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Stages of a Salon Business Sale: A Guide for Buyers and Sellers
Selling a business is a complex process that requires planning and execution. Whether you’re a potential buyer looking to purchase an established salon or a current salon business owner considering a sale, knowing the different stages of a salon business sale is helpful to set your expectations in line with the process.
My name is Susan Wos, I personally handle multiple salon, spa and barber businesses for sale across the US, every year. One of the consistent things I see in both buyers and sellers is the need to understand what the business acquisition process looks like, once we connect salon buyers and sellers.
I put together a detailed guide to help both buyers and sellers navigate this process. If you are in need of help in a business sale transaction, please reach out to me on LinkedIn, I am always happy to help.
First Salon Buyer and Seller Meeting
The business sale process begins with the first salon buyer and seller meeting. This is typically after financial information and the seller’s CIM have been exchanged by the salon business broker. This is usually before the buyer is ready to submit a letter of intent, (LOI), to purchase the business.
The initial information gathering involves both the buyer and the seller and serves to outline the entire purchase process. A successful first meeting results in a binding offer with the buyer placing money into an escrow account, showing their commitment to proceeding with the deal.
Letter of Intent
When buyers like what they see, the next step is putting in a letter of intent or LOI. This is a non-binding legal agreement that sets the course for the manner in which the sale will be completed.
Letters of intent include several things such as: Purchase Price, Timeframe, Training Period and Non-Compete Agreements. An LOI serves to provide a wireframe for the deal and an acceptance by the seller means this transaction is likely to come to fruition.
Due Diligence
Following the first meeting and accepted LOI, you will enter the due diligence phase. This is the buyer’s opportunity to “kick the tires” and thoroughly examine the ins and outs of the business.
The buyer will request various documents such as tax returns (if they do not already have them), utility bills, and bank statements. This phase is essential for the buyer to verify the business’s health and prospects.
Document Provision
At this salon buying stage, the seller is required to provide all the necessary documents that the buyer requests. While most information is shared to cultivate transparency, sensitive data like client lists are withheld until a later stage to protect the business’s best interests.
Salon Broker Intermediation the “Back and Forth”
Your salon broker plays an important role during the due diligence stage and throughout the entire sales process. We act as mediators to ensure that the communication is effective, the process remains on track and to prevent any potential deal breakers.
Essentially, we provide the safe space both buyers and sellers need to discuss issues without the other party being involved. A broker’s experience and advice are vital to the smooth progression of the sale.
Finalizing Due Diligence
Once due diligence is satisfactorily completed and all parties are in agreement, the buyer will commit their escrow money towards the purchase. This signifies a point of no return where the buyer is confident enough to move forward with the salon business acquisition.
Closing Logistics
After due diligence, focus shifts to closing logistics. These meetings are crucial for ensuring that the buyer is ready to take over the business. Tasks such as transferring leases, utility bills and setting up vendor relationships are addressed during this period.
The Big Day: Closing on the Salon
Closing day is when the ownership officially changes hands. The seller stops earning from the business, and payment is passed through an escrow agent- just like in a real estate sale.
This day marks a significant milestone in the transaction process. It is the beginning of business ownership for a buyer and the end for a seller.
Post-Closing Operations & Business Ownership Transition
Immediately after the ownership transfer, the buyer assumes all operational responsibilities. This includes managing the business’s finances and other day-to-day activities.
Support and training from the seller is negotiated prior to this stage. If 3 months of seller support was the agreed upon terms, this is day one of the support a buyer will receive from the seller.
In some situations, more than 3 months of support is needed to aid in a successful salon business acquisition. This is often separately negotiated under a consulting fee if it is not included in the sale of the salon.
Typically, the seller remains involved for at least two weeks after the sale. This transition period is crucial for passing on operational knowledge and ensuring the buyer is comfortable with running the business.
Extended Assistance for Salon Business Buyers
If necessary, the transition period can be extended. The buyer may negotiate additional time with the seller or even hire them for a longer period, depending on specific needs and regulatory requirements like SBA guidelines.
Conclusion
Understanding the stages of a business sale can significantly ease the transaction process for both parties involved.
For sellers, it’s about ensuring you’re providing enough transparency and cooperation to build trust and justify your asking price. For buyers, it’s crucial to meticulously review and understand every aspect of the business to ensure a profitable and sustainable future.
Whether you’re buying or selling, navigating these stages with patience and diligence can lead to a successful business transition, setting the stage for continued success under new ownership.
Yours in service,
Susan Wos, Lead Salon Business Broker & Founder of Salonspa Connection
