When looking to sell your salon, there are many things to consider prior to making the deal – it’s not as easy as just putting a listing on the market. However, good news is that banks and lending institutions seem to be loaning out money and buyers seem to have more capital than several years back. This means that thousands of dollars can be invested into new ventures. With that said, many other factors can create an unconventional business transaction.
Aside from the financial aspect, it is important to not overlook the significance of insurance. Over the years, we’ve seen deals postponed or even cancelled, and rarely do we see a closing happen on the actual date that was initially intended. Once the sale is final and the new owners take over the salon, they assume insurable interest; but you don’t want to cancel your policy until the deal is final in the event of any delays or cancellation of the sale. Unless you sell your legal entity along with your salon, which is rare, it is important that the new owners start their own insurance policy, even if yours doesn’t expire for a couple of months. This does not mean that the policy will cover the new owners; insurance is all about the First Named Insured (the legal entity) listed on the policy and does not extend to new entities. Be sure to consult with a legal team to make sure that you are covered on all bases.
Be sure to consult with a legal team to make sure that you are covered on all bases.
Here are some other items to consider:
Whose name is on the lease agreement?
Prior to listing your business, make sure your landlord is aware that you plan to sell and get confirmation that the new owners can take over the lease. Most landlord-tenant agreements do not allow the tenants to sublet – the landlord’s terms might make you reconsider selling your business. The landlord could make you a guarantor, meaning that in the event the new owners’ business goes under and your name is still on the lease, you could be responsible for remaining payments.
Who owns the tanning equipment?
Many salon owners lease equipment so that they can have the industry’s latest technology. If yours is leased, ask your finance/leasing company what they need from you in order to close out your agreement. They might even be able to create a new lease agreement for the new owners. This should be considered prior to listing your business for sale, because not being able to close out the contract could be a potential deal-breaker. If you own the equipment outright and the new owner is making installment payments, you should be listed on their policy as a Loss Payee, since you are acting in a similar capacity as a bank.
What about existing customers?
It is oftentimes hard for people to accept change; they tend to question it. Be sure to let existing customers know what is to come and keep them informed throughout the process. Are the new owners willing to accept the same promotions that you offered? Will they acknowledge prior points or minutes? Even if changes are minor, it is helpful to keep customers in the loop so that the transition goes smoothly.
These suggestions come from buyers calling with questions regarding their existing policies and from sellers with questions regarding new policies. Your potential buyer should contact a specialized agent for a rough estimate of premiums and include it in their business plan. If you’ve been in business for years with no claims, your premium might be substantially less than a new start-up. A specialized agent should be able to help the new buyer get the best coverage at an affordable premium, and can often help speed up the sale process, since the landlord and financial companies usually require proper proof of insurance.
Feel free to call Universal Insurance with any additional questions.
