May 10, 2021

Guide To Buying An Already Established Hair Salon

Guide To Buying An Already Established Hair Salon

Purchasing an existing hair salon can remove a lot of the obstacles that new businesses face. But this route isn’t right for everyone, and it is important to consider all angles of the business before making a move. 

Making the right choices, in the beginning, can make or break your business, so while you might feel guided by your heart or your gut, it’s important to let your brain lead the way when it comes to buying an existing hair salon.

Sadly, we expect to see more salons up for sale in the coming months. It has been an incredibly difficult year for salon owners, and we expect to see more people looking for buyers as we head into the new year. 

With these difficult times behind us, the vaccines rolling out and a brighter 2021 on the horizon, now could be a good time to invest in a salon business. Before you take the plunge, explore our guide to buying an already established salon to find out if you’re really getting a good deal.

what is included

Find out exactly what is included

Salon sales will vary, so you need to find out exactly what is included in this sale.

  • Will it include the furniture and fixtures? 
  • Will salon equipment be included? 
  • Is there any stock to be rolled in with the sale? 
  • You should also find out if there are any gift cards or loyalty cards that will need to be honoured. 

At this stage, you need to know the specifics, so don’t be afraid to ask the seller for more detail. If they struggle to find the information, this could lead to questions about how the salon has been run in the past. 

For example, most salons should be able to quickly determine stock levels, even if they might not be 100% accurate. Once you have an idea of exactly what you are buying, you can start to see the bigger picture.

Explore the local area

The local area and its residents will have a huge impact on the day-to-day running of the business. Even the best stylist may struggle to establish their business in a difficult area with no passing foot traffic. Explore the local area and find out who the competition is and what they are offering. 

Don’t forget to factor in mobile stylists, as they might have an impact on your earnings, particularly in rural areas. Think about the residents of the local area, their income levels, and what they expect from a salon. Would your salon offering be well received by the local population?

Look over the accounts

You should never buy a salon without first looking over the accounts. And if the owner is reluctant or offers an abbreviated set of accounts, this should make you a little wary. The accounts will allow you to see if the salon is really performing as advertised. Obviously, the past year is an anomaly, so look back to 2018 and 2019 to find out how the salon has performed under more usual circumstances. 

A financial professional will be able to help you read between the lines of the accounts and spot any potential risks or opportunities. If the salon uses reliable salon software, it should be easy for you to see how many of the customers are new and returning, how much they spend per visit, and how much the salon makes from retail sales.

Look at the terms and conditions

Find out the terms and conditions and if they are negotiable before you invest too much time in vetting the business. You need to know if the lease is transferable, how long is left on the lease, and if the terms will be the same on renewal.

You should also find out if the existing staff are included. Find out the terms of their employment, and how much revenue they generate. It could be that the staff are the reason that the salon failed, or they could be an excellent and well-bonded team that is ready to hit the ground running under new management. 

If there are any self-employed stylists with existing chair rental agreements, you will also need to get to grips with their contracts. These may also have renewal terms to consider.

Find out why the salon is for sale

Is the owner retiring, moving to a new area, or changing professions? The reason for the sale can give you some indication if the salon can be a success under new management. If the salon owner or key staff are moving on to another salon in the local area, you can expect a percentage of the salon customers to go with them. 

If the salon has simply run into financial difficulties, work with an accountant to find out what went wrong and why. This will allow you to learn from past mistakes and prevent new management from making the same mistakes twice.

Weigh up the costs

Now that you have all of the information, it’s time to weigh up the costs of buying an established business versus starting from scratch. A salon that is ready to start trading could be a good investment, provided the equipment still has a good few years of use left. If you are buying outdated and ageing furniture and equipment, you may also have to factor in refurbishment.

Unless you have a large sum of money available to you, you may need to think about approaching a bank for the funds. In this case, you would also need to factor your loan repayments into your monthly operating costs. Most lenders will ask to see a business plan that outlines your plans for the salon

The good news is that you will be able to use the existing salon accounts for your application. If you plan to make drastic changes to the way the salon is run, you should reflect your projected earnings in a cash flow forecast. Creating a business plan and cash flow forecast is often one of the best ways to determine if a business is viable.

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