Salon Today - February 2009 - (Page 27)

One of the ﬁrst steps in planning the eventual sale of your business is evaluating its current worth. This was one of the factors working in the Jenkins’ favor—before a buyer approached them, they had asked their accountant to give them an evaluation. “She had all these different formulas for evaluating the worth of a business, and there were three that were applicable to a hair salon,” says Daryl. “She used all three to calculate and basically came up with the same number. Knowing that number helped Shannon stay conﬁdent in her asking price.” According to Ducoff, there are a few ways to evaluate worth. “The quick, down and dirty way is to take the businesses’ current annual earnings, or proﬁt, and multiply it by three or four,” he says. “There’s also a formula to calculate it using gross sales revenues.” Usually, those two formulations will give you a high number and a low number, and the business will sell for something in between. “It will boil down to your balance sheet,” says Ducoff. “If a buyer feels he can buy the company, service the debt, and still add to the bottom line, then the value of your business rises.” Once you truly understand your salon’s worth, you can work to increase that value in the eyes of a future buyer. “ The basic entrepreneurial pattern is the owner who keeps working and working and it’s business as usual. One day they wake up and say, ‘How will I get out of this?’ and sometimes it’s too late. —Neil Ducoff, CEO of Strategies When Shannon and Daryl Jenkins sold their salon, the entire operation was turnkey. “We had manuals and handbooks and scripts for everything. Every employee knew what they were supposed to do each day.” says Daryl. < FINANCIAL ” the point that the Eveline Charles brand no longer requires Eveline, the person, to carry on. ACCOUNTABILITY > According to Ducoff, all salon owners should begin thinking about how they could design their business as a franchise. “Think about how smoothly everything runs at McDonald’s— everything has a system. The more you design your business like a franchise, the more appealing it is to a buyer.” “If a salon has been accumulating debt and running up credit cards to ﬁnance that beautiful build-out, then the owner may ﬁnd himself in the position that he needs to borrow money just to get out,” says Ducoff. Part of becoming ﬁnancially accountable is understanding your salon’s numbers. Responsible owners have to learn to read a balance sheet and comprehend a proﬁt and loss statement. “Develop a plan for working diligently on your ﬁnancials over the next ﬁve to eight years,” says Ducoff. “Make sure you are running a legitimate business, that all the numbers are accounted for, and that you are working to drive a healthy bottom line.” For Shannon and Daryl, ﬁnancial accountability came through their own advanced business education. “We credit both Strategies and Harms Software for much of our success—we learned early on that we needed to understand what kind of company we wanted to create and how to go about doing that,” says Daryl. < BUILD The most ideal place to ﬁnd a buyer is within your own staff—someone who understands the value of the business. This proved true for Hair Xtreme, whose buyer emerged from their management team. “Start by looking around to see if there is someone on your team who has the potential to be a leader and the access to the ﬁnancial means to put a deal together,” says Ducoff. If there’s no one internally, you have to seek a buyer externally. “I had a client who put together beautiful presentation folders and sent out invitations to doctors in her market who might be interested in expanding into medispas—to receive the full packet, the recipients had to sign a non-disclosure agreement,” says Ducoff. “But you should always tap your network, and try asking your accountant and attorney, who also work with other small business owners.” THE BRAND > “ From day one, I knew that someday the salon would be sold, so I started doing everything to create a turnkey operation. —Shannon Jenkins, trainer and educator, Harms Software ” Work now to solidify your salon’s brand, and make sure that you are not the brand. In too many salons, the brand is built around the presence of the owner. “If you named your salon after yourself, then you need to make sure the brand name is big enough to outlast you,” advises Ducoff. “Eveline Charles [with nine locations in Western Canada] has done an excellent job of this—her operation is a well-run machine, she’s built it to What happens when salon owners sell their businesses? According to Shannon and Daryl Jenkins, they take a big break. Having always wanted to move out West, Shannon convinced Daryl to move to Phoenix, where she took off six months to decorate their new house. “Basically I did all the stuff I didn’t have time to do when I was managing a business 24/7,” she says. But the couple quickly learned they couldn’t get the industry out of their blood—Daryl became a director of operations for Strategies and a Strategies coach and Shannon became a trainer and educator for Harms Software. “But I do miss that salon sometimes,” admits Shannon. “I miss the clients, I miss the marketing, I miss the retailing—I miss all of it.” n www.salontoday.com February 2009 | 27 http://www.salontoday.com

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Salon Today - February 2009 Contents Editor's Note Reception Spa Menu Decor Inside Look Custom Color Board Games Where's My Exit? Products Owner to Owner

Salon Today - February 2009

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