Host: Welcome to Acquiring Minds, a podcast about buying businesses. My name is Will Smith. Acquiring an existing business is an awesome opportunity for many entrepreneurs and on this podcast I talk to the people who do it. If you go on biz, Buy, sell, you'll often see salons for sale. If you and if you've ever wondered about them, you're going to love this interview. Salons have a reputation for being tricky businesses in the same way restaurants do. So I was very excited to talk to today's guest, Sarah Romer. Sarah acquired a salon she found on Biz by Sell and sure enough, it was a tricky business. And Sarah's background was in tech, not hair, so she had the additional disadvantage of coming from outside the industry. This is an honest telling by Sarah of three years of blood, sweat and tears to buy from, professionalize, grow and ultimately exit a big salon business in Austin, Texas. Enjoy my conversation with Sarah Romer. Sarah Romer, thank you for joining me today on Acquiring Minds.

Guest: Nice to be here, Will. Thanks for having me.

Host: I'm really looking forward to this conversation. Sarah, we talked last week and I heard the entire story that you are going to share now with the audience. You acquired a salon in 2015 and turned it around, grew it and sold it in 2018. And while that sounds like a perfect kind of business story, in fact it was a rocky three years. So lots of lots of interesting details to that story. The salon was in Austin is in Austin, Texas on 6th street on the west end of 6th street, which is kind of for people who know Austin. The east side is kind of the nightlife side of end of 6th street and the west side is kind of the retail higher end end of 6th Street. And so that's where the salon was very central. Great location. So to kick us off, Sarah, why don't you just give me two minutes on your professional background prior to getting an interest in buying a business and what led to that interest to go out and buy the salon?

Guest: Yeah, sure. Well, I started my career actually in Washington D.C. i'm not originally from Austin, but I spent the first five or six years post college selling advertising for different publications including the Washingtonian magazine which featured lots of retail restaurant salon SPAs in the D.C. area. And then I spent several years working for Groupon also in a sales and market development capacity working with local retail businesses like salons, spas, restaurants, theater companies to offer deals on Groupon. And during that time I just became very interested and excited about just the inner workings of learning how different types of businesses ran and how they were staffed and how they marketed themselves and. And I had just a ton of admiration for the owners that I worked with. I thought, oh, my gosh, you know, this person is a big figure in the community and they're running this business. And, you know, even though I was in some corporate roles, you know, from local to larger companies, I really just admired and kind of set my sights on being a retail business owner without really understanding what that entailed. It just became kind of a career goal for me after working with many of them on the vendor side.

[3:34] Host: Okay, so you are in D.C. developing admiration for small business owners. You and your family moved to Austin, Texas. So bridge that gap. Then what happens that makes you actually want to go out and do the thing?

Guest: Yeah. So the move to Austin was for several reasons. I grew up on the east coast, but I was ready for a change of scenery. My husband was as well, and we had some family that was already in Austin and coming from the D.C. metro area, which was very expensive at that time. You know, it still is. We were ready to buy a house and have a family, and we just wanted to be in a smaller market where we could afford a certain quality of life. And also, in the back of my mind, you know, I thought, well, maybe that I could own a business if we lived in Texas. I certainly couldn't imagine it financially living in D.C. because of the cost of living and the requirement that I had a. You know, we both had two big salaries to pay the bills. So moved to Austin in 2012, and I was not quite ready to take the leap at that time. So I ended up with a job at PayPal for three years in Austin, working with a team that was based on the west coast and some in the Austin office. But again, I sought a position where we were working with local business community. So I helped drive a adoption of PayPal's mobile payments. that time, it was a way to Pay through the PayPal app, but we had to go and just knock on doors of local retailers, restaurants, coffee shops, food trucks, and see if they were willing to take PayPal's payments. This is before Apple Pay was a thing.

Host: Is this kind of like PayPal's answer to Square?

Guest: Yes, very similar to Square. You could take a credit card through a phone, or you could also check into the business via Wi Fi and connect your PayPal account to their point of sale. So, you know, very, very quickly upon moving to Austin, I started to get to know the owners in Austin as well. And even when I took that job, my boss at PayPal, when he was interviewing me, he said, where do you see yourself in five years? And I said, I want to have my own business, but I'm not ready to do that yet. And I want to learn more about payments and point of sale. And he said, that sounds good to me. So they hired me at that time. But in the background of working my PayPal job, I just started to look for opportunities to really take the next step into business ownership. And the first place I thought of was looking at. I looked at franchise opportunities quite a few before I came around to the idea of actually buying an existing business.

[6:10] Host: Two questions on this, Sarah. So you were basically working in tech. You weren't a technical person, but you were working at these tech companies, big names, Groupon. You were actually there in the very early days and kind of rode that up during those rocket ship years for that company. And then of course, paid PayPal is a blue chip tech company as well. So much of entrepreneurship these days is associated with tech. But you're drawn to the kind of the small business, retail entrepreneurship. Was there any part of you that why not the kind of the tech entrepreneurship path since you were in your corporate days, that's where you were working and what you were seeing?

Guest: That's a good question. And it never even crossed my mind that I had the skills or the ability to start my own tech company. And really I couldn't imagine owning a business that I couldn't physically see. All you can see is the retail landscape. And I know now that there are so many businesses that just operate professional services and things that you don't see. But I was really, really focused on the retail segment because that was about as far as I could imagine based on my view of the world at that time.

Host: Yeah. And then in terms of becoming a small business owner, it sounds like you were basically already decided that you would acquire a business. You're about to tell us the difference between acquiring an independent business versus a franchise. But what about founding or starting a retail business from scratch? Did that cross your mind?

Guest: It did, and I really kind of ruled it out because I know my strengths are more on the operations side. And I felt very confident in my ability to operate a business. I did not feel confident in my ability to start up a business from scratch and grow it to something that I could then operate. I didn't think that I had any great ideas that someone else hadn't thought of before. So the franchise model made a lot of sense. I thought, well, if someone else has the idea in the playbook, I could execute and operate it. And I went down the path discovery process with several different franchises in the health and wellness space. A massage chain, nail salon, men's grooming operation. And I got very close to proceeding with one of those. And I had hired an attorney to help me review all the franchise docs, 175 pages of it. And he made it really clear to me. He said, sarah, I hope you understand, like, once you sign these papers and you do this deal, you're not really going to have any ability to make decisions on marketing or strategy. You're going to have to follow this playbook. And the only thing you're really going to be able to make decisions about is staffing, hiring and firing and managing people. That's what franchises want you to do. And I took a step back and thought, that's not why I'm doing this. I really believe in myself. I believe I'm capable of more than that. Not just the staff management. So that was when it first occurred to me to look at actually buying a business that already existed.

[9:13] Host: Well, it's funny because what you just said about yourself and your strengths, that your strengths are in operations. And I feel like franchise, yeah, what a franchisor wants you to do is hire and fire, but also just be a really good operations person. They just want somebody in there to operate an operator. And so once this was put to you as something that really, that's all it was. You realized, in fact, that you thought you had potential. Beyond that, you did want to exercise some creativity, did want to exercise some strategy. So you, you get close to signing on the dotted line, your lawyer talks you out of it. Lawyers do that. And then what?

Guest: So then I don't remember which came first, the franchising or the biz by sell. But I had a good time just browsing listings of businesses for sale on bizbysell.com and I would hone in on Austin every month or so to see if there was anything new. And there's a lot of small businesses, pool cleaning routes or bread delivery routes.

Host: That's right.

Guest: And I came across a listing that looked really interesting. It was top Austin Salon and SPA downtown on 6th Street. I don't know if it said 6th street, but it's in downtown Austin. 20 year legacy in the community. Inquire for more details. So it didn't say what it was, but it had enough information and I had a sense of the location that I was really interested in it. So I applied and got through the vetting process that the business broker put me through and began that process.

Host: So tell us what you found.

Guest: So that would have been fall of 2014. And what I found was a business that had been opened since 1995 in the same space on Sixth Street, Bella Salon, still there in Austin today. And it had been founded by Josh Martin, who was a really well known, talented hairstylist. And he was still owning and operating the business and working behind the chair doing hair. And it was really his life's work. He was in his early 60s, but he was trying to sell the business because he had some health issues. He actually had cancer that had. He had battled it. He got better, then he had gotten sick again, and he really just wanted to transition the ownership of the business to someone else who had the opportunity to run it while he continued to do hair as long as he was able to. So I met him in person. I was really impressed with him and his story and wanted to proceed in the process and got into this due diligence, looking at the numbers in the books with Josh and his business broker, and real quickly realized that there was just a huge gap between what he was asking for the business and he felt it was worth, which was $450,000, which is not for his life's work. It felt reasonable to him, but the numbers did not support that valuation. I couldn't even come up with something close to what he was asking for. And what really had happened with the business after looking through the numbers was it was a huge operation in the 90s. It was the only salon spa like it at that time. And I think at one point, rumor was, I didn't see any paperwork, but it had been a $4 million operation. But over time, a lot of the stylists who worked in at Bella left Bella and went to open their own salons or their own spas. And there are at least 10 other businesses now in Austin that are run, operated by people who at some point got their start at Bella Salon. So it was a huge operation for a long time, and then it just kind of slowed down and got a little bit smaller and continued to hum along, but not at the same level of prestige and successful financially. So Josh, the owner, he was still remembering the good times, and that was what he thought the business was worth. And when we looked at the books, it was just not even close. So I walked away from it. I said, I don't think we're going to be able to agree on this, and I'm going to keep looking.

[13:18] Host: Sarah, let me Jump in with a couple questions. So, first of all, how did you know how to value a business? What calculations were you doing to decide that it Wasn't worth the 450? Did you just Google this or did you have some help or what? Like. Yeah, like people doing this for the first time, they often know nothing about how to value a business.

Guest: So, yeah, so there's a pretty simple formula for salon spas. And my uncle is actually a business broker. He operates in South Florida. And he said, yeah, it's somewhere between two to three times the profit, or owner's discretionary income is the value of the business. So I'm looking at the numbers and I looked at a few years, and there really wasn't much profit. There was a little bit of profit, but the real kicker was that Josh, as a hairstylist, was still in a produce. He was a producer for the business. So his clientele generated $300,000 a year of revenue out of the million dollars in revenue for the business. And with the uncertainty of Josh's health and his ability to continue to serve those customers, it was just really hard to assign any value to the business that was associated with a profit, because that was in jeopardy, really.

Host: Yeah. Yeah. Because of his health.

Guest: Yeah.

Host: And aside from that question, would you have been nervous to have the seller in the business? You know, oftentimes the conventional wisdom is kind of that you want a clean break with the seller. Not always, but often. So was that a red flag to you or were you fine with that? Maybe. Maybe it added some cachet to the place to have the original. Sounds like he's kind of famous in that community. Maybe it would have been good to him around.

Guest: I would have actually enjoyed having him in the business and look forward to that. You know, he was a creative, and he was. He would have. It would have provided. Provided some continuity and some security, I think, in buying it, to have him there. Even uncertainty around how much work he could do. Yeah, I wouldn't like that.

[15:14] Host: So you choose to walk away. You don't even present a counteroffer?

Guest: Nope. I didn't make an offer. I just thought a lot about it and then just walked away. Because I thought it was just. I didn't want to offend him by lowballing him, so I just walked.

Host: Even though you thought you really. You didn't. It wasn't necessarily a low ball. It was really a justified offer, but it was just so far from his 450 that you thought it would be perceived as a low ball and insulting. Okay. So then what happens?

Guest: So then I go back to work at PayPal, I find out I'm pregnant with my second child. And I thought, this is fine. I have a good job. I'm just going to keep my head down and have them grow my family and I'll just figure this out someday.

Host: Are you still checking biz by sell on a monthly basis?

Guest: I was a little bit, yeah. And then six months go by, I'm seven months pregnant, and I found out that Josh Martin, the owner of Bella, had passed away, unfortunately. And I inquired with the business broker, hey, whatever happened? Is there a new owner? And he said no. And in fact, what are you doing? Because we still, we're, we're at the end of this process. We haven't found someone to buy the business, and the lease on the space is up this year. The landlord is ready to put a 4 lease sign in the window. It was an opportunity to take advantage of the fact that no one had bought it while he was around and he had a family friend that was still trying to operate it and find someone to take over.

Host: Okay, continue. But then what?

Guest: So then I didn't feel so bad about making my low ball offer, and I took another look at the books and then it was clear to me, you know, I could clearly make the case that, well, all of this revenue that's on the books that was being produced by Josh, we don't know if this revenue is going to continue, if these customers will see a different stylist, if they'll go somewhere else. So I made a very low offer to buy the business and did a little bit of negotiating and ended up with a deal to acquire the business for $80,000, which was significantly less than the 450 that Josh had been asking. And as far as my due diligence, I did not spend a lot of time really checking and double checking the numbers. I just took the P and L for face value and I looked around the building and I just saw opportunity. It was 5,500 square feet of space that had been built out into a salon spa. There were salon chairs and mirrors and computers and a front desk and retail inventory. And the place was filled and it was operating and it was staffed and there were customers. So to me, you know, I couldn't imagine a better opportunity to get into something, you know, and just do, you know, try to make something out of it.

[18:16] Host: 5,500ft sounds like pretty big, Am I right? Is that a pretty big salon?

Guest: It's very big. And that ultimately became One of the biggest challenges was covering, you know, growing the business to, like, level that could support the overhead and the rent for a space that big. But we had 18 styling stations for hairstylists. We had a little room for nail technicians. We had six spa rooms. We have massage therapy, skin care, estheticians, shampoo room. I mean, and we also had a cafe that was. Was sublet to another operator who ran a little restaurant out of the side of the. The salon. Because when it was originally built in 95, that was part of Josh's vision was to have a day spa with the cafe, and then he outsourced the operations. So it was huge, really. And it was one of the biggest challenges of the whole thing.

Host: Yeah, but I can imagine from the outside looking in, you know, walking around this impressive space and an incredible location in Austin, that for $80,000, you just kind of feel like there's a lot of room for error here because it's a really low purchase price. Who are you negotiating with exactly? How does work when the owner has passed and somebody else is selling the business, I guess on the behalf of the estate.

Guest: It was a close friend of Josh's. He did not have any family that was willing to take. Take over the business. And the business broker who was working with Josh while he was still around really wanted to see that the process through. I think he had, you know, it was. There was a lot of people really, really adored this man and just wanted to see this continue sort of as a tribute to his legacy and the work that he did when he was there.

Host: That's great. And just before we now get into you putting on the ownership hat, quick step back, when you were looking at businesses or looking at biz by sell, did you have a sense of what your budget would be like? Had Bella really looked like a strong, profitable business that first time around when it was for sale for 450, was that a price you were prepared to pay for some solid business? What was your criteria that you were looking for?

Guest: Yeah, it was high in my mind. I had a budget. I had about a budget of cash that I was willing to part with and risk in a venture like this. And it was in the 2 to $300,000 range. And that was sort of enough for me to pursue some of the franchise opportunities that require $60,000 down and a build out of a retail space. So to me, to pay 80 for the business, that left me with another $200,000 that I was going to put into the business as needed for operating cash. And Renovations and things like that.

[21:02] Host: And so you didn't even finance it, you paid in cash.

Guest: That's right. And to be honest, I didn't even know I could finance it. I just thought you had to have that cash. And, you know, my budget was my budget, and whatever I could get is what I got.

Host: Yeah, well, learning about the fact that you can finance a business acquisition is something that we all come to late, and it's a big theme of this podcast. Okay, so you acquired it in cash. You kind of didn't do the most rigorous diligence in the world because, you know, you looked around and you just saw opportunity everywhere. What did you imagine? Like, what value did you imagine adding? Like, why is Sarah Romer, who comes from working corporate jobs at tech companies? What could she bring to the salon business, to any salon business?

Guest: The biggest thing I saw with this business in particular was just there was a lot of opportunity to modernize the business. This is 2015, and the space had been built out in the 90s. The technology had not caught up. You know, I saw some of my strengths in both sales and marketing and technology being a real asset to restoring this business to its former glory. The first things we did were that, you know, I took some of the budget I set aside. We did. We did some renovations, we painted, we put new artwork. We got a new front desk, we put new signage on the outside. We rebranded the whole thing. Hired a designer to help me with a new website and imagery for the website. Website really just try to bring the business into the 2015 visually and with technology. And that part was a lot of fun. It was very obvious new, what needed to be done. Another thing that I could tell by looking at the P and L that I was going to have some success with was just cost control and expense management. This gentleman, Josh, had been so busy doing hair and taking care of himself that he really wasn't paying a lot of attention to the expenses. And I remember looking at the P and L and seeing things like $600 a month for Internet. Like, that's $600 a month for Internet. I could save $400 a month right there. So I did a lot of shopping for new vendors and was able to both save money and improve the technology. You know, we quickly got a VoIP phone system, and we used to have a landline old school phone system that costs a lot of money to have different lines that rang in different parts the salon. And the new system was third of the price. And we could text message the clients from the Front desk. So the combination of marketing, new technology, and cost reduction was. I knew that I could do that right away.

Host: Great. And then conspicuously absent from that is all the people issues, which of course, which is always where people get tripped up in a transition. So talk to me about that piece, which of course is the. The really the big story here.

[24:02] Guest: Yeah. So, you know, something that I didn't really understand when I bought the business and was fantasizing about being a salon owner in Austin was that the product we were selling is produced by people. It is a service business. And, you know, a haircut is not just a haircut. It's being performed by a person. So I. When I bought the business, I inherited 31 employees. And the majority of the employees were service providers. But then I had some administrative staff as well, front desk, bookkeeper, manager. And in my mind, I had been studying the business for several months before this deal actually closed. So I already had a list of 100 things I wanted to do right away to turn the business around and get it making money again. And it was just not that easy because I didn't think about how was I going to get these people to do the things that were on my to do list. And that became really the biggest challenge and where I made the most mistakes that first year, for sure.

Host: What was your experience in managing people prior to inheriting 31 employees at the salon?

Guest: I had management experience. So I actually thought, oh, I know how to manage people. But it was always as a middle manager where I had worked my way up as an individual contributor into something leadership position where I had a small team, where I was a player coach. One of my roles at Groupon, I was a regional sales manager. So I had maybe between 8 and 10 people at any time who were doing. Who were selling. But the difference was that they, you know, the people who work for me in those roles were doing work that I had done. I was able to lead by example. And I had some expertise where I come into the salon and I didn't go to hair school. I don't know how to do hair. You know, not only do I not know the craft, I also didn't come from the same place that a lot of the staff came from. Hair and beauty services. It's a trade. And a lot of number of the stylists learned in high school, they trained in high school, and they got a license coming out of high school, or they went right from high school and they got their beauty license. After high school. Several people did actually get a Bachelor's degree, and then decide to go in that direction. But it was just a. We had different backgrounds, and it was not as easy as I expected to relate and communicate with folks who just came from somewhere very different than the path that I had come up from.

Host: Are there any examples that come to mind of things that you wanted to change that were going to require getting everybody on board and that you encountered resistance to?

Guest: Oh, yeah, the first thing. One of the first things I knew that had to change was our pricing structure. So every service provider at Bella is a W2 employee, but they're commissioned employees, so they receive a percentage of the revenue that they generate through their services. And in most salons like that, there is a pricing menu that is set by the owner, and the stylists do the provide the services, and they charge the prices that the owner sets. And what I inherited was a business where the W2 employees set their own prices. So you call it up. You call this lawn and say, well, how much does it cost for a haircut? And the front desk would say, well, who are you trying to see? Well, I don't know. I'm new in town. Oh, well, Keith's haircut is $60, and Steven's haircut is 85, and so. And so's haircut is, you know, 40. And it's okay to have levels, but there was no rhyme or reason to it. It was just that each service provider set their own prices. They were allowed to do that. And that was a problem to me because we were going to be doing a lot of marketing for new customers, and it just needed to be more clear to a new customer what they would expect. So we created a matrix based on the level of experience that the stylist had. They were either a stylist, a senior stylist, or a master stylist. And then each service had three different prices, depending on the service provider's level of. But what I found was that there was a lot of resistance, even from some stylists who were really talented and had a ton of experience, to charge appropriately. They just weren't comfortable asking their longtime clients to pay $15 more for their haircut. They had been charging the same price for 10 years, and it was just a personal thing where they weren't valuing themselves at the way that I saw their value. So it took months of. We had to give notice to all the clients that the prices were going. Here's our new menu. We were handing menus on the way out the door. Hey, in a couple months, we're going to have these new prices, put it on the website. But when that time came to actually charge those prices, some of the stylists were so anxious that they were going to lose their customers because they were charging more and they didn't realize what they were, you know, they just didn't associate their worth with the market rate for their service. So that was a really something that seemed obvious and like was going to be good for everyone to me was a very hard thing to manage it with the team.

[29:05] Host: And you weren't, you didn't share their anxiety that in fact that might drive some customers away?

Guest: I did, I did a little bit. But you know, we felt like anyone who's not going to pay at least $50 for a women's haircut is not, that's not our customer. You know, we're, we're serving a, this is a luxury experience. They're getting a scalp massage and all these other things coming here. It's okay, we're getting, we're going to get new customers, customers.

Host: So, so did it took longer, there was more resistance. But did this plan ultimately work? Was there attrition? Like, what did your, what did of those 31 employees that you inherited, were they all still there a year later, 18 months later? How did that play out?

Guest: Yeah, that's a good question. Will. The pricing example was not really the reason why we had any turnover, but, but a component of that was that we had a number of stylists who, partly because the previous owner was not paying attention and he was focused on himself, really were coming and going and operating as if they were independent contractors while they were receiving the stability of full time employment. The pricing example was just one example of some folks just didn't want to have someone over them telling them what they were going to do. You know, somebody says, well, my price is going to be $75 and I'm not going to, you know, go with your new pricing menu. We did have some turnover. We had a lot of turnover the first year. And it wasn't any one thing that I said or did. It was really just the fact of there being some, you know, ownership who wanted a consistent experience for the customers and was putting standards and process in place that folks who just wanted to operate independently didn't want, want to participate in. So I really didn't lose service providers to other salons that were like mine with an owner where they, you know, had to follow someone else's rules. Most of them that left went to what we call booth rental you know, an independent contractor arrangement where they rented their chair and then they could do whatever they wanted with their prices or their operating hours or, you know, service protocols.

[31:21] Host: So that is a model in the salon space. And some people who do hair choose that model, prefer that, and some do W2. And you basically wanted to make yourself. It was already a W2 shop, but it wasn't really behaving that way. And you wanted it to.

Guest: Yeah.

Host: Wanted everybody to be on board with that model.

Guest: Yeah. And it needed to be because we were spending the money and the time on marketing and branding and attracting new customers. And I could not attract a new customer into an environment and experience that I had no control over. And that's what was happening at the beginning was, you know, um, it. Depending on who the person saw, they had a totally different experience. And, you know, in some ways that's okay. But there we just needed. We needed more consistency than we had

Host: the previous owner's name. The seller, the gentleman, was Josh. It sounds like I'm envisioning, like Josh was kind of. It was his place, but he didn't. He wasn't an authority figure. He wasn't people's boss. He was just kind of among everybody else. But it was. It happened to be his place. And so is that. Is that an accurate characterization? So when you come in and it's kind of like, no, there's a new sheriff in town. It was a bit of a. It's just a total change in vibe and atmosphere.

Guest: Yeah, it's true. And, you know, out of that 31, there were people in the business who are still there now who were amazing to work with, who were desperate for some leadership, and those ended up being the folks who I had the best relationships with. You know, they didn't like seeing people coming and going and not having any structure to their day and giving this guy a free haircut and pocketing the tip, you know, and charging this one 60 bucks. Like, there. There were. There. There were as many people who were happy to have the. The new structure as not. But it did. You know, you asked if I was nervous if customers wouldn't pay the new prices. I was far more nervous and on edge about making a big decision and then seeing who. Which stylists were going to leave, because that was. Is a much bigger deal than losing a customer, because with the stylist, they have loyal clients who want to go see them even if they leave. So one stylist leaving could mean a hundred customers are going to go somewhere else.

[33:35] Host: Sure, sure. So Sarah, now that you're in there and you're looking at, you know, you're implementing these changes, what did the, what did the money look like once you got in there? I mean, how profitable or not did the operation reveal itself to be?

Guest: It was not profitable for the first year for sure. I got into the business and we were doing about a million dol a year in revenue and the overhead was about a million dollars a year. But I had a few months left on the old lease. There was a 10 year lease that was negotiated in 2005 that ran through 2015. So the first few months were okay. Like there was enough money coming in, I could pay the rent. But then my lease kicked in with new 2015 rent three or four months into the whole thing, right around the time that a handful of the veteran stylists decided they were going to leave. And all of a sudden I thought, oh my God, I'm five months into it. And I had several months in a row where the business operating at about a $10,000 a month loss. I thought, this is, this is not going to, I can't sustain this for very long. I'm going to slow this. So then, but then, you know, the part we kicked in the price increases and that helped bridge the gap. Hired some new stylists. You know, people talk about startups being like building a plane while you're flying it, you know, still sort of the same thing that we were doing. So. But the first full year was 2016 and, and I think we had up to about 1.4 million in revenue, but not a whole lot of profit. I did take a small salary for myself, but then by 2017 we actually started to. Things turned around. We started to do much better.

Host: Well, going from about a million dollars to a million 1.4 in a year. 18 months of ownership. I mean, that's 40% increase in sales. That's really dramatic. So that, that must have been encouraging. Despite all behind the scenes, you're frantically assembling this airplane.

Guest: Yeah, yeah, it was, um, it was, but the expenses were going up too. You know, I'm spending the money on marketing and I had to pay more to get good people. And we were putting people through training and trying to just, you know, as fast as the money was coming in, I was able to spend it. So there just wasn't, you know, revenue growth was great, but it, there was a lot of, a lot of overhead and a lot of people. Paper.

Host: Sure. Not the same as profit. So Sarah, tell me, like, where's your Head at like, how is it going? I mean, okay, so it's really challenging. And that's a theme in all of the, in so many of my interviews. Those first six 12 months are daily punches in the face is the, is the phrase of choice for so many people, but they can see a light at the end of the tunnel. Is that how you are feeling? Like, talk to me about, you know, and also now you're, that you are the business owner that you had admired from afar. You've become that person. Is it, is it the glory that you would envision? So yeah, talk to me about how you're feeling during all this.

[36:24] Guest: Yeah. So 2016, the first full year I had the business was for sure the hardest year of my life, you know, personally and professionally. I mean, I had young children at home. I had a business that was originally open seven days a week and we changed the operating hours, went down to six days a week somewhere in that year. But it was so hard and so stressful and I thought, why am I doing that? Why am I doing this? Why did I think this was a good idea? And it took me until the end. And the other thing that I didn't understand was I knew I could get new customers, I knew I could grow the business, but I didn't understand how the margins worked in the business. So cost of goods, sure, I can grow the business, but I have to pay a lot of that money right back out to the service providers who are providing the services. And oh, we get busier, well, we got to hire more front desk staff. So my payroll just went up. So even a really, really well run salon is lucky to do to have a 10% profit margin, maybe 15, somewhere in that range. And to be doing that kind of business, you have to have a very robust retail sales program selling skincare and hair care products, accessories and jewelry. So once I really understood what the opportunity was going to be for me as an owner to, and I was looking at this business as my primary, my only source of income, I started to feel like this. It didn't make sense for me. You know, I saw Even at a 1.7 million in revenue, we were still, you know, I still had to pay myself and justify the amount of time and energy that I was putting into the business. And I couldn't see myself being able. You know, another big challenge was I didn't have a full time general manager to really take the burden of the day to day operations and the management of the staff off my plate right away. So it just sucked the life out of me, the emotional investment of energy that I put into the team, into the business, just left me with nothing. At the end of the day. I would leave at 5 o' clock to go home to my family and was just completely out of gas. So by the end of 2016, I thought, this is not sustainable. Even if I grow this business, I don't want to do this. The upside is not worth the amount of risk and responsibility that I have to these people in this business and financial obligations. I also signed a. The five year lease came with a $225,000 personal guarantee. So if the business closed, I was on the hook to pay rent for the first year until the owner, the building owner could fill the space. So I decided after 2016 that I wanted to sell the business. And this came from some soul searchings discussed with my husband. But I also had a business coach at the time who was a salon owner and she really pushed me to consult. Consider, are you sure you want to do this? You know, you could sell this business to someone else if you don't want to do this. Like this is. You can change your mind. You're not stuck in this forever. And that, that's what I decided to do at the beginning of 2017.

[39:34] Host: Well, so the fact that. That's an interesting point. So are there people who maybe are just so passionate about the beauty business or about hair that they would have been fine putting in the hours that you were putting in? I mean, was it, is it a good business for the right person, person, even if it's a really hard business, or is it just like, would you advise anybody to just like stay away?

Guest: It's a great question and it's one of the reasons it did not work out for me, because I didn't have a passion for that industry that was not my craft. I didn't have a strong enough why. People talk about you have to have a why and if you're going to go through this journey. However, if you are a hairdresser for some, for some stylists or even skin care providers, that is the pinnacle of their career is to have their own business and they can continue to practice and they mentor junior staff and it can be a good business because they can make a lot of money behind the chair and the business can throw off a little cash and they have a place to work. I don't know the numbers offhand, but I think there are very few owners. Like, I was just a business person coming in from the outside where, you know Most of these successful businesses are operated by someone who came up through

Host: the industry and you didn't see a path to get revenue or get profit to a point where you could afford a general manager. So you step out and it pays you some sort of dividend or something and you have somebody else in there doing all of the, you know, 60 hour weeks.

Guest: Yeah, I figured I needed the business to make about two, to be at about two and a half million dollars a year to pay a general manager to do that work and take the sort of income I needed for myself. And I did eventually hire a general manager once I knew I was going to sell it because I started worrying less about my income at that moment and more about passing the business on and create an asset for someone else. But it would have taken me too long to get there and I just didn't have it in me. I didn't have another three or four years to get to that revenue level where then I could step out.

Host: And when you hired this general manager manager to prepare the business for sale, essentially that left you with no profit like that. You were doing the general manager experiment and finding that there was nothing left over.

Guest: Pretty much. I mean, I was still able to take a paycheck and pay this person, but it was not the income that I needed to support my family.

Host: You did good things at Bella, though, and you were acknowledged for this, were you not?

[42:05] Guest: Yeah. So one of the end the of I did, I would say, a bright spot in all this. Well, first of all, I was able to sell the business for a price that I was really proud of because it was significantly more than what I paid for it. And I felt like it represented all the sweat equity I put into it for three years. But as part of the transition from 2016 to 2017, we had another big growth year and I helped the new owner. We applied for recognition in the Salon Today magazine, which is the big trade publication. And every year they recognize the top 200 salons in the US and we applied for best practices in two categories of digital marketing and growth, and we were recognized for both. So we got featured in the magazine, got to put a big framed article and award on the wall. And I didn't find out that we had won that until after I sold that business, but it was for the time that I had owned it. And it was really very rewarding because it's not often as an owner that people tell you you're doing a good job. People are happy to tell you when you're not doing a Good job or what's wrong or they're upset about something or customer had a bad experience. But it was really awesome to be recognized by the industry.

Host: Yeah. Speaking of the experience of being an owner and the validation you do or don't get. So this experience was a grueling one for you. But a lot of that, it sounds like, has to do with the industry and the particulars of this story. In this salon, do you see yourself doing something entrepreneurial again, maybe buying another business? Or have you had it with the whole concept that the admiring the small business owner from afar was just naive? Sarah. And now you see what the real deal is and you don't want anything to do with it.

Guest: Well, so what you just said is exactly true. When I think about retail businesses, you know, the shop on the corner, the main street businesses, the restaurants, there are boutiques. Those folks are the heroes of our communities, really, because they're working their asses off and they're not getting compensated for anywhere near the amount of work and risk and responsibility that they've taken on to make our communities really unique places. So I still have a ton of admiration for those folks, but I do not wish to be in a retail business owner seat anytime soon, probably ever again. But I really did enjoy certain aspects of having my own business, certainly making decisions. I'm very decisive and I'm action oriented. So I really liked being in a position to see what needed to be done and just go do it. And we work through a list of stuff to do very quickly and working for someone else now, I still have a lot of autonomy in the job that I have now, but I could see having my own business again. But it would be something that is not retail focused, you know, something in professional services or tech or E commerce or something that would allow me to work a little bit more flexibly and not be beholden to retail hours.

[45:11] Host: And do you think the format of acquiring an existing business is something that you'd repeat? Or would you. Does your experience inform that or do you feel like you do that all over again versus starting scratch?

Guest: I would definitely buy a business over again. I mean, there still was no way. There was no way I was going to get into half the opportunity that I had if I had started something from scratch. The amount of time it would have taken me to build a business to the point that Bella was at when I acquired it, it could have taken five or 10 years. It took Josh 20 years to build it. And I got the goodwill, the customer base. There were 22,000 customers in our database that I was able to acquire. We had a Yelp profile that had hundreds of reviews from customers for years. And I had that on the day one, my first day of owning a business. So there were a ton of things about it that, you know, gave me a head start. And I would, I would consider an opportunity like that. Again, the biggest thing I would suggest or caution, someone who's looking to acquire a business, this include as part of their due diligence would be an assessment of the team, the people and the culture, because I did not assess that. And that became the biggest challenge for me in implementing the changes that I wanted to make. But it might not have been so bad if I had thought through that part and understood and understood what I was getting into. And I think it's an important, important component, but absolutely, I mean, it's a head start, I think. And it also, you know, depending on how long the business has been around, it really mitigates the risk of starting your own business. You know, it might not be perfect and there might be a lot of work to do, but there's also a lot less risk that it's going to fail. And that was true in my case.

Host: Sarah, can you share what you sold the business for?

Guest: I sold it for $475,000.

Host: And that was, which is coincidentally very close to what the original price had been when you first learned about Bella, the 450.

Guest: That's true, that's true. And that was a lot, you know, for a salon that a lot of salons change hands for. More like what I paid than, than what I ended up selling it for. But the owner who bought it, he had a very different vision. He's still operating it today. He did not need any income from the business. He, he had sort of retired from his first career and he was in a second phase of his career and building assets. And he went and put more money into the business and built out the retail boutique component even more. And he's got a 10 year, he has a new 10 year lease on the space and he's going to make his money back and then some with the plan that he has. It was just a very different strategy and vision and needs that he had. So I think he's happy to have it, but I was happy to sell it to someone who I knew was going to carry on the reputation and the work that I had done. And we can still go there today.

[48:12] Host: Sarah, you talked about who the appropriate buyer for this business might have been. And typically, like Basically a stylist who kind of. It's a good business to run. If you're a stylist with maybe more ambitions than being just a stylist. Is there anything else about the salon business that is relevant to share? And I ask just because you do see a lot of salon businesses on bizbuy sell. And so I know that that's a type of business that just transacts a lot. Anything else that any pros or cons that somebody out there might contemplating buying a salon business should know.

Guest: Yeah, I think that the two things you'd have to understand are who are the stylists? Are they. You know, the reason salons close is because stylists come and go and they take the customers with them. And that's a real. That's really risky. And the way to mitigate that risk and to actually make money in a sal is to focus on the retail component. You know, we sold about $250,000 worth of hair care, skincare, makeup styling, you know, hair dryers, things like that and that, you know, as a retailer, you make 50% of that revenue. So we had, let's say, $125,000 of profit from the retail business. And that the more you can grow the retail side of the business, the more secure and more profit there is in the business. And the cool thing about the industry when it comes to retail is there's a very unique combination of service. You know, when service meets retail, retail can be successful. So the way we would approach selling skincare is the esthetician who did this facial would have spent enough time with the customer's skin to know that they needed something for, you know, redness and brown spots. And they would recommend, on the way out, oh, you really should take home. These products especially will help you with the issues you're having with your skin. So there's other industries that I think have the same synergies, but if you can get those two things right and working in sync and you can have your service providers understanding how important it is for the business to also have strong retail component, then you really can make some money and be successful. So there's opportunity, but it's. You have to be strategic about it.

Host: So if I, wherever I get my haircut, if they're not selling product of some kind in there or have some carve out for like a little retail section, it's probably just scraping by the business. And another way to look at it is maybe somebody out there looking to acquire a salon. If there isn't that retail component yet. That could be some low hanging fruit to really juice profits to introduce that into into a salon that doesn't yet happen.

Guest: Absolutely. Yeah.

Host: Cool. Sarah, this has been great. How can people reach you if they, if they want to have your counsel on acquiring a salon or any counsel at all?

[51:09] Guest: Yeah, you know, it's so funny. They can reach me on LinkedIn. You can find me. Sarah Roamer, Austin, Texas. I'm on LinkedIn and also email. My email is sarah.roamermail.com regarding the salon stuff. You know, when I sold the business to David, who bought it for me, part of the agreement was a non compete. He said you can't work in salons and you know, do any work for salons in this amount of time in this radius. I was like, no problem, don't worry, I'll find my life away in this non compete. But really I'm actually out of the non compete now. So if anyone has any questions about the salon, you know, salon business or buying a salon, I'd be happy to, you know, weigh in and do my two sessions.

Host: Very cool. Sarah, thanks for joining me. Thanks for sharing your story. This has been great.

Guest: Yep. You're welcome. Thanks for having me.