The barbershop industry changes regularly as trending hairstyles and marketing approaches evolve. This review discusses barbershops in detail. More specifically, we take a closer look at how barbershop owners can value and sell their company for fair market value (FMV). We also discuss the role of a business broker during the sale process.
About The Barbershop Industry
Barbershops, men’s hair stylists, engage in cutting, trimming, and styling boys’ and men’s hair. They also provide shaving and trimmer services for men’s beards as well (Business Reference Guide). Here are the most recent barbershop industry numbers:
- There are approximately 106,000 barbershops in the U.S.
- There was a 2.9% annual growth for the barbershop industry from 2018 to 2023
- The barbershop industry generates $4.5 billion in annual revenue
- The annual profit for the barbershop industry is $811.7 million
- Experts predict a sizable increase in annual growth (1.3%) from 2023 to 2028
Barbershops overall are expected to experience growth over the next five years, and they have seen significant growth since 2018. This is largely driven by changing social norms that encourage men to have short, clean, and neat hairstyles. Overall, it is a stable industry with growth potential. Barbershops that prioritize social media marketing are likely to perform better than those that do not.
How to Value Your Barbershop
We recommend a market-based approach for barbershop owners who are planning their exit strategy. This gives you a clear idea of how much prospective buyers are willing to pay for your shop. Specifically, it involves an analysis of recent sales data and your company’s financial information. Your broker will use industry multiples (also known as rule of thumb data). This data is as follows:
- Barbershops sold between 1.52 and 4.32 times the Seller’s Discretionary Earnings (SDE)
- Barbershops sold for approximately 1.94 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
- Barbershops sold between 0.33 and 0.37 times the annual net sales
In addition to your seller’s discretionary earnings (SDE) and other financial metrics, your broker may consider your unique competitive advantage, location, growth potential, and reason for selling when determining your value.
A Sales Guide for Barbershops
From the valuation stage to closing the sale, it helps to have an organized, step-by-step process for your barbershop’s sale. Of course, a personalized strategy is strongly recommended. However, the steps you can expect include:
- Select a qualified business broker
- Determine your sales strategy
- Find a buyer with a confidential marketing approach
- Provide the buyer with financial and legal information
- Close the sale and finish your exit strategy
Below we take a closer look at each step of the process to help you learn more and properly prepare. This information should also help you make an informed decision as to whether or not now is the right time to sell.
#1: Select a Qualified Business Broker
Your business broker will help you throughout every stage of the sale. Their job is to actively seek and find you a buyer, along with assisting with determining your barbershop’s value, planning your sales strategy, maintaining confidentiality, screening offers, negotiating, assisting with due diligence, and providing consultancy through closing. In other words, they simply make your sale easier and more successful. It is important to choose one who sees the true value of your barbershop.
#2: Determine Your Sales Strategy
You and your broker will personalize your sales experience based on what works best for your barbershop. Your fair market value (which is determined during the business valuation stage) plays a major role in your strategy. For example, if the market is not as generous for sellers as it is expected to be in 6 months, your broker may recommend waiting to list your company. In the meantime, you can take efforts to improve your barbershop’s value. You should also establish your sales goals during this time. This may involve financial and non-financial goals, such as finding a buyer who keeps your employees on staff.
#3: Find a Buyer With a Confidential Marketing Approach
You must maintain confidentiality when selling your barbershop. This not only reduces the risk of disgruntled employees and customers, but it also helps ensure potential buyers feel comfortable making offers as they know it is done in a private manner.
The issue, however, is that selling a barbershop in a confidential manner is not easy unless you have access to private connections, networks, and databases. Due to this need to sell privately, we recommend working with a business broker who is able to present your sales memorandum to hundreds of potential buyers. Ultimately, you will negotiate a deal with the buyer that best allows you to reach your exit strategy goals, and the marketing stage ends when the buyer signs a letter of intent (LOI).
#4: Provide The Buyer With Financial and Legal Information (Due Diligence)
This stage is known as due diligence. Every due diligence process looks different and is based on the specifics of the barbershop. However, it typically involves providing the seller with financial, legal, and operational documents that you collected when preparing for the sale. This includes (but is not limited to):
- Tax returns
- P&L statements
- Balance sheets
- Cash flow statements
- Business license
- Insurance policy
- Lease information
- Employee list
The buyer may also request a visit to your barbershop during work hours to review business operations and meet with employees. They may also provide a list of questions for you to answer to provide more clarity about the business.
#5: Close The Sale and Finish Your Exit Strategy
This is the most exciting time for many barbershop owners. However, it is important not to rush through this process. Instead, stay focused and see the process through entirely. There may be certain documents you need to bring to closing (i.e. a copy of the purchase agreement, insurance information, etc.). Your broker and attorney can assist you with preparing for the sale closing. Along with attaining the final signatures of the purchase agreement, you will also transfer ownership of the barbershop to the buyer, notify employees and customers, and confirm that the payment has been sent to you.
Get Started With a Free, No-Obligation Valuation
Are you planning your exit strategy and are interested in selling your barbershop? If so, then the business brokerage and consultancy team here at Sigma Mergers and Acquisitions is here to help. We help barbershops, along with related business types, through the sales process. You can get started by scheduling a time for a consultation call. We are also glad to answer any questions or concerns you may have.
Scot Cockroft is the Owner & President of the #1 ranked Business Brokerage, Business sales and M&A firm in Texas. Scot has been named Named Deal Maker of the Year by Dallas Business Journal.
He is committed to a “different” type of business brokerage firm, one that is NOT about a sales pitch but, rather, results! In short, a business brokerage firm that is committed to performance-based compensation. Scot believes in these principles as well as a candid honesty with clients. His candid style often takes buyers and sellers by surprise, but is often what assures successful connections between the two.
Feel free to reach out!