151: Your Salon Valuation
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05/17/23 • 24 min
If you are considering selling your salon, there are a few things I’d suggest. Maybe you hire a broker. Maybe you sell it to a stylist. Whatever your decision, you first need to know what your salon is worth. So, let’s talk about how you do that.
The Two Common Business Valuation Methods are:
1. Total revenue multiplied by 25% to 35% + fair market value of inventory
2. Two to Three times the pretax income + fair market value of inventory
Example Salon
Let's assume a Beauty salon is 1500 sf, located in a retail strip center, and has a ton of foot traffic. There are 10 stations and waxing and facial rooms. It's the only salon within a 3 mile radius and there is 6 months remaining on the initial lease. To generate additional sales the salon also sells hair, face, and nail products.
The financials are as below
| | 2014 | 2015 | 2016
| Service Revenue | $300,000 | $350,000 | $400,000
| Product Revenue | $100,000 | $120,000 | $130,000
| Total Revenue | $400,000 | $470,000 | $530,000
| Payroll | $250,000 | $300,000 | $350,000
| Pre-tax Income | $74,000 | $81,000 | $90,000
| Inventory | $30,000 | $30,000 | $30,000
Steps to Calculating the Value of a Beauty Salon
1. Estimate the fair market value of all the inventory. In the beauty salon business products can expire. It's not uncommon to factor in a discount of about 20% to 30%. After using a 25% discount the inventory for 2016 would be valued at $22,500
2. Determine the right multiple of pretax income. A strong business will have a higher multiple.
3. Determine the strengths and weaknesses of the business.
4. Take all the factors into account and run both formulas. For this example, let's assume the middle of the road seems best.
$530,000 X 30% = $159,000 + $22,500 (fair market value of inventory). Total = $181,500
2.5 X $90,000 = $225,000 + $22,500 (fair market value of inventory). Total = $247,500
Splitting the two numbers above and taking all the other factors into account a good place to start is somewhere around $225,000
If you have any questions about this, please don't hesitate to contact me. Until next time...remember, when you know better, you do better.
Use my Gloss Genius link to start using today!
Make sure to subscribe to our YouTube Channel as well!
Visit my Amazon Store for all my favorite products!
Grab your Ultimate In-Salon Training Toolkit!
Website: www.danisekeilitz.com
YouTube: All About Hair
Shop my favorite Eufora Products.
If you are considering selling your salon, there are a few things I’d suggest. Maybe you hire a broker. Maybe you sell it to a stylist. Whatever your decision, you first need to know what your salon is worth. So, let’s talk about how you do that.
The Two Common Business Valuation Methods are:
1. Total revenue multiplied by 25% to 35% + fair market value of inventory
2. Two to Three times the pretax income + fair market value of inventory
Example Salon
Let's assume a Beauty salon is 1500 sf, located in a retail strip center, and has a ton of foot traffic. There are 10 stations and waxing and facial rooms. It's the only salon within a 3 mile radius and there is 6 months remaining on the initial lease. To generate additional sales the salon also sells hair, face, and nail products.
The financials are as below
| | 2014 | 2015 | 2016
| Service Revenue | $300,000 | $350,000 | $400,000
| Product Revenue | $100,000 | $120,000 | $130,000
| Total Revenue | $400,000 | $470,000 | $530,000
| Payroll | $250,000 | $300,000 | $350,000
| Pre-tax Income | $74,000 | $81,000 | $90,000
| Inventory | $30,000 | $30,000 | $30,000
Steps to Calculating the Value of a Beauty Salon
1. Estimate the fair market value of all the inventory. In the beauty salon business products can expire. It's not uncommon to factor in a discount of about 20% to 30%. After using a 25% discount the inventory for 2016 would be valued at $22,500
2. Determine the right multiple of pretax income. A strong business will have a higher multiple.
3. Determine the strengths and weaknesses of the business.
4. Take all the factors into account and run both formulas. For this example, let's assume the middle of the road seems best.
$530,000 X 30% = $159,000 + $22,500 (fair market value of inventory). Total = $181,500
2.5 X $90,000 = $225,000 + $22,500 (fair market value of inventory). Total = $247,500
Splitting the two numbers above and taking all the other factors into account a good place to start is somewhere around $225,000
If you have any questions about this, please don't hesitate to contact me. Until next time...remember, when you know better, you do better.
Use my Gloss Genius link to start using today!
Make sure to subscribe to our YouTube Channel as well!
Visit my Amazon Store for all my favorite products!
Grab your Ultimate In-Salon Training Toolkit!
Website: www.danisekeilitz.com
YouTube: All About Hair
Shop my favorite Eufora Products.
Previous Episode
150: Choosing Your Business Structure
So, when you're starting a business, you need to pick the right ownership structure that works for you. There are different options like sole proprietorship, partnership, LLC, and corporations, and each has its own benefits and drawbacks. It's important to get help from a Certified Public Accountant (CPA) or a lawyer to make the right choice for your business. The two things you should think about are asset protection and tax savings. Once you've decided on a structure, you'll need to fill out some paperwork and file it with your state. You can do it yourself or use a service like ZenBusiness to help you out. Let's take a look at each structure and see what makes them different.
Zenbusiness
Use my Gloss Genius link to start using today!
Grab your FREE PDF of The In-Salon Training Toolkit today.
Make sure to subscribe to our YouTube Channel as well!
Visit my Amazon Store for all my favorite products!
Grab your Ultimate In-Salon Training Toolkit!
Website: www.danisekeilitz.com
YouTube: All About Hair
Shop my favorite Eufora Products.
Next Episode
152: Salon Design Mistakes
In this podcast episode, we discussed ten common mistakes that salon owners should avoid when furnishing their hair salons.
Additionally, we shared some tricks to maximize salon space, such as using continuous mirrors for smaller salons and positioning furniture in the center for larger salons.
By avoiding these common mistakes and considering these tips, salon owners can create a well-designed and functional space that enhances the client experience.
Use my Gloss Genius link to start using today!
Make sure to subscribe to our YouTube Channel as well!
Visit my Amazon Store for all my favorite products!
Grab your Ultimate In-Salon Training Toolkit!
Website: www.danisekeilitz.com
YouTube: All About Hair
Shop my favorite Eufora Products.
All About Hair...and So Much More. - 151: Your Salon Valuation
Transcript
Hey there, welcome to the salon ownership Made Easy podcast. As a former salon owner, I know how tough it can be to deal with things like hiring new team members, managing your KPIs, and fixing everything that seems to break in the salon. It's enough to drive anyone crazy. But don't worry, I'm here to help you navigate the ups and downs of the industry. Let's face it, beauty school didn't prepare us for the real world of Salon ownership. But with t
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