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 <mailto: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 <mailto: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 <mailto:forre...@imach.com> |
http://www.packetflux.com <http://www.packetflux.com/>
<http://www.linkedin.com/in/fwchristian>
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