What really matters to a prospective buyer – and the nonsense business brokers, accountants and your closest friends will tell you.
“I’m going to put my salon on the market,” said a confident young lady on the phone to me the other day. “I’ve worked hard for five years, it’s time to start a family.”
So, I asked, is the business ready for sale?
“I think so. I take a good salary, we have great products, lots of regular clients, and the salon looks wonderful and it’s in a great location…”
But when I started asking questions, I could tell from the tone of her replies that this was going to be a disappointing conversation for her. And that’s because there’s a gaping chasm between what the owner of a business thinks has value, and what an astute prospective buyer thinks is valuable.
(And I use the word ‘astute’ advisedly. With stars in their eyes, many a beauty therapist or stylist on the hunt for their own business will fall in love with the ‘pretty’ surface and fail to look at what really matters.)
First, the ‘standard’ way to value a business.
An accountant will look at a business the way accountants do, with a calculator, analysing past performance, profit and loss, assets and liabilities, and come up with a ‘valuation’ for you based on those bare essentials. Valid, certainly, but extremely limited, and limiting. Past performance is only half of the story.
Stock, fixtures and fittings and shop lease (again, obviously)
Yes, they may have some value. But have you ever tried to sell second-hand furniture? It’s worth next to nothing. Retail products? You’ll need to be a very good salesperson to get anything like what you paid for it. And an astute buyer will screw you down on the remaining term of the shop lease, knowing you’re legally obliged unless they’re prepared to have the lease assigned to them.
Then there’s that hoary old chestnut,
It’s just air. Business vendors will, usually on the advice of their accountant/broker/business coach, attempt to ascribe a dollar value to that most intangible of intangibles, the ‘goodwill’ or loyalty of the customers to the business. These days, there is little or no loyalty. And buyers know it. Don’t even think about trying to pull that one over them.
Now to the stuff you haven’t thought about, and certainly your accountant hasn’t.
By far the most valuable, most measurable part of your business is your list. Your list of clients, customers and prospective customers held in an orderly, well-maintained electronic database containing not only their full contact details (name, email address, phone number, and most importantly, physical mailing address) but their spending habits and booking frequency.
This is the gold. This is the thing that a buyer can look at and determine with reasonable accuracy the current health of the business, and its potential, given a more robust and refined marketing program. If you software program is set up correctly, a prospective buyer will also be able to determine what marketing information you’ve been sending out to that database, and its responsiveness.
Your list has a strategic value in and of itself. If I were buying a salon, it’s the first thing I’d look at, not the financials of the business. I’d then put that list alongside the financials, and try to find cause and effect.
Then I’d take a very close look at the thing that really matters…
Your marketing infrastructure, both online and offline.
The second most important, most valuable, and easily the most measurable asset of any local business like a hair or beauty salon is…drum roll please…your online presence.
Thanks to technology, an astute buyer will demand your Google logins. Why? Give me your Google account logins and within one minute I’ll be able to tell exactly how many phone calls and website visits you’ve had in the last 30 days or 90 days from people searching for a hair salon or a beauty salon in your area. Here’s an example; the Google Insights figures for one of our Member salons, in the little South Australian town of Port Pirie.
It shows that this salon received 74 phone calls in the last 30 days from people who had Googled a beauty salon in Port Pirie and called the business using the ‘click to call’ function provided by Google.
In addition, the salon received 67 clicks through to its website from the Google Plus listing in search results, which would have produced another raft of phone calls.
Here’s what Amber Clayton, the owner of that salon, says about the value of her local search ranking:
This is important, value-adding stuff. For a prospective buyer, it is incontrovertible proof that the investment put into online marketing by this salon owner is paying off in easily-measured numbers.
It means I, the buyer, can count on getting a steady stream of appointment-producing phone calls. And that means sales, and profits. And that means you can put a defined value on that online presence, quite apart and separate from any valuation your accountant might put on past revenue and profit. (You should also know – and Google provides the tools to find this out – how many people are searching online for a hair stylist or beauty therapist in your area in any one month period.)
Your presence in social media also matters, though not to the extent that Google ranking does. How many Facebook fans you have, how many Instagram followers you have, matters in that it gives a buyer a sense of how active and productive you are on social media.
But don’t be fooled, or try to fool – Facebook and Instagram followers are not customers. They’re just fans. People who actually call your business are customers (or potential customers).
You should also be keeping accurate records of responses, sales and re-bookings from your offline marketing – mailbox flyers, direct mail to clients, newsletters, ads in newspapers. As a buyer, I want to know, because those figures give me a precise record of what works for the business and what doesn’t.
These things have real value. They are the value of your business.
So yes, financials and balance sheets matter. But smart buyers know they’re only part of the story. And they are past history. The only figures that can give me a picture of the future are those produced by the marketing metrics above.
If you don’t know what your marketing metrics are, then you – and the buyer – are floundering in the dark.
NOTE: members of our My Social Salon flagship marketing program – such as Amber Clayton – get all the above and more as part of our service. Click here to find out more.