Hairdresser - Salon Purchase.

Beaumont176

Good afternoon,

Looking for some advice. My wife has been approached by her boss to buy the Salon that she has worked in for the last +20 years before he puts it on the open market. 

The Salon is very well regarded in our local town great location and off street parking which is rare around where we stay. The Salon is a bit tired and could do with a good refresh to bring it upto date. 

There are currently 5 hairdressers (inc my wife) who all but 1 x rent a chair. 

I feel this is a good opportunity for her to effectively take ownership of an already established Salon.

We are fortunate to be relatively financially secure with no mortgage on our home and could invest £50k from savings towards the purchase of the Salon.

Am I naive in thinking it is as easy as negotiating a price for current stock / equipment. Then applying for a mortgage to be able to buy the property? 

The main issue i have is the financial side. I don't believe her accounts as a sole trader is enough to apply for a business mortgage. However as a couple we would meet the criteria easily. I am a high rate tax payer and don't want to be associated with a second income or have her business in my name.

Help advice as always much appreciated. 

silvercar

You could always act as a bank guarantor. 

MWT

Beaumont176 said:

Am I naive in thinking it is as easy as negotiating a price for current stock / equipment. Then applying for a mortgage to be able to buy the property? 

As you are talking about buying the property I guess you already know that the current owner has the freehold rather than just selling the business along with a current lease?

If so then the other consideration is the value the current owner puts on the 'Goodwill' in relation to the value of the freehold as although you can include goodwill in a business mortgage there are limits on just how much value the lender will accept for the goodwill.

Probably going to need an accountant and a broker for this one... 

DullGreyGuy

Beaumont176 said:

Good afternoon,

Looking for some advice. My wife has been approached by her boss to buy the Salon that she has worked in for the last +20 years before he puts it on the open market. 

The Salon is very well regarded in our local town great location and off street parking which is rare around where we stay. The Salon is a bit tired and could do with a good refresh to bring it upto date. 

There are currently 5 hairdressers (inc my wife) who all but 1 x rent a chair. 

I feel this is a good opportunity for her to effectively take ownership of an already established Salon.

We are fortunate to be relatively financially secure with no mortgage on our home and could invest £50k from savings towards the purchase of the Salon.

Am I naive in thinking it is as easy as negotiating a price for current stock / equipment. Then applying for a mortgage to be able to buy the property? 

The main issue i have is the financial side. I don't believe her accounts as a sole trader is enough to apply for a business mortgage. However as a couple we would meet the criteria easily. I am a high rate tax payer and don't want to be associated with a second income or have her business in my name.

Help advice as always much appreciated. 

Is the salon boss a sole trader or a limited company?

If it's a limited company you would be buying the company itself, it would continue to hold the freehold or lease on the salon not you. A sole trader then you are buying the bits off them including the "goodwill" 

As a going concern the sales price would normally reflect the property, stock, equipment and goodwill... some bits are easier to value than others but few would walk away from a profitable business only for the value of the stuff. 

Why are they selling? Is there a risk they'll setup a competing business nearby and bring her customers and "staff' with her? What do they do in the business? Who's going to take over those roles? Presumably it will mean there is now a vacant chair, do you know someone who'd want it?

Youre find having some initial discussions, fact finding etc but would need Legal and Financial advice on how best to do things if you decide to go forward. A former colleague bankrupted themselves after they bought a hairdressers without doing things properly and the business dried up in 6 months and they were left with a long lease with substantial rents and a liability to fix up the place when its finally handed back. 

Beaumont176

MWT said:

Beaumont176 said:

Am I naive in thinking it is as easy as negotiating a price for current stock / equipment. Then applying for a mortgage to be able to buy the property? 

As you are talking about buying the property I guess you already know that the current owner has the freehold rather than just selling the business along with a current lease?

If so then the other consideration is the value the current owner puts on the 'Goodwill' in relation to the value of the freehold as although you can include goodwill in a business mortgage there are limits on just how much value the lender will accept for the goodwill.

Probably going to need an accountant and a broker for this one... 

DullGreyGuy said:

Beaumont176 said:

Good afternoon,

Looking for some advice. My wife has been approached by her boss to buy the Salon that she has worked in for the last +20 years before he puts it on the open market. 

The Salon is very well regarded in our local town great location and off street parking which is rare around where we stay. The Salon is a bit tired and could do with a good refresh to bring it upto date. 

There are currently 5 hairdressers (inc my wife) who all but 1 x rent a chair. 

I feel this is a good opportunity for her to effectively take ownership of an already established Salon.

We are fortunate to be relatively financially secure with no mortgage on our home and could invest £50k from savings towards the purchase of the Salon.

Am I naive in thinking it is as easy as negotiating a price for current stock / equipment. Then applying for a mortgage to be able to buy the property? 

The main issue i have is the financial side. I don't believe her accounts as a sole trader is enough to apply for a business mortgage. However as a couple we would meet the criteria easily. I am a high rate tax payer and don't want to be associated with a second income or have her business in my name.

Help advice as always much appreciated. 

Is the salon boss a sole trader or a limited company?

If it's a limited company you would be buying the company itself, it would continue to hold the freehold or lease on the salon not you. A sole trader then you are buying the bits off them including the "goodwill" 

As a going concern the sales price would normally reflect the property, stock, equipment and goodwill... some bits are easier to value than others but few would walk away from a profitable business only for the value of the stuff. 

Why are they selling? Is there a risk they'll setup a competing business nearby and bring her customers and "staff' with her? What do they do in the business? Who's going to take over those roles? Presumably it will mean there is now a vacant chair, do you know someone who'd want it?

Youre find having some initial discussions, fact finding etc but would need Legal and Financial advice on how best to do things if you decide to go forward. A former colleague bankrupted themselves after they bought a hairdressers without doing things properly and the business dried up in 6 months and they were left with a long lease with substantial rents and a liability to fix up the place when its finally handed back. 

Thanks to all who have replied so far.

I've just realised I probably did not explain myself clearly to begin with. My wife has her own "Hairdressing business" where by she just rents a chair has her own clientele as do the other hairdressers on the premises. So effectively 5 businesses under the one roof.
When I refer to her "boss" he is the one who owns the property then rents out the chairs.

For sure we will certainly seek legal advice as I'm sure you can tell myself and my wife are not upto speed with the legalities. 

Her boss is due to retire within the next 2 years. That is the reason for the offer. I believe he is a sole trader and not a LTD company.

As you have touched on regarding lease and buying into his business. This is where I don't fully understand the circumstances.

To put it simply. Can we buy his shop and stock. Without any sort of lease etc. We would then have a mortgage on the building and own it. Then continue business as usual but my wife is then the property owner and renting out the chairs.

I assume his business would then dissolve through his retirement plan

MWT

Beaumont176 said:

MWT said:

Beaumont176 said:

Am I naive in thinking it is as easy as negotiating a price for current stock / equipment. Then applying for a mortgage to be able to buy the property? 

As you are talking about buying the property I guess you already know that the current owner has the freehold rather than just selling the business along with a current lease?

If so then the other consideration is the value the current owner puts on the 'Goodwill' in relation to the value of the freehold as although you can include goodwill in a business mortgage there are limits on just how much value the lender will accept for the goodwill.

Probably going to need an accountant and a broker for this one... 

DullGreyGuy said:

Beaumont176 said:

Good afternoon,

Looking for some advice. My wife has been approached by her boss to buy the Salon that she has worked in for the last +20 years before he puts it on the open market. 

The Salon is very well regarded in our local town great location and off street parking which is rare around where we stay. The Salon is a bit tired and could do with a good refresh to bring it upto date. 

There are currently 5 hairdressers (inc my wife) who all but 1 x rent a chair. 

I feel this is a good opportunity for her to effectively take ownership of an already established Salon.

We are fortunate to be relatively financially secure with no mortgage on our home and could invest £50k from savings towards the purchase of the Salon.

Am I naive in thinking it is as easy as negotiating a price for current stock / equipment. Then applying for a mortgage to be able to buy the property? 

The main issue i have is the financial side. I don't believe her accounts as a sole trader is enough to apply for a business mortgage. However as a couple we would meet the criteria easily. I am a high rate tax payer and don't want to be associated with a second income or have her business in my name.

Help advice as always much appreciated. 

Is the salon boss a sole trader or a limited company?

If it's a limited company you would be buying the company itself, it would continue to hold the freehold or lease on the salon not you. A sole trader then you are buying the bits off them including the "goodwill" 

As a going concern the sales price would normally reflect the property, stock, equipment and goodwill... some bits are easier to value than others but few would walk away from a profitable business only for the value of the stuff. 

Why are they selling? Is there a risk they'll setup a competing business nearby and bring her customers and "staff' with her? What do they do in the business? Who's going to take over those roles? Presumably it will mean there is now a vacant chair, do you know someone who'd want it?

Youre find having some initial discussions, fact finding etc but would need Legal and Financial advice on how best to do things if you decide to go forward. A former colleague bankrupted themselves after they bought a hairdressers without doing things properly and the business dried up in 6 months and they were left with a long lease with substantial rents and a liability to fix up the place when its finally handed back. 

Her boss is due to retire within the next 2 years. That is the reason for the offer. I believe he is a sole trader and not a LTD company.

As you have touched on regarding lease and buying into his business. This is where I don't fully understand the circumstances.

To put it simply. Can we buy his shop and stock. Without any sort of lease etc. We would then have a mortgage on the building and own it. Then continue business as usual but my wife is then the property owner and renting out the chairs.

I assume his business would then dissolve through his retirement plan

If he is a sole trader who owns the freehold then he is going to be selling you his stock, his shop with fixtures and fittings and the goodwill in the business. So for example if the property was valued at £300k, his stock £20k and he is asking £400k for the business then the goodwill is £80k.

Consider also the name of the current business, do you want the right to continue to use it or not? Can form part of the goodwill value negotiation...

A lot of details to go through to make sure this can continue to be a viable business, and to ascertain that it really is a viable business now, and some of those details your wife will already be aware of through her own agreement for renting her chair, but need to make sure the others have the same agreement for example...

Plenty of due diligence to be done...

DullGreyGuy

Beaumont176 said:

MWT said:

Beaumont176 said:

Am I naive in thinking it is as easy as negotiating a price for current stock / equipment. Then applying for a mortgage to be able to buy the property? 

As you are talking about buying the property I guess you already know that the current owner has the freehold rather than just selling the business along with a current lease?

If so then the other consideration is the value the current owner puts on the 'Goodwill' in relation to the value of the freehold as although you can include goodwill in a business mortgage there are limits on just how much value the lender will accept for the goodwill.

Probably going to need an accountant and a broker for this one... 

DullGreyGuy said:

Beaumont176 said:

Good afternoon,

Looking for some advice. My wife has been approached by her boss to buy the Salon that she has worked in for the last +20 years before he puts it on the open market. 

The Salon is very well regarded in our local town great location and off street parking which is rare around where we stay. The Salon is a bit tired and could do with a good refresh to bring it upto date. 

There are currently 5 hairdressers (inc my wife) who all but 1 x rent a chair. 

I feel this is a good opportunity for her to effectively take ownership of an already established Salon.

We are fortunate to be relatively financially secure with no mortgage on our home and could invest £50k from savings towards the purchase of the Salon.

Am I naive in thinking it is as easy as negotiating a price for current stock / equipment. Then applying for a mortgage to be able to buy the property? 

The main issue i have is the financial side. I don't believe her accounts as a sole trader is enough to apply for a business mortgage. However as a couple we would meet the criteria easily. I am a high rate tax payer and don't want to be associated with a second income or have her business in my name.

Help advice as always much appreciated. 

Is the salon boss a sole trader or a limited company?

If it's a limited company you would be buying the company itself, it would continue to hold the freehold or lease on the salon not you. A sole trader then you are buying the bits off them including the "goodwill" 

As a going concern the sales price would normally reflect the property, stock, equipment and goodwill... some bits are easier to value than others but few would walk away from a profitable business only for the value of the stuff. 

Why are they selling? Is there a risk they'll setup a competing business nearby and bring her customers and "staff' with her? What do they do in the business? Who's going to take over those roles? Presumably it will mean there is now a vacant chair, do you know someone who'd want it?

Youre find having some initial discussions, fact finding etc but would need Legal and Financial advice on how best to do things if you decide to go forward. A former colleague bankrupted themselves after they bought a hairdressers without doing things properly and the business dried up in 6 months and they were left with a long lease with substantial rents and a liability to fix up the place when its finally handed back. 

Thanks to all who have replied so far.

I've just realised I probably did not explain myself clearly to begin with. My wife has her own "Hairdressing business" where by she just rents a chair has her own clientele as do the other hairdressers on the premises. So effectively 5 businesses under the one roof.
When I refer to her "boss" he is the one who owns the property then rents out the chairs.

For sure we will certainly seek legal advice as I'm sure you can tell myself and my wife are not upto speed with the legalities. 

Her boss is due to retire within the next 2 years. That is the reason for the offer. I believe he is a sole trader and not a LTD company.

As you have touched on regarding lease and buying into his business. This is where I don't fully understand the circumstances.

To put it simply. Can we buy his shop and stock. Without any sort of lease etc. We would then have a mortgage on the building and own it. Then continue business as usual but my wife is then the property owner and renting out the chairs.

I assume his business would then dissolve through his retirement plan

You would need to check they actually own the building, if so is it freehold or leasehold, or do they just lease the salon? What's above it? 

You can buy the building, if its freehold, and the stock and the equipment but assuming the business is profitable then you are likely to have to pay more than that to get them to sell it... the difference between the value of the stuff and the price you pay is known as "goodwill". its basically buying the intangible things like the list of customers, the brand, the people that will keep turning up because their friend recommends the place. 

If they are a sole trader then they simply cease trading, there is no legal separation between the business and the person. Your contract of sale however would sensibly include a no-compete clause as a minimum so they cannot setup shop 2 doors down and take customers with him. There are other levers that can be pulled like earn out periods etch which you may want to consider if there is a very large amount of goodwill involved... take this website, it was sold by Martin for £87m, very little of that was for the company's computers or servers or the content that had already been created but instead the however many hundred thousand that turn up every month to read the site. 

I understand the model of a saloon but they do vary... are the hairdressers paid directly by the customer or does it all flow through a central till? Who gets assigned a walk in? Is there a central booking system? If a hairdresser calls in sick who contacts her booked customers? Do they get assigned to another chair if there is availability? They can be truly 5 businesses under one roof or can be one business that subcontracts out a lot of its work to four other businesses. 

eddddy

Beaumont176 said:

Then applying for a mortgage to be able to buy the property? 

As others suggest, the first step is to find out what is being sold.

For example, if the shop is being rented (e.g. a short-term commercial lease), there's no property to buy - your wife would just pay the rent each month.

Beaumont176 said:

The main issue i have is the financial side. I don't believe her accounts as a sole trader is enough to apply for a business mortgage.
...
...

We are fortunate to be relatively financially secure with no mortgage on our home and could invest £50k from savings towards the purchase of the Salon.

 

I suspect that the easiest and cheapest approach would be to take out a standard residential mortgage on your home,

And then use that mortgage money to buy the business.

silvercar

If you are buying the business, you may want a clause in the contract that prevents the current owner opening up a new salon within the vicinity. The last thing you want is for the reason for the move to be that they have found cheaper premises nearby and will poach your clients and possibly some of the chair renters.