So, become a church...
From: That One Guy /sarcasm
Sent: Wednesday, February 24, 2016 10:23 AM
To: af@afmug.com
Subject: Re: [AFMUG] Ot buying a salon
Booze is not a bad idea, i dont know if you can just give it and not have a
liquor license, but there are no available licenses here, i think we get one
per church, so we have plenty of bars.
A clarification on the relationship between the two, its a strained familiar
relationship due to differences in visions. Both parties are more than
agreeable to the whole scenario, I met with each separately specifically to see
what the dynamic was, I didnt want to get into a train wreck. The more im
learning of the details, there were alot of points in time where all it would
have taken was two people just stopping to talk to one another and the disaster
would have been avoidable, I think, based on knowing the individuals, that had
either one of them not been in the mother/daughter environment, this would
never have happened.
A poor choice in the failure chain was retail, it got transitioned from
commission sales to a mechanism the keep the business floating. Once that
happened two things took place, the chairs saw no real benefit in pushing it
which was made worse by the fact it essentially equated to a pay cut, and the
financier partner saw no gain in risking bringing in any new retail. In the
schooling that costs 16k, they drill that into the girls heads, retail, retail,
retail, without it, all youre offering is a haircut and everybody offers a
haircut. Thats already been an agreed upon term, the return of retail sales
comission, and the return of loss leaders, they completely eliminated that
struggling to float. I was talking to a friend of mine last night, she crochets
artsy shit like baby covers and boob caps, whatever. these things move like hot
cakes in the salons. We had tried to get them in the salon before, but what the
owners wanted was to make profit on them to the point it wasnt worth it for her
to spend the time making them for what they wanted to pay, on top of that they
wanted to sell them at too much markup. This girl doesnt live here, she has a
real talent at neat stuff. There are two other chics in town that make similar
items, but their styles are identical to one another, and they sell them in all
the salons.
The old lady ended up selling them to other people in a short time for her,
like crack, ladies love crocheted crack. Id have no intention of making profit
on them, thats actually an expected cost. If i lose 5 bucks on some tit hat,
but that client shows it to her girlfriend who just needs one as well, and were
the only joint you can get them, the "staff" has the option to discount them
even further when the new customer comes in to get one, if they can leverage it
for a service and new contact capture. Women are weird in the crap theyll drive
20 miles to buy, but the chair has the option to grow their client base, and
the shop gets a new marketing contact, thats always worth 5 or 10 bucks "loss".
I also have an expectation of some loss in inventory to the ether, but one
thing the daughter wanted but the financier partner couldn't justify was
surveillance. That will go in day one, the chairs will know every corner that
can legally be recorded will be. If theyre not serious enough about the
industry to know that theft is a rampant concern, theyre not serious about
growing their small business, and they can find a chair in another salon. This
may be a poor attitude as a business owner, but even a high revenue generating
thief is still a thief, I used to be a thief, so i know what kind of trash one
is deep inside and i dont want them as part of the team. I know a couple of the
salon owners overlook things. I cant do that. This salon size has potential to
reach the sales numbers quickly again to where the premium pricing comes back,
which is something they dont have right now. combine sales motivation with a
digital retail square app or whatever that broads can but some overpriced
shampoo and some nifty curling iron at a whim on their phone from the bar in
the bathroom on their night out with friends and theres better pricing for more
margin to offer as increased commission. The way i see that, if the store is
making 3 dollars on a bottle of shampoo after commission and the pricing gains
happen to where theres room for 4 dollars on it We can give 50 cents or even
the whole dollar to the chairs in commission. So a chair that normally moves 3
bottles a week for 9 bucks is motivated to move more, if they move 4, im still
making the same amount i would have made if i pocketed the discount as an
increase in sales, but there not motivated to sell more than 3. Im over
simplifying it, and probably completely wrong, but thats how ive always seen
retail with commission, and salon markup is high
On Wed, Feb 24, 2016 at 9:28 AM, Cameron Crum <cc...@wispmon.com> wrote:
The thing about being the 51 percent share holder is that you might as well
own the whole thing. You get to make all the decisions. Basically you could
make it very hard for the 49% owner to make a dime off of the business outside
of her labor contribution. I'm not saying you should do this, but it sounds
like there is some dead weight there and it might be time to move on. However,
your best bet is to buy the assets (Name,chairs,equipment,etc) of the business
and leave the corporate structure alone. They can worry about their own debt
and other liabilities with whatever money you agree to pay. After that it is
their problem. Sign a new lease under the new company with the landlord and go
on your way. Now you don't have to worry about having a boat anchor as a
partner. The current majority owner should be able to make this decision on her
own. It sucks for the daughter and will probably ruin their relationship if
they have one and the mother will probably get sued if she sells it out from
under her daughter, but oh well. I would never buy someone else's known
liabilities especially if I knew the business was in decline. You are asking
for trouble. They either need to clear up the liabilities before the sale (with
proof of such) or sell you the assets only and GTFO. I'm sure your lawyer and
accountant would agree.
I would also worry about the business model a little bit. It would be too
easy to cheat on the % side. Flat booth rent has lower upside, but more
stability, Depending on commission from work leaves a lot of incentive to hide
money, especially if it is a cash business. They WILL make under the table
deals. Product is going to be a big money maker if you know how to push it. My
wife was the AVEDA rep for SoCal for a few years back in the 90's, and has
manged high end salons in Santa Monica and LA. She says that unless you make
every appointment, and actually watch what every stylist does, it will be
difficult to make sure they are being honest. The salon manager has to really
on top of her game and somewhat of a hard ass. However, product in that
business can have HUGE margins. You need to pick a pretty high end line, and
make sure all the stylists are TRAINED correctly by the reps on how to sell the
product, and use that product exclusively for shampoos and such. Offer them
commissions on sales and make sure they are pushing it. When I was in college I
worked on the beach in S. Padre Island in the summers for a beach service who
also happened to be the Panama Jack distributor for Texas. As we rented
umbrellas and chairs and boogie boards to people, we would push product giving
free samples. They paid me 30% of what I brought in on product, so imagine the
profit in a bottle of junk most of these places are selling. It is similar in
the hair business.
One last thing...free booze. Keep half decent bottles of Cab, Merlot, and
Chardonnay on hand and maybe some decent beer for the occasional guy who
stumbles in or the poor schlub who was dragged along by his gf and offer it to
everyone. Don't let them get drunk, but a glass or two over an hour or so
helps to loosen the purse strings. Feeding the dude a beer or two makes sitting
in a salon more bearable and he might even spring for that $30 bottle of sweet
conditioner that makes his chicks hair soft and smell good so he can take her
home and see how fast he can mess it up.
Good luck
On Wed, Feb 24, 2016 at 5:41 AM, Lewis Bergman <lewis.berg...@gmail.com>
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
--
If you only see yourself as part of the team but you don't see your team as
part of yourself you have already failed as part of the team.
