Buying a salon help please

[Stedurham]

Hi

Looking to purchase a salon, turnover isn't anything special 70k. Profit about 5k a year, however its in a good area, where theres nothing to rent. Otherwise would just open from scratch, ive got a relative who is in this industry and award winning, shes looking to go it alone. Her turnover alone would double the shops instantly. However I don't want to over pay, to replicate the shop as it is wouldn't cost 10k and could be done better for 10k. So will in time spend money on it. They are asking for25k, anyone got any ideas what its really worth. Its plus stock and stock is about 2k
thanks any help appreciated
Also some staff have been there over 10 years, we are willing to give them a go and re train and improve them however if they don't come upto standard within a 3 month trial can we just sack them? Or should current owners make them redundant and we offer them new contracts with 3 month trial? Sorry no doubt missed things out

thanks

 

[Newchodge]

If you are buying the business and stock and continuing as a similar business the staff almost certainly transfer under TUPE. All their service with the old employer is carried forward to you. So if after 3 months they cannot do what you need you will have to follow capability procedures to get rid of someone with more than 10 years' service. If the current owners make them redundant they will have an unfair dismissal claim against you, even if you offer them a 3 month trial.

 

[Stedurham]

Ahh so how would you do it? We will train them and set them targets but if the don't reach them we would want to terminate employment and get someobody else in that we know can do the job.

 

[Stedurham]

So if we prove that they don't hit sales targets and the quality that we need after 3 months will we still need to pay them off? thanks sorry ive no idea bout this and is making me just look harder to find a shope be way easier, just we think we could make the salon work with training but need a way out if they cant come upto scratch thanks

 

[Newchodge]

So if we prove that they don't hit sales targets and the quality that we need after 3 months will we still need to pay them off? thanks sorry ive no idea bout this and is making me just look harder to find a shope be way easier, just we think we could make the salon work with training but need a way out if they cant come upto scratch thanks

If you have employed someone for more than 2 years (including the time spent with a previous employer transferred under TUPE) you can only dismiss them for a fair reson following a fair procedure. So 3 month trial, identifying training needs, giving training and support, then following your capability procedure for warnings, escalation, additional training and so on.

 

[Gordon - Commercial Finance]

What kind of staff in a salon would have sales targets??? This is like a hair salon right?

 

[Stedurham]

Yeah hair salon, why wouldnt they have targets?

 

[Mr D]

Yeah hair salon, why wouldnt they have targets?

Depends what you mean by sales targets. There's stuff they do have control over and there's stuff they don't.

 

[MikmakFer]

I am assuming that there are no other assets than £2k stock so you're effectively paying for a cashflow of £5k. The question you need to ask yourself is that in order to bring a premises upto the standard of the one you're taking over, how much would that cost. Total price you should pay is probably £5k times 2 for the cashflow plus the building improvement cost that you worked out.

In terms of the old staff, get it in the purchase agreement that should you have to make them redundant because they don't achieve x, y and z then this comes off of the purchase price (therefore in effect, the current owners are paying for this). the wording here has to be very direct and to the point to save any inerpretation issues later.

In terms of KPI's, they should be set on customer satisfaction in my view (and possibly a bit of upselling), the sales (customers walking in the door) should be driven from your marketing and advertising of which your customer satisfaction rolls into. The customer satisfaction is what they can control.

And finally, DO NOT pay the full agreed price up front. Ensure that you split it between a certain amount up front with earn outs based on achievement of business goals (and also the redundancy part above).

Hope this makes sense, let me know if I can help in any other way.


Mike

 

[Stedurham]

Contracts are massively incentivised by turnover

 

[Mr D]

Contracts are massively incentivised by turnover

Strange statement.
Does anyone you know follow that?

 

[MOIC]

How long is the lease? When is the next rent review? What obligations will you have when taking over the lease (dilapidations)?

A lease can be a liability.

If the lease terms and rent are favourable, offer 2k as a starting point and don’t go above much more than that.

As above, staff maybe a problem too.

 

[Stedurham]

Thanks Mike makes sense, ive no idea about this industry and know that it will work as relative is at the top of this game. Shes trained and worked for all the big salons and is known. In theory there are other assets desk, chairs mirrors etc To replace these would cost about 5/7k new but some of these are obviously used and not most modern. But we are happy with to start with them and it time we will evolve it into what we want. I would like to find a shop and start from scratch but there aren't any and haven't been any suitable in last 6 months so could wait forever hence this appeals to us
Sounds like good idea about the redundancy, we think we can train them but they have to want to be trained and think some wont want that, they just want their cushy job they currently have
Thanks for help appreciate it

 

[Stedurham]

How long is the lease? When is the next rent review? What obligations will you have when taking over the lease (dilapidations)?

A lease can be a liability.

If the lease terms and rent are favourable, offer 2k as a starting point and don’t go above much more than that.

As above, staff maybe a problem too.

lease goes till 2029 and does have an uplift in a few years that we have taken into account, owner has pics when they took over and states lease back to how it was or betterment. Its been replastered new flooring new boiler etc so think they will be happy as it is but again will check the lease
thanks

 

[Stedurham]

Strange statement.
Does anyone you know follow that?

Yeah ive got contracts for the top national chains, also smaller independants

They can earn between min wage and £850 plus a week

 

[Newchodge]

Thanks Mike makes sense, ive no idea about this industry and know that it will work as relative is at the top of this game. Shes trained and worked for all the big salons and is known. In theory there are other assets desk, chairs mirrors etc To replace these would cost about 5/7k new but some of these are obviously used and not most modern. But we are happy with to start with them and it time we will evolve it into what we want. I would like to find a shop and start from scratch but there aren't any and haven't been any suitable in last 6 months so could wait forever hence this appeals to us
Sounds like good idea about the redundancy, we think we can train them but they have to want to be trained and think some wont want that, they just want their cushy job they currently have
Thanks for help appreciate it

They will not be redundant, the problem is potential unfair dismissal claim. They would only be redundant if you no longer needed so many staff doing that job. If they aren't capable of doing the job you want they are NOT redundant.

 

[MikmakFer]

You mention above that "she's trained and worked for all the big salons and is known".

Would there be any potential loss of value once she leaves? is the business performance dependant on her name? if so then I'd expect a hit to turnover and therefore a reduction in business value.

Redundancy is a tricky one and needs to be approached with caution including calculations of potential liability. Calculation is easy but process not so much.

 

[Stedurham]

You mention above that "she's trained and worked for all the big salons and is known".

Would there be any potential loss of value once she leaves? is the business performance dependant on her name? if so then I'd expect a hit to turnover and therefore a reduction in business value.

Redundancy is a tricky one and needs to be approached with caution including calculations of potential liability. Calculation is easy but process not so much.

Sorry no that's my relative not the current people at the salon Thanks
She currently does more than the whole salon currently turns over an is only part time thanks

 

[Stedurham]

They will not be redundant, the problem is potential unfair dismissal claim. They would only be redundant if you no longer needed so many staff doing that job. If they aren't capable of doing the job you want they are NOT redundant.

thanks we really want to try and retain and train all staff but don't want to be left with a big bill to pay them off if they don't take to training or want to be trained etc thanks

 

[MikmakFer]

Sorry, I misinterpreted that there.

Good luck with whatever you choose but tread carefully with the old staff etc.

PM me if you need anything and more than happy to help.

 

[Stedurham]

Thanks appreciate it, think the staff issue is going to make it just not worth it, just cant find a shop in the area even for sale. Thanks shame, as would have liked to help staff, but it will just close eventually I guess, might get the unit cheap then hahah

 

[Mr D]

thanks we really want to try and retain and train all staff but don't want to be left with a big bill to pay them off if they don't take to training or want to be trained etc thanks

If they quit they won't be redundant.

 

[Stedurham]

If they quit they won't be redundant.

Don't really want them to quit, want to help them, just don't want a massive bill if they don't want to be helped if that makes sense thanks

 

[MikmakFer]

You could pick up this business for nothing if their alternative is to close. Think about the position they are in, anything is an upside.

Just set aside the £10k or whatever that you would have purchased it for potential notice payments on staff contracts and ensure it's in a Ltd Co. Your risk will be minimal provided you don't act improperly as a director.

 

[Stedurham]

Yeah I might be wrong but its genuine reason they want to sell, only issue is guess they wont have money to pay redundancys hence why its up for sale I suppose

 

[Stedurham]

Could we just buy the fixtures and fitting then not the actual business. Close for a quick refurb and then open with new name, if staff want a trial we are happy to offer 3 month trial, if they don't meet what we require just terminate the trial at any time?

 

[Clinton]

I'll never understand why people are so tight that they don't go pay for someone who knows something to give them advice.

It's a darn sight better than relying on free advice in a forum. Some of it is extremely dangerous (like @MikmakFer's advice to wait for the business to close and then open up in the same premises. Warning: TUPE could still apply!).

For goodness sake, man, you're planning on spending a decent five figure sum and you're relying on the ignorance of people you don't know to give you seat of the pants advice?!

And this is in a field where you have no previous experience yourself - not in the industry, not with buying businesses!

For starters you may not need to bother with all that redundancy / TUPE nonsense; there's a simple route to avoid it all and that route may be available to you.

But there's tons of other stuff you need to be aware of and in which you are way out of your league. Start by talking to a decent commercial lawyer. There are a few I personally approve of here, or go use any directory of legal services.

But your best bet is spending a few grand and getting some decent advice.

 

[Mr D]

Don't really want them to quit, want to help them, just don't want a massive bill if they don't want to be helped if that makes sense thanks

If you have to force them out then it won't be redundancy.
But will take time and you'll have to follow procedures. Who knows, may turn one or more of them around.

 

[Mr D]

You could pick up this business for nothing if their alternative is to close. Think about the position they are in, anything is an upside.

Just set aside the £10k or whatever that you would have purchased it for potential notice payments on staff contracts and ensure it's in a Ltd Co. Your risk will be minimal provided you don't act improperly as a director.

TUPE?

 

[Stedurham]

I'll never understand why people are so tight that they don't go pay for someone who knows something to give them advice.

It's a darn sight better than relying on free advice in a forum. Some of it is extremely dangerous (like @MikmakFer's advice to wait for the business to close and then open up in the same premises. Warning: TUPE could still apply!).

For goodness sake, man, you're planning on spending a decent five figure sum and you're relying on the ignorance of people you don't know to give you seat of the pants advice?!

And this is in a field where you have no previous experience yourself - not in the industry, not with buying businesses!

For starters you may not need to bother with all that redundancy / TUPE nonsense; there's a simple route to avoid it all and that route may be available to you.

But there's tons of other stuff you need to be aware of and in which you are way out of your league. Start by talking to a decent commercial lawyer. There are a few I personally approve of here, or go use any directory of legal services.

But your best bet is spending a few grand and getting some decent advice.

Not tight at all, I have spoke to people in industry and know I can make it a successful profitable business, no issue with that was just asking for some advice on a business forum. But if that's not what you get here not a problem. But guess it defeats object of the site

 

[brianj_hill]

You can expect to pay anything between 3 - 6 the annual profit available depending on whether the owner works there or not. Agents will often work out what's called the "Owners Benefit" which are the Wages plus any Profit, which can be used for Dividends. Be careful to look at the depreciation line because some people selling a business may not maintain the business effectively in order to keep profit high.

 

[Stedurham]

thanks for that brian will check

 

[Clinton]

You can expect to pay anything between 3 - 6 the annual profit ...

This forum is sometimes great for a laugh. The above made my day, the best joke I've heard all week.

I shouldn't laugh at the blind leading the blind, but the whole post was just hilarious. If there's anyone here who wants to pay even 3x for an owner run hair salon, drop me a note. I'll tell you where you can find a hundred of them at half that price.

 

[Stedurham]

thanks for the help weve made an offer wait and see

 

[Stedurham]

This forum is sometimes great for a laugh. The above made my day, the best joke I've heard all week.

I shouldn't laugh at the blind leading the blind, but the whole post was just hilarious. If there's anyone here who wants to pay even 3x for an owner run hair salon, drop me a note. I'll tell you where you can find a hundred of them at half that price.

Rather than laugh at people you could help, but guess not

 

[MikmakFer]

You can expect to pay anything between 3 - 6 the annual profit available depending on whether the owner works there or not. Agents will often work out what's called the "Owners Benefit" which are the Wages plus any Profit, which can be used for Dividends. Be careful to look at the depreciation line because some people selling a business may not maintain the business effectively in order to keep profit high.

There is absolutely zero chance I would pay 3 to 6 times EBITDA for an owner managed business with zero assets (other than £2k stock). To do so would be absolute madness. You show me an owner managed business that's sold for 3x - 6x EBITDA (particularly at the profit levels we are talking about) and I'll show you someone who has overpaid. The MOST I'd pay at this level is 0.5x EBITDA (for the profits part only) with an earn out taking this up a bit. An owner managed business is risky because can often be reliant on the owner and when they go this could cause problems - absolute madness. And also, do not place any reliance on what a broker says, it's a massive conflict of interest. If I went to a barber and asked him if I needed a haircut, what's he most likely to say?

 

[MikmakFer]

TUPE?

TUPE always applies but if it's in a Ltd Co., you've paid nothing for the business, do not act improperly as a director and the cash burden gets too much, you just liquidate the Company. Completely derisks it.

 

[Mr D]

TUPE always applies but if it's in a Ltd Co., you've paid nothing for the business, do not act improperly as a director and the cash burden gets too much, you just liquidate the Company. Completely derisks it.

Except for personal guarantees. And in the case of HMRC, perhaps wanting substantial deposit in future before accepting VAT application due to having previously owed them money and business folded.
Not everyone will have one business, shut it then never try having a business again.

 

[Clinton]

Rather than laugh at people you could help, but guess not

I've given you the best advice in the thread but you've got a mental block against it.

The advice repeated: Do not trust the nonsense in this thread, go pay an expert. There's tons more to this than can be covered in a forum thread.

 

[MikmakFer]

xcept for personal guarantees. And in the case of HMRC, perhaps wanting substantial deposit in future before accepting VAT application due to having previously owed them money and business folded.
Not everyone will have one business, shut it then never try having a business again.

I'm a bit confused by your points here. Why would you have a personal guarantee with HMRC on a Ltd. Co if you've acted properly? and why would you pay a deposit on VAT? If you need to make a VAT application then you need to make one. If HMRC were to ask for a "deposit" then you tell them that you're not going to apply VAT - simple really...

A Ltd. Co is limited liability which means that provided you've done the right things, then you're untouchable including previous HMRC debts. If you've screwed up as a director then in that instance, the veil of incorporation is lifted and they go after you as a director (which just to add, is very hard to prove).

I'm not going to go down the road that I have seen here quite a lot where someone wants to go off piste and turn a simple question into a pissing contest so let's just focus on the question. I presume Stedurham hasn't been disqualified and I presume he's not out to screw the taxman so your points are pretty useless. (S)he had a concern in relation to holding staff costs with a heavy bill to make them redundant. If it were the case that they bought the business and it was a Ltd. Co and it wasn't viable then they just close it. Provided they've not done anything to lift the veil of incorporation then they carry no risks from the closing.