Long story short, over the past decade or so, my mom built a nail business. At the moment she's a nail technician as well, and also takes on the manager role (maintenance, supplies, etc), and she's built up clientele and the like, to the point where she herself is pulling in $300k+ profit herself a year. The thing is, she plans to sell the spot in a couple years, and plans to sell it someone else who will take over it as a nail salon business, but for some reason in her mind it's ingrained to sell it simply at the cost of the location (not accounting for the cost of the business she built up, etc). Is this a bad idea on her part in her opinion? I definitely don't want to think for her, but I was curious about what you guys think
Edit: the new owner would just take on the name and clients, and she'll no longer be in the nail business
Do you think it's a bad idea for my mom to sell her business for the cost of the location itself, when it makes her over $300k a year?
byu/dreemsequence inEntrepreneur
Posted by dreemsequence
6 Comments
Is she selling the name and branding too? Because if she’s selling it to another entity to open a completely unrelated nail salon, then yeah that’s the only value that’s being transferred. If she’s selling the name, branding and reputation that goes with it, she’s undervaluing it quite a bit.
We need a little more info but yeah I would say she’s undervaluing it in this case.
1. Does she plan to open a new salon later? If so, what’s going on with the company name? Is she keeping it or selling it?
2. Will these clients stay with the new owner or move? If she’s selling the business as a business, then she would probably need to sign a noncompete, pretty standard. So she couldn’t open a new business and just take the clients.
3. Will the new owners be asking for her help getting started?
What’s her reasoning behind doing this ?
She’s probably giving up 2-3x her seller discretionary earning. So if she takes home $300k she might get $600-900k just for the business plus the value of the real estate.
It does take work to sell a business so it’s not a simply thing but at almost a million on the table it’s worth it.
If she’s just selling the real location and giving away the business I’d like to buy her retail location.
Need more info here.
First question is what is the lease. If she has a longer-term lease locked in, this has value, especially for someone who wants to continue substantially the same business if there’s a built-up clientele. One assumes many of the techs and other employees would be willing to stay on with any reasonable new owner, so this really is a turnkey business your mom is handing over.
If the lease is short-term and there aren’t clean renewal options at a fixed or structured price, she has a decision to make: does she want to walk away without being able to sell it for too much, or would she want to get the landlord to agree to a lease extension, or option, that would enable her to bundle the sale per above.
If she owns the building, she should keep the building and become a landlord to the new owner, at the very least. Landlords in this situation have a lot of leverage, so even if she sells the business itself below market, then she could make up for it in time through reasonable rent increases.
If owns but is planning to sell the building, my advice to you is, buy it and offer the new salon owner a long-term lease on terms that work for you both! Even if you have to pay you mom back over time or something. Then you can be the landlord per above.
She owns the real estate and is selling it, giving the business away for free? She’s leaving a lot of money on the table. I’d personally sell the business at whatever a good multiplier is for this type of business in your area and lease the property to the new owner. It would be a nice, steady stream of income in retirement.
If she really wants to sell the property, she should be selling it in addition to the business, not giving it away for free.
Edited to add that if the person can’t afford to pay for the business, she could hold a note. She also has the option of leasing the business and taking a portion of the proceeds.