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How would you value a tanning salon? And how will the recent tax impact things?

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Without trying to advocate anything illegal, i would presume that the owners would find a way around those taxes to minmize its impact it has on the bottom line. You will see more salons reporting less in my opinion. you will also see more paid outs and business improvement deductions.
Just saying.

Apr 1, 2010
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There will be a wide variety of opinions on this, but I will give you mine, were I the buyer.

First, I would calculate the cash flow as if 3/4 of the new 10% tax came directly out of the salon's profit, and the other 1/4 from the customers. In other words, expect to have to lower your prices by 7.5% to keep the same number of visits. So, whatever the cash flow in the past, subtract 7.5% from gross receipts (that are taxable under the new law).

As for a cash flow multiple, mine would be low, as I do not expect tanning salons to be viable long term. Eventually, the cancer concerns will devalue the business. You could tout the benefits of increased vitamin D production, which is real.

Buying a typical tanning salon is like buying a job, as most have rather low cash flows. Before I could give you my opinion of the multiple, I would need to see the numbers. Let's say the salon had gross receipts of $150,000, $130k of which had the new 10% tax applied. Assume the cash flow to working owner was $60k. I would figure the new cash flow to be $60k - ($130k x .75 x .10) = $50,250. That's close to buying a job, but assuming the equipment is worth $25,000, I would put a value of around $50k on this business, as I don't put much value on buying a job. That's a 1x multiple. If the recalculated cash flow were $200k, I would put a much higher multiple on this. Say, 2x, or $400k. Were it not a tanning salon, I would go even higher, up to 3-4x.

Those are just back-of-a-napkin opinions, without knowing any of the important details. If you post more of the pertinent details, I'd be happy to nail this down further.

Apr 1, 2010

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