How to Sell a Beauty Salon

Are you considering selling a beauty salon? This review discusses everything you need to know about selling your hair or beauty salon, from determining your salon’s worth to closing the sale. 

About The Beauty Salon Industry

The hair and beauty salon industry is incredibly large, and there are close to 1.5 million salons in the United States. The services vary for each beauty salon, and they may include hair styling services, facials, color treatments, manicures and pedicures, waxing, facials, makeup applications, massages, nail services, spray tanning, and more. The most recent data and projections for the beauty salon industry are: 

• There are approximately 1,440,000 beauty salons in the U.S. 
• There was a 1.9% annual growth for the beauty salon industry from 2018 to 2023
• The beauty salon industry generates $72.7 billion in annual revenue
• The annual profit for the beauty salon industry is $6.0 billion
• Experts predict a sizable increase in annual growth (2.5%) from 2023 to 2028

 

Many investors are intrigued by the prospects of purchasing an established beauty salon, particularly those who enjoy the idea of being their own boss. Also, the industry is relatively recession proof as haircuts and similar beauty-related services remain in demand despite the state of the economy. Certain types of beauty salons, particularly the more innovative salons such as indie beauty brands, are receiving high valuations. 

A Market-Based Business Valuation for Beauty Salons

Although your financial information is at the forefront of the discussion with prospective buyers, they are also interested in additional (often non-financial) factors as well. This includes your growth potential and unique competitive advantage. For example, if you have high-quality and unique makeup applications or innovative skincare regimens, then your valuation may be higher. Your reason for selling, geographic location, and the quality of your team all play a role as well.

With that said, your proven profitability is still the most important consideration for prospective buyers. Consequently, we recommend a market-based approach to determine your fair market value. Along with your seller’s discretionary earnings, this also includes the use of the industry’s rule of thumb data, which is as follows: 

• Beauty salons sold between 1.55 and 2.21 times the Seller’s Discretionary Earnings (SDE)
• Beauty salons sold between 2.01 and 2.85 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
• Beauty salons sold between 0.28 and 0.31 times the annual net sales

You should also check: How to Sell a Hardware Manufacturing Company

A Step-by-Step Guide to Selling a Beauty Salon

There are no cookie-cutter approaches to selling a hair and beauty salon. Every sales plan should be entirely personalized according to what works best for your salon. However, there are common steps that should be included, although the intricacies for each may look different depending on your goals and specific situation. The five common steps you can expect and prepare for are as follows:

1. Plan and prepare
2. Market your salon
3. Secure a buyer
4. Due diligence
5. Close the sale

 

Let us take a closer look at these five steps. However, we strongly recommend speaking with a business broker to determine a customized strategy that works for selling your beauty salon. 

Plan and Prepare

Much of the work happens upfront before you begin seeking a buyer. By preparing ahead of time, you can reduce the stress involved with selling your beauty salon and better ensure you are able to reach your exit strategy goals. First, you should determine your valuation with a market-based approach (as discussed above). You should also establish your goals. This includes financial goals (i.e. asking price, minimizing tax obligation, etc.) and non-financial goals (i.e. finding a buyer who keeps your top stylists). When preparing, you will also need to collect your financial, legal, and organizational documents. This includes (but is not limited to):

• Tax returns (three years minimum)
• Profit and loss (P&L) statements
• Balance sheets
• Business license(s)
• Legal agreements (NDAs, etc.)
• Insurance policy
• Lease or property ownership documents

Market Your Salon

Your broker plans your strategy for finding a buyer and executes the marketing plan. They also maintain confidentiality throughout the sales process. In doing so, your broker may utilize private networks and databases, along with their personal connections and contacts. In some cases, they may also recommend a blind listing, which involves only providing the necessary details in your sales memorandum and not disclosing your salon’s name or location. This is all done to ensure news of your sale does not leak and cause disruption to your business operations or salon’s value. 

Secure a Buyer

The next step is to secure a qualified buyer that best allows you to reach your exit strategy goals. Ideally, this involves negotiations with several potential buyers who have made offers. This step is finalized when the buyer you decide to sell your beauty salon to signs a letter of intent (LOI).

Due Diligence

The buyer needs an opportunity to review all legal, financial, and operational documents. They may also request a walk-through of your beauty salon and meetings with your top executives, stylists, etc. Your broker should help ensure this process goes smoothly. For instance, here at Sigma Mergers and Acquisitions, we implement our proprietary due diligence map to help ensure this process remains structured and organized without setbacks. 

Close The Sale

The sale closing involves attaining the final signatures of the purchase agreement and completing the payment and transfer of ownership. Your attorney and the seller’s attorney may attend to help review all documents. You also may need to bring certain documents with you, such as your bank information, insurance policy, lease information, and a copy of the purchase agreement. 

Transferring ownership may take place at the closing table as well. In some cases, the transfer continues beyond closing, and training the new ownership may be arranged during negotiations for some beauty salons. The buyer’s goal is to ensure a smooth transition without much employee turnover or the loss of many (if any) customers due to the change of ownership. The more beauty salon owners are willing to assist with the transition the easier it is to sell in many cases. Specifically, the transfer may involve updating legal information, changes to the insurance policy, notifying employees and customers, and more. 

Are You Ready to Sell Your Beauty Salon?

Sigma Mergers and Acquisitions helps beauty salon owners sell their businesses with brokerage and consultancy services. We also help you determine your company’s value for other purposes as well, such as succession planning, buy and sell agreements, divorce, insurance purposes, and when fulfilling the terms of a will. You can schedule a consultation with us to learn more and get started.