Do you own a barbershop and you want to exit by selling it profitably? If YES, here are 6 smart tips on how to sell your barbershop business successfully.
The sale of a barbershop can be profitable if you have done your due diligence, cleaned up your location, valued it correctly, and included some or all of your tangible and intangible assets. There are a variety of circumstances that may instigate you to sell your barber shop.
Irrespective of what the reason might be, evaluate the current market to make sure it is a good time to sell. It is advisable to try to avoid rushing into a sale, but don’t be discouraged if you need to make a quick exit. If you have taken the time to build a solid business, you can still secure a substantial profit.
In this time of global economic recession, many barbershop sellers wait to list their businesses until they see signs that the economy has rebounded. Most barbershops are good business opportunities; a fact that is not going unnoticed by today’s discerning buyers.
Prospective buyers will want to see a healthy business that has a loyal customer base and potential for growth. So, do everything you can now to increase the overall health of your barber shop. Additionally, look at your shop from the eyes of a potential buyer.
Conduct all necessary renovations and repairs to ensure all equipment, furniture, and décor are updated and in prime condition. Improve your store’s appearance by putting on a fresh coat of paint and installing new signage. Below are just a few things you will need to do in order to get your barbershop in tip-top shape and ready to sell.
6 Tips to Sell your Barbershop Business Successfully
Know the Value of Your Business
Knowing the value of your business is without doubt the most crucial thing you can do before you list for sale, and everything else in the selling process will be tied to valuation. There are a few factors to consider when determining the value of a barbershop.
- Assets: Your assets can be divided into two categories: tangible and intangible. Tangible assets are things like washing stations, chairs, cutting stations, products, and potentially staff members. Intangible assets would include branding, reputation, and customers (especially regular ones).
This isn’t something that is often part of a sale when it comes to retail stores, since regular clients aren’t something business owners can usually count on.
- Streams of Profits: Have it in mind that the more streams of profits you can offer to buyers, the more valuable your business is. These can include services offered beyond hair styling, such as nails, massages, facials, and anything else that could make you a full-service barbershop. Product sales are often an important source of profit, too.
- Revenue: Note that your business’s revenue will be a major factor in the sale, as it is the primary reason to buy a business. The greater your revenue, the more valuable your business. Remember that consistency and the ability to demonstrate how a new buyer can repeat your success is also important.
Perform Your Due Diligence
For your prospective buyers to feel confident about buying your barber shop, they will want to evaluate all aspects of the business. To ensure a seamless process and give them peace of mind, take the time now to gather all applicable documents.
It would be advisable to enlist the help of a broker and an accountant to make sure all the relevant financial, legal, and operational information is ready and available to present to committed buyers. Here are some documents you should be prepared to show:
- Tax returns, income statements, and balance statements from the last three years
- Accounts receivable and payable
- Owner’s salary
- Financial forecast
- Stock inventory and price
- Valuation and list of equipment, furniture, and fixtures included in the sale
- Vendor and customer databases
- Website analysis regarding site traffic and social media presence
- Business registration, certificates, and licenses
- Business procedures
- Marketing plans
- Staff training manuals
Additionally, remember to be as honest as possible during this phase of the selling process. Remember, misrepresenting information or failing to disclose important details can lead to a lawsuit. Let the buyers take their time, and be willing to show them all sides of your business so that they feel confident in their purchase.
Setting a Price
Have it in mind that the price of your barbershop greatly depends on your recent profits and the support you can show that these profits will remain the same or grow. A buyer will use a multiplier of your profits to determine your barbershop’s value.
For instance, if your barbershop makes a profit of $10,000 per year, a buyer might consider paying you three times that amount, depending on whether they feel they can make more than $30,000 from your business. If the buyer feels they can increase the barbershop’s profits beyond $10,000 annually or expects to own the business for more than three years, the barbershop will be an attractive investment.
Your best bet to sell your barbershop is to show your recent profit performance and show evidence profits will grow and continue for a specified time period. Try to provide proof for buyers that include an analysis of your cash flow, profits, assets and liabilities.
List your hard assets and subtract your liabilities. List the intangible assets, including a non-compete clause, on your document. Show your profits from operations for the last year or more, depending on how attractive they are.
Market the Business
Spread the word out that your business is for sale in newspapers, online and through word of mouth. It is advisable you don’t include the name of the business in your ads to prevent your customers and employees from getting nervous and leaving.
You will almost certainly be asked why you are selling the business, so have an answer prepared. Also consider talking to your accountant to discuss whether you can finance the sale.
In this scenario, you would take monthly or quarterly payments from the buyer, with the business reverting back to you in the event of a default. You can finance all or part of the purchase price. This might be more risk that you are willing to take, so review this option carefully with a qualified financial professional.
Consider the Service of a Broker
These experts help connect business buyers and sellers together, usually representing one party. They are experts at valuing businesses, with some specializing in specific business types. A broker might charge you a set fee or a percentage of the selling price.
Perform an Internet search for business brokers in your area and contact them for consultations. After you have narrowed down your list, look for online reviews from clients who have used them.
Finding a Buyer and Negotiating the Sale
Have it in mind that not everyone who shows interest in your shop will be a serious buyer, and you don’t want to waste your precious time with indecisive “window shoppers”. Always ensure you vet potential buyers in advance and only meet with committed and pre-qualified buyers.
This is where the assistance of a broker is extremely needed. They’re aware of the current market, and they can place your business in front of the right people and screen interested buyers for you—saving you time and bringing serious, committed buyers to your front door.
Finally, be patient. You have spent valuable time and energy building a thriving business, wait for the right buyer to come along and make a fair and profitable offer so that you can reap the reward of your hard work.
As a business owner, you may want to keep your employees informed about your plans; but as a seller it is in your best interest to keep your employees in the dark for as long as possible. The more people who know that the business is on the market, the riskier the sale becomes.
Nonetheless, the longer the selling process takes, the more likely it is that rumours will begin to circulate through your workforce. So, at some point you will have to resign yourself to the idea of telling your employees that you have listed the business in the market.
In summary, to get the most from selling your barber shop, you will need to plan ahead, put in some hard work, and ask for exactly what your business is worth.
Don’t risk alienating buyers simply because you have incorrectly valued your business (either priced too high or too low). Note that you have done the hardest job of running your barbershop, now is your time to reap the benefits of all that hard work.