If you are considering selling your salon, there are a few things I’d suggest. Maybe you hire a broker. Maybe you sell it to a stylist. Whatever your decision, you first need to know what your salon is worth. So, let’s talk about how you do that.
The Two Common Business Valuation Methods are:
1. Total revenue multiplied by 25% to 35% + fair market value of inventory
2. Two to Three times the pretax income + fair market value of inventory
Example Salon
Let's assume a Beauty salon is 1500 sf, located in a retail strip center, and has a ton of foot traffic. There are 10 stations and waxing and facial rooms. It's the only salon within a 3 mile radius and there is 6 months remaining on the initial lease. To generate additional sales the salon also sells hair, face, and nail products.
The financials are as below
| | 2014 | 2015 | 2016
| Service Revenue | $300,000 | $350,000 | $400,000
| Product Revenue | $100,000 | $120,000 | $130,000
| Total Revenue | $400,000 | $470,000 | $530,000
| Payroll | $250,000 | $300,000 | $350,000
| Pre-tax Income | $74,000 | $81,000 | $90,000
| Inventory | $30,000 | $30,000 | $30,000
Steps to Calculating the Value of a Beauty Salon
1. Estimate the fair market value of all the inventory. In the beauty salon business products can expire. It's not uncommon to factor in a discount of about 20% to 30%. After using a 25% discount the inventory for 2016 would be valued at $22,500
2. Determine the right multiple of pretax income. A strong business will have a higher multiple.
3. Determine the strengths and weaknesses of the business.
4. Take all the factors into account and run both formulas. For this example, let's assume the middle of the road seems best.
$530,000 X 30% = $159,000 + $22,500 (fair market value of inventory). Total = $181,500
2.5 X $90,000 = $225,000 + $22,500 (fair market value of inventory). Total = $247,500
Splitting the two numbers above and taking all the other factors into account a good place to sta
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