Buying a hair salon: what to check before you buy
Short answer
First find out the salon's model. In a commission salon, stylists are usually employees, service revenue belongs to the salon and stylists are paid a share. In a booth rental salon, stylists are independent and pay rent, so the salon's revenue is mostly chair rent, not services. Then check stylist tenure and whether clients follow the stylist or the salon, booking system data, retail product sales, licences (salon and individual cosmetology licences), and the lease.
Salons look similar from the street and are financially very different inside. The model decides what you're actually buying.
Two models
| Commission salon | Booth rental salon | |
|---|---|---|
| Salon revenue | All service and retail sales | Chair rent, plus maybe retail |
| Stylists | Usually employees | Independent businesses |
| Client relationships | Booked through salon (ideally) | Belong to stylists |
| Main risk | Stylists leaving with clients | Empty chairs; classification |
| Key metric | Revenue per stylist, rebooking rate | Occupied chairs, rent collected |
Rebuild revenue stylist by stylist
In a commission salon, revenue is the sum of what each stylist produces. That makes the booking system the most useful document in the deal: it shows every appointment, every stylist's service and retail sales, how often clients rebook, and how many new clients each person brings in. Pull 24 months by stylist. You're looking for two things: how dependent the salon is on its top producers, and whether the trend is up or quietly down.
Illustrative example, not a real salon or market commission rate
A salon does $620,000 in services: the owner $160,000, two senior stylists $140,000 and $120,000, and four others $200,000 between them. Stylists are paid 45% commission in this example. The owner and seniors together are $160,000 + $140,000 + $120,000 = $420,000, or 68% of service revenue ($420,000 ÷ $620,000). If the owner stops working the chair after the sale, the salon loses $160,000 of service revenue unless those clients move to another stylist. And if one senior stylist leaves and half her clients follow, that's another $70,000. The commission saved doesn't cover the gap, because commissions are only part of the cost of serving those clients; rent and front desk stay the same.
What to check
- Booking system: clients, visits, rebooking rate, revenue by stylist (24 months).
- Payroll or rent records; agreements with stylists; any non-solicits.
- Retail sales, margins and inventory.
- Card processor statements and deposits; tips handling.
- Salon and stylist licences; inspection reports.
- Lease, plumbing, stations and equipment.
If the owner is the top stylist, SDE includes their production. Plan accordingly; see key employees.
Add-back traps in salons
- The owner behind the chair. If the seller is a top producer, their "salary" add-back is really the cost of the revenue they bring. Either you cut hair or that revenue is at risk.
- Retail at full margin. Check retail inventory for expired or slow product, and whether stylists earn commission on retail.
- Cash and tips. Some salons pay card tips out of cash in the till. That's fine if it's recorded, but it muddles the deposit check and payroll tax reporting.
- Booth rent that isn't booth rent. If "renters" have set schedules, salon-set prices and salon-supplied products, the IRS and your state may see employees. Back payroll taxes are a liability, so price it or structure around it.
Licences, lease and equipment
State cosmetology boards license both individual stylists and, in most states, the salon itself as an establishment. A change of owner usually means a new establishment licence or an update; ask the board before closing. Check that every stylist's licence is current. Salons are expensive to build out (plumbing for shampoo bowls, ventilation, stations), so the lease is part of the value: how long it runs, whether it can be assigned to you, and whether the landlord will consent. Chemicals used for color and treatments fall under OSHA's hazard communication rules; ask for safety data sheets and how ventilation is handled.
What an SBA lender will check
A lender will compare tax returns with IRS transcripts and look for the payroll records that support commissions. In salons they tend to ask how much revenue depends on the seller's own chair and whether key stylists will stay, because that's the risk to repayment. Lease term matters too: SBA lenders generally want the lease, with options only you control, to run at least as long as the loan.
Booth rental: check the rent roll like a landlord
In a booth rental salon you're really buying a small commercial landlord business. The questions change: how many chairs are rented, at what weekly rent, how long each renter has stayed, and whether rent arrives on time. Get a rent roll (renter, chair, weekly rent, start date, agreement), then match twelve months of rent payments to the bank.
Illustrative example, not a real salon or market rent
A salon has 10 chairs at $250 a week. Fully rented, that's 10 × $250 × 52 = $130,000 a year. Last year 8 chairs were rented on average, so rent came to 8 × $250 × 52 = $104,000. Rent and utilities on the space are $54,000, insurance, cleaning and supplies $14,000, and front desk help $18,000. That leaves $104,000 − $86,000 = $18,000 before the owner. Each empty chair costs $13,000 a year of profit. Two renters leaving at once would wipe out the year's earnings. So renter tenure, and why renters leave, matter more than anything else on the P&L.
What moves the value of a salon
We don't value deals or publish multiples we can't verify. These are the factors an appraiser and lender will weigh:
| Factor | Supports a higher value | Pulls it lower |
|---|---|---|
| Stylist base | Several long-tenured producers | Owner and one star produce most revenue |
| Client ownership | Bookings through the salon's system | Clients text stylists directly |
| Rebooking | High rebooking at checkout | Low or unknown |
| Retail | Steady product sales, tidy inventory | Expired stock, no tracking |
| Lease | Long, assignable, reasonable escalations | Short term, landlord unwilling |
| Build-out | Stations, plumbing, ventilation in good shape | Needs renovation soon |
The first 90 days after you buy
Stylists are the business, so the first conversations are with them, ideally before closing with the seller present. Keep commission or rent terms the same for at least the first few months, keep the booking system, and avoid changing product lines or prices right away. If the seller is a producing stylist, agree in writing how long they'll keep working and how their clients will be introduced to other stylists. Watch rebooking rates weekly; they're the earliest sign that clients are drifting.
Documents to request
- Booking and POS reports: services and retail by stylist, rebooking rate and new clients (24 months).
- Card processor and bank statements; tax returns; tip records.
- Payroll and commission records, or booth rental agreements and rent payments.
- Stylist licences and the establishment licence; inspection reports.
- Retail inventory with ages.
- Lease, equipment list and any renovation estimates.
Questions to ask the seller
- How much did you personally produce last year, and will you keep working the chair for a transition period?
- Which stylists have been here longest, and have any told you they'd leave?
- What's the rebooking rate, and how many new clients a month come in and from where?
- Do stylists have non-solicit agreements, and are they enforceable in this state?
- How are tips handled and reported?
- When does the lease end, and has the landlord agreed to an assignment?
Frequently asked questions
What's the difference between commission and booth rental?
In commission salons the salon books and collects service revenue and pays stylists a percentage. In booth rental salons stylists run their own businesses and pay the salon rent for a chair. The salon's revenue, costs and risks are very different.
Who owns the clients in a salon?
Often the stylist, in practice. Check whether clients book through the salon's system and how many follow particular stylists. Losing a top stylist can take a large share of revenue.
Are booth renters employees?
If a salon controls their schedules, prices and methods, booth renters may be treated as employees for tax purposes. Review arrangements against IRS guidance and state rules.
Do salon licences transfer?
Salon or establishment licences are generally issued by state cosmetology boards and may require a new application on change of ownership. Stylists hold individual licences.
How do I verify a salon's revenue?
Use the booking and point-of-sale system for services and retail by stylist, then match it to card processor statements and bank deposits. Ask how cash and tips are recorded, because tips paid out of the till can make card deposits look higher than the salon's own revenue.
Is a booth rental salon a good first business?
It can be simpler to run, because stylists manage their own clients and you collect rent. But the salon's income is the rent roll, so empty chairs hit hard, and if renters are controlled like employees there's a classification risk. Verify the rent each renter actually paid against the bank, and read the rental agreements.
Sources
- IRS: Independent contractor or employee?
- IRS: Employment taxes (tips, payroll)
- OSHA Hazard Communication (salon chemicals)
- FDA: Cosmetics
Related guides
General information, not legal, tax, financial or investment advice. Rules and lender practices change; check the linked sources and talk to your attorney, CPA and lender about your deal. Examples with named numbers are illustrations, not real businesses. OKtoBuy's Deal Check does not value businesses or give price opinions.