In this video, you get answers to these questions:
Can I sell my chair rental salon – Is it worth anything? Those are the questions I’ll be answering today. I’m Aaron hall an attorney in Minnesota generally representing business owners and their companies. So imagine this, you own a chair rental salon, which means you may own the real estate or you might rent it from a landlord, but you have a name on the business. You have committed to the landlord to pay a lease.
You probably own the product and the actual chairs and then stylists rent typically on a monthly basis or a quarterly basis, the chair from you. Essentially the stylists are tenants of yours if you will. Now, you may pay for some staff there. They may all operate under the same brand name for the salon or not, really doesn’t matter. There are a lot of different hybrids of this. The bottom line is your wondering, can I sell the business?
The answer is very simply, yes, absolutely. Because what you have there are tenants, the chair renters, the stylists, and they have a place where they operate and you’re making some money from that and in turn you’re turning around and you’re paying for your expenses. A lot of businesses have that sort of business model. In other words, you, you may have a retail location and let’s say you sell products and you buy those products for cheaper and you’re kind of the middleman. That is often the case, so you absolutely can sell the business. Then the question is, what is the business worth? That’s a little trickier. The short amp answer, which is a little bit simplistic, is its worth whatever somebody will pay for it. That’s not very helpful though. So let’s take a look at it. What is it worth? Well, let’s take a look at first the amount of expenses that you have for a year. Let’s say you have in expenses $40,000 and now let’s look at the income you have for a year. Let’s say it’s $80,000. That means you have, it would appear 40,000 expense and then a $40,000 profit margin. But now we have to take into account how much you work during the year. Do you work three hours a week or do you work 40 hours a week? Well, if you had worked 40 hours a week, you could say, well, how much would it take to replace me and hire another person to manage the salon?Let’s say it’s $40,000 well, at that point then, if you do the math, you have $40,000 in expenses. You have $40,000 to pay a manager. That’s a total of $80,000 in total expenses. You really don’t have a profit margin assuming $80,000 in income. Now, if you’re only working three hours a week, maybe you could hire somebody, maybe it’s even one of the stylists that are there.
You pay them a little extra. Maybe it’s an extra $500 a month, and they will now manage the salon for you and take on some of those duties. $500 a month multiplied over a year is $6,000 a year. So now if you have a salon with $40,000 in expenses plus $6,000 to pay this manager, that’s a total of 46,000 in expenses, you have $34,000 in profit. Now there’s something to sell. Essentially you are selling a a business that is $34,000 a year in profit. How much can you sell that for? Well, typically it’s going to be a multiple of 34,000. So if at any time these stylists who rent a chair could pick up and walk away and so they’re essentially renting month to month. That’s a more risky, volatile business. And so in my opinion, you could probably get nine months to a year of profit in a sale price.
In other words, if your profit is $34,000 maybe you can get 30 to $34,000 from selling the business. However, if the stylist commit to a one year contract or a three year contract, now you can probably get significantly more. So it depends how sticky the business is and how likely these stylists are to stay on. That also means that it’s going to be important to have a smooth transition. Often what we’ll see is a lump sum paid in the beginning and then a percentage of profits over time. It could be a fixed dollar or fixed percentage, like you purchase the business for $20,000 and then 10% of profits or maybe a 3% of revenue or you know the percentages can change, the calculus can change, but it’s built over time that there’s some shared risk between the buyer and seller. And as you can see, this is where an experienced attorney in the sale or purchase of a business can kind of help you figure out what makes sense based on the risks of the business, the dynamics of the business.
An attorney will often represent a buyer and a seller. A broker can also help with this. A broker typically is going to request eight to 10% of the sale price, typically paid by the buyer. Often the attorney will be less than that and the attorney can handle a drafting up all the documents so you’re not paying for both a broker and an attorney. So that gives you a sense on what is involved in selling a salon business, where you are renting chairs. We also covered, how do you figure out what it’s worth. What would the sale price be? Now again, regardless of what kind of calculus we use or what kind of multiple of profits it comes down to, is there a buyer? Often the buyer is going to be somebody who either owns another salon in the area, so they already have familiarity with how to manage this and they’re just, they’re adding that onto their portfolio of businesses.
Or you’re selling to a stylist who’s currently renting a chair. They already know the business, they see the value and they would like to run the business for years after the initial sale. And so although they may pay one year of profits to you as the owner or the seller, I should say. They may own the business for 10 years, and so they’re going to reap significant profits over that time. So there you have it. That’s whether you can sell a chair rental salon business, and how do you figure out the price. To learn more information on these general concepts, you’re welcome to contact aaronhall.com, a website I have with all sorts of information or reach out to me directly if you need representation related to a business in Minnesota.
To learn more, visit my website at aaronhall.com