I know nothing about the salon industry. The little I can offer from my experience in the WISP industry you probably already know, but here goes anyway.
I assume they are renting the space from a third party, can you assume the lease? Will the rent stay the same? Go up? Can you negotiate it down? Can you move down the street? Thinking this is similar to checking if the tower leases can be assumed. I would ask the lawyer how to prevent skeletons from coming out of the closet and biting you. Vendors owed money, liens, unpaid taxes, lawsuits, stuff like that. Vendors owed money might be the most problematic, since you may need to use those same vendors. In the WISP business you try to buy the assets not the business, that still doesn’t totally protect you. Also make sure the current owners sign a geographic non compete so they don’t have second thoughts and go back in the salon business in the same or adjacent town and call their old customers. They want cash so they can pay off their debts, there are only so many buyers that will pay cash rather than look for some sort of seller financing, that puts them in a weak negotiating position. Also sellers want to peg the sale price to how much they owe, but that is really irrelevant to the value of the business. Unfortunately this can lead to someone running the business into the ground and getting nothing. But don’t pay more than it is worth just because the current owners are under water. Also, I’m surprised your town has a big enough Vietnamese population to staff a salon. Oh, wait, I’m thinking nail salon. There are all sorts of trendy services you could add. Like an oxygen bar, hydration clinic, or cryospa? A salt cave for halotherapy? A hookah bar / cigar bar / vape shop? I assume you have spray tanning so people can get that Trump look? From: That One Guy /sarcasm Sent: Tuesday, February 23, 2016 6:57 PM To: af@afmug.com Subject: [AFMUG] Ot buying a salon Salons are service industry with subcontractorish environments, so it's not all that different than wisp, except it's all broads. The salon my woman works at is failing, poor management decisions, partners who are family (mother funded, daughter managed) mother owns 51 percent daughter 49. At one point it was an established and successful business, but feelings got hurt, partners fighting, a staff coup that took a substantial amount of clientelle, facilities not maintained. No clear company structure as far as owners getting paid. A 7 thousand dollar and 13 thousand dollar note owed to the mother partner, etc. Management software client capture went from over 800 clients to under 200 captures over a one year span indicating to me the "staff" quit putting a lot of services on the books and was pocketing the cash. It was an llc but they quit paying it and transferred it into what they refer to as a partnership with the 51 49 thing, I have not seen that documentation I assume a lot of this could be correlated to many of your purchases of family run wisps. This has the potential to be turned around, the salon had a good reputation, and volume at one point, and its the only full service one in the town, so it's not completely failed. There also is room to incorporate some other sources of revenue into the mix. The 51 percent partner wants out, they would like to simply recoup the majority of their outstanding debt and was their hands of the matter. Initially this was offered to us for 7k but that left an outstanding liability of 13 on the business to the same person, and that note is secure via a mortgage extension. That didn't sound like a good risk so we told them to get a better proposal consisting of buying out that half of the partnership as well as a second proposal for buying out the entire partnership. The "assets" including minimal revenue of a single occupied station for a year was informally estimated at around 34k. The daughter partner who is the primary "contractor" had a 45k recorded revenue. I don't recall the revenue from the other occupied chair of the 5 chairs and the retail had substantially dropped, I suspect due to it becoming free when nobody was looking. Recovery could take place, as they offer the full spa set of services, however they currently are limited in their massage and facials by contractors who don't show up. This can be resolved fairly quickly for the massage therapist by recruiting one I'm aware of who is looking for a new place to operate because her stand alone office did not generate the revenue to justify the expense and overhead. Also my it job has allowed me to build good personal relationships with a lot of beneficial businesses, primarily the beauty school for recruiting fresh "contractors" to fill the empty chairs, they just don't come with clients. This is a more rushed scenario than I would prefer, this was a 3-5 year plan, but circumstances presented. Our lust for business ownership stands to cloud judgement, and that in itself is enough to walk away. We have a meeting later this week for presentation of the proposals. What I don't know is what documentation in particular I should request. I can ask for "financials" but I don't know what that actually means, or what further information to ask for. I'm reaching out here because you guys are my favorite cheap dates, and a lot of you have experiences more valuable than any advice I could pay an attorney for. After this next meeting is when our expenses start, so we need to be able to make a personal judgement at that point if it's a good enough opportunity to go to a lawyer and start paying for the non refundable advice. It's also when we make the decision of how foolish we want to look in front of our bankers. I like my banker though, and he might be in poor spirits and need a good laugh. Smart me knows this is not the right time to take risks like this when I only have 7 short years til my boy needs a college education and if this goes south, mom and dads financial support will be out. But the potential makes it worth looking at, like watching a train wreck. There are also some other long term prospects this makes possible so that benefit alone makes it well worth an investigation. I really would appreciate some sage advice from experience in small business. >From what I have seen, there is no formal business structure, in other words I >don't see