation.
We have several team members across the country who are trained to sell businesses and assist beauty business owners of all shapes and sizes, who are eager to serve you and help get your business sale-ready. If you decide to utilize a broker outside of our network or are selling your salon on your own, we provide highly effective marketing services for sellers and outside brokerages.
We have designed our services to meet the needs of any beauty industry owner. Not every seller needs the full service brokerage. We provide simple seller marketing or what we call “DIY” services for those on a tight budget, or who just need to tap into our network of buyers as well as an “in between” seller service we call “consulting”.
Get a Free Beauty Business Seller Consultation
Our consulting option is ideal for sellers who can handle some of the aspects of selling on their own but need a bit more help than doing it all yourself. Finally, our broker services are the full service option for business owners who prefer to leave the hard work to the experts.
We believe in empowering salon industry owners to exit how you want, when you want and always on your terms.
Make sure to follow Salonspa Connection on social media, subscribe to our email list and visit Salonspa Connection’s website when you are ready to take the first steps toward selling your business.
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Salonspa Connection stands out as the most trusted resource for selling a salon due to its unparalleled commitment to reliability and professionalism. With a proven track record and years of industry experience, Salonspa Connection has earned the trust of salon owners across the globe. We provide comprehensive support throughout the selling journey, ensuring a smooth transition for both sellers and buyers. Trust, transparency, and a deep understanding of the industry and salon business make Salonspa Connection the ultimate choice for those seeking a reliable platform to sell their salon. Free quotes provided for all salon industry businesses.
