Hello Larry, I'm sure you don't remember me. I have heard you many times and always have enjoyed your knowledge of the business. I opened my salon 6 years ago at the age of 53. I have an employee that came to me a year ago with her husband and said she wanted to get a business and if I thought I wanted to sell part or all of my business in the next 5 or 6 years she was interested.
I am now 59 and I work behind the chair 2 to 3 days a week. But I know in the next 10 years I want to back off. I know I don't want to sell the salon yet but might consider letting her in on maybe 10% the first year with a gradual increase in the future years. Could you give me some ups and downs to think about or things I should be aware of? My daughter and son are lawyers and can help me to some extent. Thank you-Myra
Myra, thank you for your kind words. It is our hope that through our blog and seminars we can help salons be better business people. We truly understand the challenges you have.
I think you have an opportunity here with a person that would like to own a portion of the business. We worked with several salons over the years where we have brought a stylist into an ownership position. I have always felt that, if done properly, this becomes somewhat a win-win situation for everyone.
One of the advantages to a situation where someone is coming through over a period of time is that you can teach them the ins and outs of the business so they don’t make some of the rookie mistakes that are normally made.
You might want to talk to your son or daughter about the possibility of some type of a "phantom stock" purchase, or what is technically known as a "non-qualified deferred compensation plan." Using this type of arrangement they use their "sweat equity" to serve as a downpayment for the business. In additon, it serves as "golden handcuffs" to make it hard for them to leave the salon. We have used these in the past as a way to bring people into the salon.
Another way to do this is to sell them a portion of the business and use the profits of the salon to pay you that portion of the business. In order to determine whether or not this technique would work really depends on your profitability. I would have to look at your financial statements to determine if this method is workable.
I think you have an opportunity here with a person that would like to own a portion of the business. We worked with several salons over the years where we have brought a stylist into an ownership position. I have always felt that, if done properly, this becomes somewhat a win-win situation for everyone.
One of the advantages to a situation where someone is coming through over a period of time is that you can teach them the ins and outs of the business so they don’t make some of the rookie mistakes that are normally made.
You might want to talk to your son or daughter about the possibility of some type of a "phantom stock" purchase, or what is technically known as a "non-qualified deferred compensation plan." Using this type of arrangement they use their "sweat equity" to serve as a downpayment for the business. In additon, it serves as "golden handcuffs" to make it hard for them to leave the salon. We have used these in the past as a way to bring people into the salon.
Another way to do this is to sell them a portion of the business and use the profits of the salon to pay you that portion of the business. In order to determine whether or not this technique would work really depends on your profitability. I would have to look at your financial statements to determine if this method is workable.
Bringing in a successor can be a great way to sell your business. It is really too complicated to explain in great detail. You are lucky to have attorneys in the family to assist you. If you would like a more detailed explanation, give my office a call 800.975.4829 or contact Carrie at ckadavy@kopsaotte.com.
Larry Kopsa CPA
