• Why Buy an Existing Grooming Business

    If you don't want to start a grooming business from scratch, buying an existing one may be your alternative. First of all, there are the plusses and minuses.

    The plusses are:

    Existing Customers: The customers and loyal clients of an existing business have already been developed. A well-planned transition will retain the clientele for the new owner, and thereby maintain the demand for services and cash flow from sales of services. Businesses started from scratch have much less initial cash flow. In fact it can take years to develop a similar level of clientele depending upon the size of the client base purchased with the business.

    Immediate Operation: You can start immediately. In fact you don't necessarily have to close business for a day.

    Existing Goodwill: Presumably the present owner has created goodwill for the services offered to the community it serves.

    Financial Planning: Financing may be easier to obtain because the business has a track record. In fact, new startups can heightened skepticism especially in economic downturns.

    Eliminate Competition: Buying a business may eliminate a competitor had you started your own business.

    The minuses are:

    Problems: There may be unapparent problems in the business that you do not discover till after the sale of the business.

    Cost: Sometimes buying an existing business costs more than starting one from scratch. You don't want to pay more than you have to for an existing business.

    Obsolete Equipment: Grooming equipment, tools and leasehold improvements may be obsolete or in need of substantial repair.

    Personality Conflicts: If some of the existing employees are staying in your employment, there may be personality clashes. Specifically, owners new to the grooming industry keeping very experienced employees may be pushed to pay higher commission wages or salaries or other scenarios taking advantage of the new owner. It really helps when the new owner(s) know how to groom and are not dependent on having no choice but to maintain the present full-charge staff.

    Receivables: If the seller is owned receivables from clientele, you may find they are worthless or hard to collect. More often than not pet care providers don't carry accounts.

    When buying a business you should exercise caution throughout the entire process from researching it to finally signing a contract of sale. You are strongly urged to have the assistance of a lawyer and accountant throughout the process. Not having both has often been the cause of problems when buying an existing business. Unscrupulous sellers can take advantage of buyers, the courts have seen many such cases. Never buy a business without a contract of sale reviewed by your attorney, never. Don't sign documents relating to the sale without your attorney's prior review.

    Get Started

    You start by locating a business to buy, researching it exhaustively and making the decision to buy or not.

    The PetGroomer.com Classified Ads list grooming businesses for sale. Major pet grooming industry trade magazines also have business for sale classifieds. Your local newspapers, especially major metropolitan newspapers occasionally have grooming business for sale ads. There are major Internet based classified ads web sites you can research from most of the major search engines like Excite, Lycos, and Yahoo. Ask your local commercial real estate broker if they access to regional business for sale listings.

    After you locate a business that interests you, start researching it. Now is the deadline to have an attorney and accountant representing you and your interests. The more you research the business the more likely you will make the right decision to buy, or not buy, an existing business. You should be very confident in your purchase.
    The seller may ask you to sign a letter of intent to purchase the business, a non-binding offer for the business, before exposing any sensitive information about the business. You may also be asked to sign a confidentiality agreement promising that you won't use the information released for any purpose other than to make the decision to buy.

    If a business is for sale, there is a reason. Determine the reason very clearly. Is the business having financial problems? Is the economy of its market area and demand for pet care services eroding? Is it simply poor management? Is the owner simply retiring? A thorough investigation is absolutely warranted. Any problems uncovered must be weighed in making your decision to buy.

    A business investigation involves taking a hard, OBJECTIVE look at every aspect of the business. Sometimes the investigation continues even if you have made an offer to purchase, and an escrow has been opened. Your attorney can request that should certain problems be discovered during the escrow you can request adjustments, reimbursements or other solutions to uncovered problems. Here is where you are very much aided by an attorney.

    We strongly urge you to have a certified commercial appraiser perform a written appraisal of the business. The owner may have had one done, but you should too. Appraisals are excellent tools to use in price negotiations.

    Your investigation should include reviewing the business' documentation, including:

    Contracts and Leases: Property and machinery leases, sales contracts and purchases contracts. What are the obligations you are assuming?

    Organization: How is the business organized? Is it a partnership, corporation or ? How is it capitalized? Who are the owners, all of them? How is their ownership documented and do you have copies?

    Financials: Examine the last three years of financial statements, or further back, to determine the financial condition of the business. Your accountant can be very helpful in this investigation.

    Tax Returns: Examine the last three years of business tax returns, or further back, to determine if the business has been profitable and whether there are outstanding tax liabilities. Again, your accountant and lawyer will be very helpful in this part of the investigation.

    You should obtain the following documents of any business you are thinking about buying.

    Client Records: Does the business keep a client list with service histories? It is one of most important assets of the business. Many grooming business owners easily throw around the size of their client base, like "I have 1,000 regular clients." What is "regular?" There are no rules in the pet industry. We tell you that if a pet owner doesn't come in AT LEAST 2 times, and it really should be a minimum of 4 times a year, they really are not that valuable to the purchase. Take a count of each client and how often they have come in during the last year. Those that come in 4 times a year or more are the ones you can count on for future cash flow, and these are the ones that back the asking price of the business. We have seen client bases overstated by up to 500% many, many times. Really.

    Bank Accounts: A list of all business accounts.

    Asset List: Asset list of all real estate, equipment, tools and supplies including intangible assets like trademarks and licenses.

    Real and Personal Property: Documents such as mortgages, deeds, leases, appraisals, loans and insurance policies.

    Sales Records: You want the back up sales records that correlate with the financial records and tax returns.

    Advertising and Promotions: Obtain copies of past and present advertising, brochures and buyer's guide ads.

    Inventory Receipts: If you are purchasing inventory, check a list of inventory and examine ALL inventory to ensure it is still worthy of selling based on condition or product dating. The examination should be physical and thorough. Sometimes inventory degrades for various reasons, or is not in saleable condition. Check it out thoroughly.

    Supplier List: You want a list of all sources the owner uses to obtain supplies, tools, equipment and other vendors.

    Employee Records: When you are going to employ existing employees you need their personnel files including any benefits information, payroll records etc.

    Licenses and Permits: You need to have all certificates, permits and licenses issued by federal, state or local agencies.

    You must evaluate your chances for successfully owning and managing the business you may decide to purchase. That means fully understanding how the business was setup and run until it became available for sale. Can you fulfill the management system running it now? Will the owner provide assistance including consultation assistance for a period of time after the sale is complete? Will the present owner really be able to persuade most of the existing clientele to stay with the business? Oh yes, does your contract of sale ensure that the seller won't open a competing new business in the same trade? Is the price right?

    We recommend having 2 or 3 certified commercial business appraisers value the business. Their reports should tell you a great deal if the asking price is reasonable. Ask for the opinion of your accountant and lawyer too. If you have successful business owners among friends and family, ask for their assistance. You are collecting information, and not necessarily confirming that everyone's assessment is correct. But swings in appraised value can be a sign of a problem.

    You need to review the financial performance of the business to ensure that you can meet the monthly payments of a business purchased on a loan or note receivable as well as providing income to support your household. This process must be done for each of the new owners looking for income from the business.

    Have you considered the costs of opening your own business in the selected area? We suggest you write a business plan for purchasing the business and plan its expansion under your ownership for the next 5 years. Grooming Business in a Box can make that large task much easier.

    Our biggest concern for new grooming business owners is this question, "Who is going to be the lead full-charge, full-time groomer?" Hopefully the buyer has that capacity in the beginning. Please review the next section below for more information.

    As you complete the investigation and compile the records you gain more insight and confidence in making your decision to buy, or not. Unfortunately, it has been our experience that some pet grooming business owners are lax in maintaining well-organized documentation and if that is so, you are at risk. If you cannot investigate at minimum what has been mentioned here, and your lawyer and accountant are likely to require more, you may be at risk of buying a business and inheriting undiscovered problems. It does happen, be very careful.

    Non-Groomers Purchasing a Grooming Business

    Occasionally a new client of ours shares their desire to own a grooming business, yet not groom. Their desire is to be an owner/manager. Is it possible? Yes, but there are financial risks.

    As a rule of thumb, an owner/groomer "putting down their clippers" to simply own and manage their business needs the net operating of a minimum of 3 full-time full-charge groomers to provide the now non-grooming owner with about the same paycheck previously earned when the owner was also a groomer. Only a large business can support 3 or more full-time groomers. If the business has other sources of revenue, such as a kennel operation or strong retail sales, then the dependency factor is lessened and a positive sign.

    What does this mean to non-groomers purchasing grooming businesses? If they are counting personal income from their grooming businesses, and it doesn't have 3 or more full-time groomers working for them at a profitable pace, they cannot count on a steady source of personal income from revenues. When owners groom it is like putting money in their pocket rather than paying wages. Therefore some owners groom part-time and manage part-time, just to ensure steady personal income. Yes, there are exceptions, and there are so many variables here that we could fill this website, but the above mentioned caution is very serious. Owners that don't groom do best when they also manage additional sources of revenue such as boutique sales in the same business.

    If you are a non-groomer purchasing a grooming business, we favor the situation where two partners purchase the business, sometimes husband and wife. One grooms full-time and one manages full-time. It can be an excellent strategy. It means the grooming partner is steadily earning a regular paycheck from grooming every working day. This strategy has always worked best for our clients. The managing partner MUST grow the business though, and we suggest using the knowledge in From Problems to Profits-The Madson Management System and the Grooming Business in a Box ® series of workbooks based on that book.

    There are more concerns on the next page when you must consider the asking price for the business opportunity.

    The Big Question: Is it Worth the Price?

    Every buyer has problems determining the market value of a grooming business. Few seek professional help from a grooming consultant or get a formal appraisal completed by an expert in business opportunities. It's a complex topic, but let's get your feet wet with some general guidelines.

    You are primarily buying the clientele of the grooming business for sale. Sellers should document how many clients their businesses serve. It is your important task to verify the numbers they provide. For example, a business owner may claim they have 5,000 clients and the business grosses annual revenue of $75,000 a year. Oops! Do the math! If every one of those 5,000 clients came in only once a year (eek! the pets will be in terrible condition too) and the average service fee is a low $30, that alone is 5,000 times $30, or $150,000 a year. So, why is the seller making only $75,000?

    Obviously the business does not have 5,000 clients. Yes, 5,000 pet owners may have used their services over past years. But are you going to buy clients that haven't had their pets groomed in the last 6 months? 3 months? You decide. Personally I buy active clients that have their pets groomed at least four times a year. Otherwise I consider them "random" clients as described in the book, From Problems to Profits.

    Are there more variables? Of course. You are also purchasing supplies, furniture, fixtures, equipment and leasehold improvements. You should have a list of all physical items you are buying included in your contract of sale. You don't want to take possession of a business and find missing cages, dryers or other items. Be specific, and get it in writing. Attempt to place a used value on all of the physical items to help determine how much they contribute to the selling price.

    Perhaps you are buying a mobile business. If vehicles are included in the sale these are important assets. In a commercial location you may be purchasing a nice long lease. But what if the lease is about to face renewal. Will the rent jump? It could. Check it out. Sometimes there are alarming leaps in high growth areas.

    Businesses that have been successfully operated for many years have "goodwill" to be appraised and purchased. We took part in a business sale where the logo and goodwill was appraised by three certified commercial appraisers at over $80,000. You know that business was owned by one smart groomer. Goodwill should be documented by a certified commercial appriaser. The amount will appear on your "Balance Sheet" prepared by your business accountant doing company financials. It's an important asset adding to the net worth of the owners.

    The general rule of thumb when setting a selling price is to multiply the net annual operating income, or the annual gross sales (for the most recent 12 months) by a factor, we shall call "x." When the economy is tough or flat "x" may only be 1 or possibly 2. The amount doesn't account for physical real estate, vehicles or similar large assets part of the sale and which should be formally valued separately. Typically only major businesses with significant goodwill achieve a selling price of 1 or 2 times annual gross sales. Be careful. The net annual operating income and annual gross sales figures should be documented by an accounting professional. Don't rely on figures based solely on bookkeeping by the seller. An appraiser requires documentation such as professionally prepared business tax returns and tax returns of the owner(s).

    There is one final task that can be very helpful before you buy a business. Take its professionally prepared financials from the last 12 months and enter those figures in Year 1 of the Income Projection of the Pet Grooming Business Plan Helper & Sampler, and then forecast the next 4 years of operation under your ownership in Years 2 to 5. You can reflect price increases, rent increases, changes in staff and compensation, new equipment purchases, remodeling, and a long list of other operating expenses and asset investments. If you require a bank loan for the purchase your bank is nearly certain to require such as a business plan. Nothing makes it easier than using Grooming Business in a Box.