How you pay yourself can depend on the type of corporate form you take. LLC that are pass through don't pay taxes and all income follows through to the owner's tax filing via a K1. I agree with forest in that you should count your salary, even though sometimes you may have to put it right back in. The other side of that is if you take "excess" pay make sure to record that on the books in a way you can pull that off in a presentation to a potential buyer. You should keep forefront in mind that you must pay no more than what it is worth no matter what the present owners would like to get out of it.
On Wed, Feb 24, 2016, 3:40 AM Forrest Christian (List Account) < li...@packetflux.com> wrote: > I started writing a long post about how to work through this logically, > but it sounds like you're already going down that path. > > The thoughts that occurred to me for you to consider: > > The business part of a failing business isn't worth anything. If you buy > this, you're essentially going to have to pick up scraps (which carry > baggage with them) and try to overcome that baggage. Unless you can put a > hard number on the value of the going business I wouldn't consider it worth > anything. And, one caution: There is a temptation to treat the existing > customers (which may actually be the stylists, not the people getting their > hair cut/nails done) as an asset, but you have to realize that a tarnished > reputation is going to make everything more difficult than it would be if > you started fresh. You have to ask yourself if gaining the existing > business is worth the pain. You may actually decide that the business > part of the business has a negative value as a result. > > Assuming the business part of the business has no value, you need to ask > yourself how much are the physical things you're buying (i.e. the chairs, > nail beds, etc.) worth. That's probably all you want to pay up front. > Paying extra for the 'idea' of a salon seems silly. Remember things > haven't been maintained so some of these are going to have to be replaced, > maybe soon. So you need to look at the depreciated value (how much value > they actually have left) - taking it back to a wisp, if you buy a router > which lasts 5 years, 2.5 years in that router is only worth half as much, > quite possibly even less. Consider that when valuating items. > > Assuming you could come to a purchase price that was reasonable, then, and > only then should you look at the financials to see if you can make it work, > including a reasonable return on investment. > (Ok that sounded kinda wrong. What I mean is: Don't over pay for the > assets. Don't justify over paying for the assets just because the business > operation numbers (P&L) look good based on your best guesses of costs. > Figure out what the assets are worth (including the business part of the > business), and use that for negotiations, not any percieved potential > future benefit. That isn't what you're paying for - you're paying for the > assets.). > > A bit of a note in relation to the above is to mention that if you can > make a business case for a business salon in your town, then there's a good > chance you could start a salon with or without buying the existing > business. That's why I'm saying 'the business part of the business is > probably not worth much, especially with a tarnished reputation'. > > Once you get to the point of working through your business operation > numbers (P&L), there are a few caveats/suggestions: > > 1) YOU MUST PAY YOURSELVES. This is important. Plan on paying yourselves > from day one. Figure out what a reasonable pay rate is and pay > yourselves. If you don't do this, you will never ever make any money at > this. It's ok to escalate this with increasing load. For instance, when > you start, you may only need a few hours a week... but still pay > yourselves. One even worse gotcha is that not paying yourself sometimes > indicates to the IRS this isn't intended as a going business and that isn't > something you want to have happen. Ok, it's okay to put a bit of sweat > equity into the business at first, but very shortly, you should start > paying yourself for your time. > > 2) You must consider depreciation of equipment. You're going to have to > replace that equipment sometime, you need to plan for it, and book for > it. This needs to be put in your business plan from day one. That > equipment you purchased costs you on an ongoing basis. If your business > plan doesn't account for replacing the equipment at correct intervals, you > will end up 7 years from now with an even shoddier place which is worth > less than you paid for it. > > 3) Consider an exit strategy. How can you position yourself to be able to > sell this for *more* money than you paid for it a few years from now. > > 4) If "your woman" plans on being a stylist there, consider treating her > from a financial point EXACTLY like any of the other stylists, at least for > her stylist work. That is, charge her rent for her station, etc. etc. > etc. That way she will be pulling an income from the business just like if > she was a stylist elsewhere. This will produce revenue for the business > which it will need to pay the rent and also her salary for management > duties. > > I think that's all I can think of for now... > > I do have one other reference I point ANYONE starting a business to, and > thats a book/website called "business model generation". It contains > tools to help people work through a successful business model. If I was > doing what you're considering, I'd work through this process considering > your customers as your stylists (which seems to be the normal model) which > means the services (aka value proposition) you provide to your customers > are things like providing a workspace, credit card processing, advertising, > etc. Your goal in this business model is to fill every slot in your salon > with happy stylists which you can charge large amounts of money for the > quality workspaces you provide and the continuous flood of new customers > your advertising provides to them. The other option is running a business > model where your customers are the actual people getting their hair and > nails done. > > I'd recommend getting a dead tree version of the book (by Alexander > Osterwalder), but you may want to check the first part out online at > businessmodelgeneration.com... They have a exerpt which is basically an > introduction available. This isn't for everyone - some people just don't > get this book. I haven't figured out a pattern about who this does or > doesn't work for yet either (I'm usually wrong, so maybe it's all the > people I don't think would like it). > > In any case, good luck. > > > > > On Tue, Feb 23, 2016 at 5:57 PM, That One Guy /sarcasm < > thatoneguyst...@gmail.com> wrote: > >> 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 >> > > > > -- > *Forrest Christian* *CEO**, PacketFlux Technologies, Inc.* > Tel: 406-449-3345 | Address: 3577 Countryside Road, Helena, MT 59602 > forre...@imach.com | http://www.packetflux.com > <http://www.linkedin.com/in/fwchristian> <http://facebook.com/packetflux> > <http://twitter.com/@packetflux> > >
