I always say it’s taken us 25 years to become an overnight sensation. But joking apart, many salon owners work very hard over a long period of time to build their brand, business and clientele and then hit a wall. What happens next?
I envy companies in our sector that have a strong family connection and a bulletproof plan for who’s going to take over and move the company forward once the existing owner wants to hang up their scissors or make-up brush. Take the inspiring Dorothy and Stephen Purdew from Champneys. How fantastic that she can rest assured that her son will continue to develop the renowned brand. Or in hairdressing there’s the Miller (Charlie, Josh, Jason, India) family - who’ve gone on to evolve their company to greater heights.
Sadly, not all of us have such a succession plan in place and, after working hard to create our businesses, we struggle to see how we can realistically exit when the time comes.
PB reader Rachel got in touch with me about that exact concern. Like me, with no future generations keen to take over her established business, she was scratching her head to find a solution to let her take her foot off the gas. In fact, she’s one of three salon or spa owners to have picked my brains about this issue at recent industry events.
Making the sale
After I’d helped her formulate a plan over coffee, Rachel urged me to share my advice. So here goes…
The bad news is that service-related industries aren’t very saleable. Sorry to be the bearer of doom, but the average independent salon really isn’t worth very much to someone looking for an investment. Why? Labour-intensive sectors like ours have a turnover that’s largely dependent on our teams. Ask any accountant what they think of your payroll costs as a percentage of your net turnover (minus VAT) and they’ll undoubtedly berate you.
What they don’t understand is that our teams ARE our turnover. Whereas other businesses like retail, for instance, may see half their revenue invested in stock and need only around 10% to pay their staff, it’s the other way around for us. And even though they buy turnover, investors don’t buy people. They buy guaranteed assets and products, and team members without lock-ins are not guaranteed. They could walk at any time and, worse, take some of that precious turnover with them.
So, what about the good news? Well, that’s exactly why our team members make the perfect first port of call for creating an exit plan.
I gave Rachel a checklist of her best options, in order of importance:
1. Look within: who, in your salon, is ambitious enough to want their own business? Don’t underestimate what deep pockets you need to set up on your own these days. They might not be able to get funding. Could you act as their landlord for an agreed period, taking a percentage of turnover, until they can buy you out?
2. Look wider: is a management buy-out an option? Would a group of existing staff like to take over as a co-operative?
3. Look outside your business but within the industry: is there anyone local looking to start up? Far better to buy an existing business with fixtures and fittings (worth more to the incoming tenant than they would be on the open market) Starting with a ready-made client base has a huge appeal, too. And if that fails…
4. Look at your assets: can you assign your lease to another tenant? Would your landlord be interested in taking back the lease for a premium? Better still, do you have the freehold? Can you rent the premises?
We mustn’t underestimate the possibility that one of our team members is the very person we’re looking for. Don’t be frightened to have the conversation.
On another note, I’ve been banging on for a while about the increase many of us will face in business rates, so next month’s column features that topic. Please get in touch to share your experiences.
Hellen Ward is managing director of Richard Ward Hair & Metrospa in London’s Sloane Square and chair of Trailblazers for the hairdressing sector. Send your feedback to email@example.com