Selling a Barber Shop

Chair rental or commission

The way barbers are paid changes what a buyer is buying. In a chair rental shop, each barber pays the owner a weekly or monthly fee for a station and keeps what he earns. The owner's revenue is rent, plus any retail sales, and the barbers run their own books and their own client lists. In a commission shop, the barbers work for the owner and split each service, usually with the owner collecting the payment and handling the supplies. Many shops use a mix. A few pay hourly wages.

Chair rent is steady, easy to forecast and easy to explain to a lender, and the owner does less. It also means the shop does not own the customer relationships, because a renter who leaves takes the people who follow him. Commission and employee shops have more revenue on paper and more work for the owner, and the shop has a stronger claim to the clients. A buyer prices each setup differently, and will ask for a station by station breakdown showing who is in each chair, how they are paid, how long they have been there, and what the shop earned from each one in the last two years. Buyers also ask whether the barbers are treated as employees or renters, and the answer has to match how the money moves. Rules about that distinction vary by state, and your attorney confirms what applies to your shop.

Empty chairs matter too. A buyer sees an empty station as either a chance to grow or a sign that the shop has trouble keeping people, and will ask which one it is. Our post on owner dependency is worth reading if you are one of the busiest chairs yourself.

Walk-ins, appointments and the regulars

Some shops run on walk-ins, with a bench by the door and a wait that fills up on weekends. Others run on bookings through an app, with barbers who have their own followers. Buyers like both and look at them differently. Walk-in traffic belongs to the location and the shop's name, which means it transfers more easily, but it depends on the corner, the parking and the foot traffic, and it will move if the lease moves. Booked clients belong to the barbers, and their loyalty goes where the barber goes.

A buyer will ask for the booking system's records if there is one. They want to see how many repeat clients the shop has, how far ahead people book, how often they come back, and how much of the revenue comes from the top two or three barbers. Without software, they will look at daily sales logs and the card processing statements. Cash in a barber shop is common, and if some of it never reaches the books, the buyer cannot pay for it, so it is better to start recording everything a year before you sell. The financial statements post explains what a buyer wants to see.

Retail is a small piece but buyers check it. Pomade, beard oil, clippers and gift cards add margin, and a shop that sells them consistently shows customers who trust the shop's advice.

The shop's name in the neighborhood

For a barber shop, goodwill is mostly reputation. A buyer wants to know how long the shop has been at that address, how the neighborhood talks about it, what the reviews say, and how many people follow it on social media. Photos of cuts on an account the owner controls, a steady stream of new reviews and a name people recognize all help. They also check who owns the social accounts, the booking page and the website, since those need to be handed over at closing. If the barbers run their own pages and clients follow them, that goodwill belongs to the barbers, and a buyer will price it that way.

Some shops have a distinct style, a classic hot towel shave place, a fade specialist, a family shop with three generations of the same customers. A strong identity brings loyal customers and can narrow the field of buyers to people who want to keep that identity. A buyer who plans to change the name and the look is buying less of what the owner built, and will likely offer less.

Records a buyer will ask for

Business tax returns, monthly profit and loss statements and a balance sheet come first. A buyer also wants chair rental records or payroll by barber, the booking system reports, card processing statements, the retail sales log, and a list of supplier accounts. They ask for the equipment list, which usually includes chairs, stations, mirrors, shampoo bowls, waiting area furniture, sterilizing equipment, clippers owned by the shop and the point of sale system, with age and condition. They want the insurance policies, the shop's license and the barbers' licenses, and any inspection reports.

Barber and shop licensing is handled by the state, usually with a license for each barber and a separate one for the establishment, and rules vary by state. Your attorney confirms what applies to your shop. A buyer will check that every barber in the shop holds a current license, because an unlicensed chair is a problem the buyer would inherit.

What has to transfer

The lease is the first item, and the one that most often decides a barber shop sale. A shop's value depends on its corner, and a buyer wants enough time left on the lease to cover a loan, with renewal options if possible. Landlords can take weeks to respond, and some use the request to ask for more rent. See the lease post for how that plays out.

The shop license has to be reissued or transferred to the new owner, depending on the state. The equipment, the phone number, the booking account, the card processing account, the supplier accounts, the social media pages, the name and the barbers all move. Barbers who rent chairs have agreements with the shop, and a buyer will want to see them and know whether they continue. Where a shop is leased by many renters on informal terms, it makes sense to put those agreements in writing before you list.

What tends to sink a sale

The deals we see fail because a top barber leaves when he hears about the sale, because the lease cannot be extended, because the cash was never recorded, because the owner is the draw and cuts half the hair in the shop, or because the buyer cannot tell which clients belong to the shop. Confidentiality matters, since barbers talk to customers all day and a rumor travels fast. We market a shop without naming it, and a buyer signs a nondisclosure agreement first. Our post on when to tell employees covers the timing.

Getting the shop ready

Put every barber on a written agreement, whether rental or commission, and make sure the way you pay them matches what the paperwork says. Record all income. Use one booking system and keep its records. Negotiate the lease extension before a buyer asks. Move the social accounts and website into the shop's name. Train or hire someone who can run the floor so that the shop can open on a Saturday without you. Collect your best reviews and your photos.

At Business Advisors of America we begin with a valuation from your own numbers, prepare what a buyer and a lender will want, and screen buyers before they learn who you are. If you are thinking about selling a barber shop, a short call with us is a good first step.

This article shares our opinion and general information. It is not legal or tax advice. Always speak with a licensed attorney for legal advice, and a qualified tax professional for tax questions, before you act.