I guess the salon would be a great advertising vehicle for the WISP.
From: Keefe John
Sent: Wednesday, February 24, 2016 9:10 AM
To: af@afmug.com
Subject: Re: [AFMUG] Ot buying a salon
You could talk to Dave @ Mercury Network(the ISP). He owns salons in addition
to his WISP.
Keefe
On 2/24/2016 5:41 AM, Lewis Bergman wrote:
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
