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Save up for Retirement

October 19, 2011

For many ageing salon owners (arguably 50% of current salon owners are 50 or older), the money invested in their business represents the vast majority of their retirement savings. Their hope is to build up the business enough to show a stable profit stream and then put it up for sale at a good price. Many owners are shocked to discover however that in most cases the equation used to estimate the value of their business is to take the last 6 to 8 weeks of revenue (minus the income generated by the owner) and add to this the book value of equipment and inventory (plus maybe a little bonus for good-will/reputation). Sorry to burst your bubble but that’s it!

The assumption is that many staff members will leave within 6 months and the new owners end up with a business that is worth a minuscule percentage of what was purchased. If you really want to sell your business to get retirement money, you need to have a “transitional sales plan” in place where you sell your salon/spa to existing staff who will gradually buy shares in the business and become more and more involved in its operation and long-term success. Then in 10 years you can retire and keep cashing your dividend checks while others are working hard at growing what you have sown.

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