What is my salon worth?

A hair, beauty or nail salon is worth what its ongoing profit supports, adjusted for risk. In a salon, the big risks are clients who follow one stylist, an owner who works the chair, a short lease and staff who may leave. A salon whose clients belong to the business, not to one person, can support a higher value.

What is the short answer?

Your salon is worth what its ongoing profit can support, adjusted for the risk that the profit will not continue. In a salon, much of that risk sits with people: you, your stylists or therapists, and the clients who book with them.

A valuer starts with the profit in your accounts. They then ask a simple question. How much of that profit would a new owner keep? The Australian Government's guide to valuing your business notes that value can depend heavily on your industry. It lists customer loyalty and reputation as part of goodwill, the value beyond your physical assets.

For a salon, goodwill is closely tied to who the clients are loyal to. Loyalty to the salon can be sold. Loyalty to one person may walk out the door.

What pushes the value of a salon up or down?

Anything that makes the profit more likely to continue under a new owner tends to support value. Anything that ties the profit to one person, or to a short stay in the premises, tends to reduce it.

Client loyalty. This is often the largest single question in a salon. A buyer will want to know what share of bookings sit with each team member. Booking software can show this.

Lease. A salon's fit-out is hard to move. That makes the lease a key part of the value, not just a cost.

What add-backs and traps should I watch for?

Add-backs are costs added back to profit because a new owner would not have them. They help only when each one is real and has records behind it.

• Owner wages. If you pay yourself little or nothing, a valuer deducts what it would cost to replace your work. Adding back all your pay can overstate profit.
• Cash takings. Income that is not in your accounts cannot be counted. A buyer can only rely on what the records show.
• Stock. Retail and back-bar stock is usually counted separately, at its real worth. Out-of-date stock may be worth little.
• Gift vouchers and prepaid packages. Services already paid for but not yet delivered are a cost to the next owner. They need to be counted.
• Contractors and chair renters. Check how these arrangements are set up. Your lawyer or accountant can say whether they raise employment questions.
• Franchise approval. In a franchised salon, the franchisor may need to approve the buyer.

Which documents matter for a salon?

Beyond your profit and loss, balance sheet and tax returns, a valuer will want records that show how reliable the bookings and premises are.

• Booking software reports: clients, rebooking rates and revenue by team member.
• The lease, any options to renew and the next rent review date.
• A staff list with roles, pay and length of service.
• A stocktake, and a list of open gift vouchers and packages.
• An equipment and fit-out list, with ages.
• The franchise agreement, if there is one.

The government's checklist for buying an existing business asks whether the landlord will agree to transfer the lease. Expect a buyer to ask the same. See our full list of documents needed.

How can two similar salons be worth different amounts?

This example is made up. Picture two salons in the same suburb, with similar sales and similar reported profit.

In the first, the owner does most of the colour work. Many clients book with her by name. The lease ends next year with no option to renew.

In the second, the owner runs the salon but rarely works the chair. Clients rebook through an online system with whoever is free. The lease has years left, plus an option.

The second salon would likely be worth more. Its profit is less likely to fall when the owner leaves, and the buyer can stay put. The first salon's profit also needs an adjustment for the owner's unpaid work.

Which Valuo report fits my salon?

Choose by who will read the report. If it is for your own planning, the Business Value Report fits. If a buyer, lender, investor or partner will rely on it, choose the Professional Valuation Report.

For revenue of $10 million or more, you receive a fixed fee quoted before any work starts. Your fee is set by revenue and report type, never by the value concluded.

If you are separating from a partner, Family Law Valuations is our dedicated family law practice. For a sale to a business partner or a restructure, talk to Oliver Group. For tax on a sale, speak to your accountant.

What should I do next?

• See your fee in two taps: Get your fixed fee.
• Compare both reports and every band: pricing.
• Read the general guide: how much is my business worth.
• Planning to list? Read valuing a business to sell.

General educational information, not advice. Examples are hypothetical and do not value a real business. The right treatment depends on the purpose, the evidence and the agreed scope.