Wanting to purchase an existing Massage location

[Andie]

I have been doing trades with another Massage Therapist for the past several months and she asked me if I would be interested in renting her space as she was going to be moving out of state and wanted her clients to be left in trusted hands. I agreed and we had discussed me buying some of her items such as computer, desk, sofa,etc.
She called me last week and said that her mother told her not to just move out and give away the business but to sell it. She told me she is asking $36,000 for her business.
So we have went from basically free to $36,000
This business is in a rear of a shopping mall next to a fitness center and the space shares a bathroom with the fitness center ,this space is very small approx. 300-400 sq ft. and the space is rented.

I did some research on businesses for sale on
AMTA website and a formula in one ad was 1.5 times monthly gross income.

Her yearly income was $18,000 last year and $20,000 this year , I offered
$3,500.00 to her for the client list, computer and desk ,existing phone # and a storage cabinet, I would only use her business name through a transition period until new phone books are printed,etc.

What do you think this business is worth??

I really want to move my business from home to this space but I just don't understand how she thinks her business is worth so much.

Any input would be appreciated.

 

[blue ballon]

A set up business with clients is very valuable. She has spent at least 2 years building it. Marketing, building client trust. It is not just what she spent on the equipment. It is the time it took to get it to where it is right now. Are the numbers you quoted as income, before or after taxes?

If you take over the business, you simply have to walk in and start working. You don't have to order anything, wait for shipping, wonder where you are going to start getting clients. It is all there for you.

On her end, it is a guaranteed loss of income. She is loosing 20k, whether she has another job is irrelevant here. You are gaining aproximately 18K of income (accounting for some attrition).

I don't know what things are like in your area. Maybe it's time to talk to an accountant, lawyer, or someone who has a better idea.

 

[omarvader]

Seems pretty steep to me. Especially since there is no guarantee that the previopus clients will stay with you. I wouldn't pay that much for it, why not just see if you can rent the same space, call it your own business and take it from there?

 

[wella]

If you take over the business, you simply have to walk in and start working. You don't have to order anything, wait for shipping, wonder where you are going to start getting clients. It is all there for you.

Actually, that's not true. The fact is, she can't sell her clients. They're living people who make their own choices. It's very rare for an entire client base to transfer from one therapist to another. This isn't a spa, after all. This is a 1:1 therapist clientele. Some will schedule a trial massage with you, to see if you meet their needs. Others will take the transition as an opportunity to spend their money elsewhere. It's just how it goes.

Also, since the only supplies being sold with the business are a computer, desk & storage cabinet. Ozgal1 is going to have to bring in all massage equipment & supplies, as well as decoration. That's a lot of work, as well as outlay of money. The space itself is a rental. So, this business sale includes almost no physical assets.

I think $3,500 is a generous offer. You mentioned her annual income, but not whether that was before or after expenses. I suggest you see her books, to see just how many clients she sees in a week. If she has a full practice of 15-20 clients/week, that list might be worth a few thousand dollars. If the income amount is inflated, and she's only seeing 5-10 clients/week, I don't think the business is worth buying at all.

If all else fails, I think Softhearted's idea is a good one. Just get in touch with the landlord & sign a lease to rent the space after her.

 

[frank7]

Actually, that's not true. The fact is, she can't sell her clients. They're living people who make their own choices. It's very rare for an entire client base to transfer from one therapist to another. This isn't a spa, after all. This is a 1:1 therapist clientele. Some will schedule a trial massage with you, to see if you meet their needs. Others will take the transition as an opportunity to spend their money elsewhere. It's just how it goes.

I agree with you Bliss. She can't sell her clients, but the client list does have value. Some will stay with the new therapist, and some won't, as Bliss said, tis a fact of life. However it can be used for demographics, what areas seem to come to that clinic, what professions. Some of the market research is right there in those files.

I carefully didn't say that the business was worth 36K, I have no idea what the business is worth. a lot of the leg work has been done, location, some marketing, initial set up. doesn't mean the work is done, it never is I didn't make my point very well, but it sounds like the original poster needs to do some more research, and find out what a business is worth in their area. The current owner doesn't own the building, so that in and of it self is something she can't sell. Sublet maybe, but not indefinately.

If I were to sell my practice, I'm not sure what I would be happy with, as there is a lot of my own blood sweat and tears here, as well as my money.

It is very interesting that you don't very often hear of a massage therapist selling their practice. Happens with doctors and dentists, but not massage.

as I said more research, and probably professional consultation is needed in this, if that is the route the OP wants to take.

 

[rockerchick82]

Any business - even one that loses money - is worth something.

Massage practices are defintely worth something, and it had better be a lot more than 1.5x monthly revenue or a lot of folks here better be looking for a new career. How can you work 10+ years building a business and then walk away with nothing to show for your effort, other than your paycheck? That is a subsistence existence. May as well get a job, where you at least have the potential for a retirement plan and benefits.

For anyone who says they are not doing massage for the money, feel free to give away your practice when you retire -- and then fill us all in on what you plan to live off in retirement.

Service-based businesses (medical, accounting, lawn service, call center, and massage therapy would fit in this category) share some common factors - low investment in assets relative to sales, special training/skills/education, and direct relationship between capacity and revenue ( ie: you can't get twice as much revenue out of a service provider from one year to the next, despite a business's best efforts to exploit workers), and a high-dependency on customer relationships for on-going success.

While service businesses may serve radically different markets, because they have similar business models and similar economics, they are and should be valued along the same basis.

Check listings with your local business broker (http://www.sunbeltnetwork.com/, among others) and see what service business are going for.

It is not the Asking Price that matters, but the ratio of Asking Price : Gross Sales.

Hair salons and day spas are not always comparable, due to the % of sales from products, which is blending a retail valuation with a service valuation.

What you will find is the ratio ranges from .5x to 2x. What drives that spread is the actual amount of assets required (lawn care requires more than massage), actual financial performance and maturity of the business.

A relatively new massage business (all future growth will be up to you, little organic growth potential) with few assets (PC, and fixtures) would probably go for between .5x and 1x ANNUAL revenue.

If you knew the value of a client (avg. # of visits per client * avg. service price) and estimated an attrition ratio you could also arrive at a reasonable valuation, which probably would not be too different than what was cited above.

Think about your own practices -- would you be willing to sell for 1.5x monthly revenue? Probably not. But if you know you probably won't ever get more than 1x annual revenue, some of you will probably start contemplating taking on help and creating a larger practice.

But what do I know, I am not a massage therapist...

 

[MeAgain]

I really don't have an answer for this apparent dilemma, yet it is knockin around in my brain. The following is not meant to be aneforum.xxxonistic, just meant to hopefully garner discussion.

If I were an employee at a company, in the area I am now, if I were to decide to retire, I might get a retirement package. Eventually I would qualify for old age security. If I quit because of injury, I could collect employment insurance for a while, workman's compensation even welfare for a little while until I found something else to do.

As a self employed person, who runs my own business, as far as I know, I can only collect my Canada Pension plan (old age security) when I hit a certain age. I am not entitled to workmans comp, employment insurance, or welfare, as I am not paying into them through my taxes.

My business is my sole means of security. The ability for me to continue paying for my private insurance, and putting food on my table.

I have done the market research to know where to spend my advertising dollars, and those are set up and in place, wouldn't take much for someone to continue that. I have set up relationships with people in my area for referals, again, it wouldn't take much for someone else to come in and start their own relationships with the same people who have a history of referring to me. Yes their skills may be different, they aren't me, but without me around, there is a good chance those referrals will need to go somewhere.

I hate making the comparison, because massage IS very different than any other industry out there. But when companies buy out other companies, it is for a lot more than 1.5x the monthly income.

I know that if I were to sell my practice, I would feel quite cheated at only getting 3-5k. But is my practice worth more than that to someone else? I certainly don't feel like I should be able to retire at 35 and never have to work again based on the sale of my practice. The work I have done can and is done by everyone who owns their own business. It isn't hard work, just work.

Is this why you don't often hear of massage therapists selling their practice? Is it because the practice itself isn't valued, only the client list? And what does the client list entail? Only names and contact information, or is it the charts?

What is all my work and time worth to someone else?

Sorry for being long winded, I'll stop babbling now, and hopefully I haven't hijacked this too far off topic.

 

[delouse]

You are correct. Your business is your livelihood, and your future livelihood. You are not building it just to let it wither away.

I think there are a couple of factors that are considerable obstacles to MTs selling their practices.

1) Contradicts the very being of an MT - Many MTs - as evidenced by posts in this forum - attribute success to the individual skill and style of the MT and their relationship with the clients, in short - MTs are not interchangeable. Buying another MTs practice and making a go of it means MTs might just be replaceable by another MT. Dentists don't think another Dentist won't do as good a job with his clients, but MTs seem to view themselves differently in this regard. So a substantial portion of potential practice purchasers won't even consider buying your practice.

2) Shoreforum.xxxe of capital - If, as I believe, an MTs practice is worth something in the neighborhood of 1x revenue, then buying a modest practice runs $20K or more. Show of hands...who has a spare $20K floating around?

which leads to...

3) Banks frown upon service businesses - because of the general dearth of assets in a service business, banks don't see valuable collateral in the business to seize in the event you default on your loan. Retail businesses have fixtures and inventory to auction off -- but to a bank there is little value in a service business. So you have to put up your house and get a second mortgage to get the cash to buy a practice. That is scary and stressful. Might just be more palatable to struggle to build your own practice for a few years...less likely you might lose big.

 

[Jsgirl]

To stick to the OP's issue.... buying a massage business.

First off.... you don't intend to keep the original business name so why pay for it?

Second..... the place is a rental. You are going to be signing a lease probably immediately with the landlord. You are not buying any building. You can rent that property with or without the original business owner.

So basically you are buying a computer, desk and cabinet.... all to which you could get a killer deal on elsewhere.

Getting the client list is good and keeping the same number also. BUt this all depends on how big the client list is. Her income sure isn't that high so?????

Anyways..... I think many of us are kicking all this around so let us know what happens when you offer her 3,500 compared to the 36000 she wants.

 

[ESS-93]

When you offer someone 1/10th of their asking price, they usually walk away insulted.

Does not matter if that is the true value of what is for sale, they have a number in their head and something that far off gets them mad.

They will probably then advertise the business for sale, someone else will offer them something between 1/8th and 1/10th of what they are asking.

They will then realized something is better than nothing, and will take the offer from the 2nd bidder -- the first having been the one to insult them.

Does not really seem fair, but that is pretty typical in negotiations.

If A-Rod had gotten a comparable offer to what the Yankees had originally offered, he never would have gone back.

 

[Jona B]

I think there are a couple of factors that are considerable obstacles to MTs selling their practices.

1) Contradicts the very being of an MT - Many MTs - as evidenced by posts in this forum - attribute success to the individual skill and style of the MT and their relationship with the clients, in short - MTs are not interchangeable. Buying another MTs practice and making a go of it means MTs might just be replaceable by another MT. Dentists don't think another Dentist won't do as good a job with his clients, but MTs seem to view themselves differently in this regard. So a substantial portion of potential practice purchasers won't even consider buying your practice.

We believe this because we see it in daily life. This isn't our imagination. This is the reality of sole proprietor massage therapists. Again, we're not talking about selling a multi-practitioner business or spa. That's a different set-up, where MT's are trained to deliver similar services and are more interchangeable. However, sole proprietorships are built on one specific individual's personality & skill. Having received a number of massages from independent practitioners, I can tell you that there's very little similarity. That makes selling a one-person business very difficult. Not impossible, but difficult. Basically, as sole proprietors, we are the business. So, if we want a retirement plan, we need to put money into an IRA, just like most employees do. (Very few businesses offer pension plans anymore; that's a thing of the past.)

I have a colleague who recently tried to sell her acupuncture business. She was a one-woman shop, but had two treatment rooms, and a clientele about triple what a massage therapist could handle in a week. (Since acupuncturists can see more than one client at a time.) Her office was a rental, so she had no building asset to sell. However, she did include all furniture, equipment & supplies with the sale. This included lobby furniture, decor, computer, desk, 2 massage tables, UV lamps, needles, a complete herbal pharmacy, etc. Her asking price was $40,000. She tried to sell it at this price for two years before finally accepting a bid of $20,000. The woman who bought the practice had a completely different style of treatment & within six months had lost 90% of the patient-base. Sole proprietor acupuncturists aren't interchangeable either.

 

[snipe4lyf]

I don't think it is your imagination.

As I stated, it is clearly a reality which prevents MTs from even entertaining the notion of making an offer on a practice.

I will never knock investing for retirement, but an IRA - given its limits - will never get you there. IRAs are meant to be supplements to 401(k) or other plans. It is worth going the LLC or S Corp route to set up a SEP-IRA or SIMPLE IRA for yourself and SO. But I digress...

 

[Lisa M]

Gross 20,000

I have read the above posts and it makes us all think about the "what if's)

Anyway her GROSS this year is $20,000 and last year was $18,000 she has been in practice for just over 2 years . She doesn't sit at the business and only goes there for prescheduled appointments. If I were to get the business I plan to be there more often with evening appointments available a couple nights a week.

I don't believe it is worth nothing, but again I don't think her client list is worth $36,000.

 

[bestbiz]

Difficult indeed

All of the comments above have merit in their own way because of the many variables involved. I think it's a dangerous situation especially for that kind of risk you will take on by paying so much for a lot of what if's.

The traffic is already there in terms of the fitness center but will her existing customers accept you? If they don't you are in trouble and you'll have to start from scratch anyway. At least you've traded massages already so that you know if you can offer same or better quality as she did. That's one variable out of the way.

I didn't like fitness centers as a location to operate myself. I tried them for about 6 years. I moved on to greener pastures.

Good luck and it will be interesting to know what you decide.

 

[madeleinew]

So, if her GROSS income is $20,000, her net income is probably somewhere b/t $1000 and $1400/mth?

 

[Jasmine B.]

I may be talking where I shouldn't... but what about a base price for the client list, and a small perceneforum.xxxe (10 - 20%) for X months for clients who stay with you from her list?

To me $36,000 sounds a little unreasonable, because we all know that not all of her clients will stay with you, it is not like you are buying inventory.

 

[Go Out with Your Fro Out]

Yes

I agree. 36.000 is hard enough to save let alone pay off for a big maybe.

 

[caydelay]

i think paying $36,000 for this person's business is insane! no way on earth would i ever come even close to paying this. you'd be better off waiting until she moves out of the business and renting the space from her landlord if you really want this location. i don't see how anyone seriously believes this business is worth anything near $36,000.

 

[Not So Ordinary Girl]

Also, we are in a tourist area so many of the clients on this client list will NOT be repeat clients.

 

[Bass]

Did she tell you how she came up with the $36,000?
I can see both sides of the issue. I am comfortably busy now but my first year I busted my butt building up the clientele. If I were to sell my practice I would want to be compensated for that.
At the same time, I agree with previous posters that there is NO guarantee that her clients stay with you. I had to refer some of my clients to a coworker who I thought was doing a good job and the next time those clients called they were ADAMANT they wanted to see ME and they would rather wait then get in sooner and see someone else. Same thing when a colleague was sick for a few weeks - I saw some of her clients during that time; she went back to work and they went back to her. Some clients are very loyal to their therapist. What if you pay thousands of $$$ for the client list and never see them?
I like what another poster suggested. Pay a base fee for the equipment and continuity etc. and then pay her a perceneforum.xxxe of what people actually show up and get a massage from you. In this case she would be intersted that those people do get a massage from you - she may talk you up to them etc. May be difficult to track though once they start coming in and she may not trust you to be honest.
Good luck! I don't know if I helped much