Business for Sale: Chain of Cosmetology Schools
BY Inc. staff
Overview of a business offered for sale, including the price rationale and some pros and cons of the purchase.
THE BUSINESS: Beauty may be only skin-deep, but the profits from a well-run cosmetology school could leave its owner warm and tingly all over. This New Englandbased chain of four accredited schools mints 200 "salon-ready" grads each year, from a 10-month, 1,500-hour program whose highlights include classes on scalp treatments, manicures, and wiggery. Thanks to a strong job-placement department and a tuition-loan default rate below 20%, the schools' students qualify for Title IV funds (more important than a good moisturizer, since the tuition is $5,450 a head). The owner is selling for health reasons, but each school's administrator should stay aboard.
PRICE: $749,000 (recently reduced by $100,000), or best offer
OUTLOOK: Cindy Crawford, eat your heart out. The United States' 5,000-plus for-profit vocational technical schools (known in the industry as "proprietary schools") are thriving amidst a wave of national consolidation. A few of the biggest chains have even gone public. This minichain could polish up its revenues by adding nail, skin, and hair courses at night, accepting part-time students, or boosting advertising spending (which is now around $20,000 a year) to increase its regular enrollment. Or it could raise its tuition rates, currently at $3.60 per class hour, to bring them closer to the region's high of $8. The chain's accreditation license would also permit a new owner to launch at least two new schools, at a projected cost of $60,000 apiece.
PRICE RATIONALE: Here's the blemish: with the chain's recast yearly earnings averaging $75,500 over the past three years, there's scarcely enough money to cover an owner's salary and financing costs while also allowing an adequate return on investment. So valuation experts suggest making an asset-based bid instead. But the deal would have to include the chain's accounts receivable. (Those normally don't go along with a sale, but in this case they're probably the chain's most valuable asset, since the schools' real estate is leased rather than owned.) That suggests a value of around $460,000 (based on cash holdings of $30,000, receivables of $247,000, inventory valued at $22,000, and furniture and equipment on the books at $161,000).
PROS: With four jobs awaiting every cosmetology-school grad, there's got to be room for some attractive growth here.
CONS: If you can't make it happen quickly, things could get downright ugly.
*Before depreciation, interest, taxes, and owner compensation
Inc. has no stake in the sale of the business featured. The magazine cannot confirm the accuracy of financial or other information offered by the seller. Inquiries should be directed to Russ Carriker, CTSI, 508-664-6855.