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Should I buy this hair salon?

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Money Talk > Earning & Income

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ja192827
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Should I buy this hair salon?  Reply with quote  

I am considering purchasing a hair salon priced at $300k. Accountant confirmed "more than likely" nets $80k per yr. (Need some more documentation to confirm) I got approved for a 10 yr SBA loan at 5.75% and $15k in fees. Taking the fees into consideration, it is like having a loan at 6.5%. I have $370k in cash, so I would have $50k as a safety net after working capital.

-There is probably only about $50k or less in assets.
-My house would have to be used as a collateral.
-No real estate is included.
-My wife and I do not have any experience in the hair salon business, but it is a franchise, and virtually all of the owners in the company start without experience. I currently own and manage another unrelated business with 6 employees.
-Current owner stops in once every 1-3 months. I confirmed this by getting my haircut two separate times there and asking the stylists what the involvement of the owner was. If I am there once a week, I would think things only can get better. I spoke to several other franchise owners who confirmed it pretty much just is a one day a week commitment, as if you have a good stylist/manager, things can run pretty smoothly.


The profit to price ratio is not great, but does anyone think the ROI is good, considering the limited hours the business would be required to run? Would it be best to take out the loan or purchase the business in cash? The stock market historically has returned 6.6%, so it's not like I stand to make much more if I take out the loan and invest my own $. Thanks in advance.
Post Wed Jun 10, 2015 12:42 pm
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Wino
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I have known two couples who bought hair salons. One of them now owns about 6 of them, and run it very similarly to what you have outlined. The other stopped in rarely, and ended up losing the business and his investment.

Like any business, you get out of it what you put in to it. I'd probably be hands-on at first until I became familiar with the cash flow. That way, when I do go to arm's length managing, I'd know if something were amiss with the income.

As far as evaluating the business, is that $80K profit or $80K income? That sounds high, unless the location is good and you have a lot of chairs and stylists.
Post Thu Jun 11, 2015 9:02 am
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ja192827
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quote:
Originally posted by Wino
I have known two couples who bought hair salons. One of them now owns about 6 of them, and run it very similarly to what you have outlined. The other stopped in rarely, and ended up losing the business and his investment.

Like any business, you get out of it what you put in to it. I'd probably be hands-on at first until I became familiar with the cash flow. That way, when I do go to arm's length managing, I'd know if something were amiss with the income.

As far as evaluating the business, is that $80K profit or $80K income? That sounds high, unless the location is good and you have a lot of chairs and stylists.


Actually, more than likely it is $110,000 take home pay. I said $80,000, as the seller said there are $30,000 in shared expenses with another business he has that I will not have. Good to hear you have heard it can be successful. Thanks for your comment.
Post Thu Jun 11, 2015 11:57 am
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lankara
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I like this idea. I would very much like my hair salon)
Post Sun Nov 27, 2016 1:14 pm
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vtrust
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300k?? dats a lot
Post Tue Nov 29, 2016 1:38 pm
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