Valuation Multiples for a Tanning Salon
Tanning salons provide tanning services to a wide variety of consumers. Some of the top products in the tanning industry include UV tanning, sunless tanning, and merchandise such as tanning lotion and after-care products. According to IBIS World, this industry has struggled as a result of increased health concerns and regulations regarding UV and sunless tanning. As such, the tanning industry has experienced a revenue and profit decline over the past several years. This industry is also extremely competitive. These conditions may cause many tanning salons to struggle in the coming years. However, success is still attainable with a proper approach. Whether you are buying, expanding, or selling a tanning salon, it is important to understand the value of a tanning salon. You can start by learning about valuation multiples for a tanning salon.
Valuing a Tanning Salon
Understanding the value of a tanning salon can help you maximize the value of a tanning salon. However, there are many factors to consider when valuing a tanning salon. As such, it is best to receive a business valuation. For buying a tanning salon, obtaining a business valuation can help you identify an appropriate purchase price. Additionally, a valuation analyst may discuss effective negotiation strategies. If you are selling a tanning salon, a business appraisal can help you determine a fair listing price. Whether you are buying or selling a tanning salon, receiving a business valuation can help you understand how to maximize the value of a tanning salon.
There are various valuation approaches for valuing a tanning salon. The market approach is a popular method that uses valuation multiples for a tanning salon. This article highlights valuation multiples for a tanning salon. Please note this article is only a guide and the information we provide may not apply to your business. To learn which methods and multiples are applicable to your tanning salon, receive a business appraisal. Peak Business Valuation, business appraiser, is here to assist! We work with many tanning salons throughout the nation. Peak can provide you with a business valuation for a tanning salon. We can also answer any questions on valuation multiples for a tanning salon. Start now by scheduling a free consultation with Peak Business Valuation!
See also Valuing a Tanning Salon, How to Value a Tanning Salon, and Value Drivers for a Tanning Salon.
Valuation Multiples for a Tanning Salon
The image below displays average market multiples for a tanning salon. Business appraisers at Peak often use market multiples when valuing a tanning salon. Keep in mind, these valuation multiples are only averages. For more accurate information, obtain a business valuation for a tanning salon. Peak Business Valuation, business appraiser, can provide you with a business appraisal for a tanning salon. In addition, Peak can answer any questions you may have about the value of a tanning salon. Schedule a free consultation today.
Disclaimer: These multiples are for educational purposes only. As such, the information provided does not constitute valuation advice. These multiples do not represent the valuation opinion of Peak Business Valuation or its valuation professionals. Instead, seek the guidance and advice of a qualified business valuation professional about any matter in this article.
What is a Valuation Multiple?
A valuation multiple compares the value of a tanning salon to a financial metric such as cash flow, earnings, or sales. For example, the SDE multiple is a popular valuation multiple for tanning salons. This multiple compares the seller’s discretionary earnings of a tanning salon to its implied value. At Peak Business Valuation, business appraisers consider the multiples of similar tanning salons that recently sold. They then apply an appropriate multiple to your tanning salon to get a range of value.
For instance, a tanning salon has $135,000 in SDE and receives a 2.16x SDE multiple. In this example, the tanning salon would have an implied value of $291,600. ($135,000 times 2.16x) On the other hand, if it receives a 3.13x multiple, the value of the tanning salon would be about $422,550. ($135,000 times 3.13x).
Peak Business Valuation is a professional business appraiser of tanning salons We often use valuation multiples when working with individuals who are buying or selling a tanning salon. In this article, we give an average range of valuation multiples for tanning salons that they typically transact at. Since each tanning salon is unique, the range of value may vary. Below, we highlight SDE, EBITDA, and REV multiples for a tanning salon.
SDE Multiples for Tanning Salons
Average SDE Multiple range: 2.06x – 3.13x
Tanning salons often transact between a 2.06x – 3.13x average SDE multiple. To determine an implied value of a tanning salon, apply the multiple to the seller’s discretionary earnings. See the calculation below.
SDE X Multiple = Value of the Business
For example, a tanning salon generates $146,000 in SDE and transacts at a 2.53x multiple. Here, the tanning salon’s value is approximately $369,380.
$146,000 X 2.53x = $369,380
Business appraisers at Peak often use the SDE multiple when valuing a tanning salon. When using the SDE multiple, valuation analysts add back any expenses the new owner may not incur to the tanning salon’s operating profit. Typically, these expenses include personal expenses, a fair owner’s compensation, and non-recurring or non-related business expenses. This process allows the business appraiser to determine the cash flow of the tanning salon. Then, they can determine the value of a tanning salon you are buying or selling.
EBITDA Multiples for a Tanning Salon
Average EBITDA Multiple range: 3.12x – 4.00x
On average, EBITDA multiples for tanning salons range from 3.12x – 4.00x. Apply this multiple to a tanning salon’s EBITDA to derive an implied value of the business. Refer to the following calculation.
EBITDA X Multiple = Value of the Business
In this example, a tanning salon has an EBITDA of $108,000 and transacts at an EBITDA multiple of 3.73x. Using these metrics, the tanning salon is worth approximately $402,840.
$108,000 X 3.73x = $402,840
EBITDA multiples measure a tanning salon’s return on investment (ROI). A business appraiser may use this multiple because it helps normalize differences. This allows for comparisons to be made between similar tanning salons. Normalized ratios provide an accurate estimate of the future earnings an investor can expect from a tanning salon.
REV Multiples for a Tanning Salon
Average REV Multiple range: 0.61x – 0.96x
According to our data, tanning salons sell an average of 0.61x – 0.96x of revenue. Business appraisers can calculate the implied value of the business by multiplying the amount of revenue or sales a tanning salon makes by the REV multiple. See the following equation.
Revenue X Multiple = Value of the Business
For example, a tanning salon generates $418,000 in revenue. It then transacts at a 0.78x multiple. In this case, the tanning salon is worth about $326,040.
$418,000 X 0.78x = $326,040
REV multiples measure the total amount of revenue the tanning salon generates. Business appraisers analyze REV multiples of similar tanning salons that have recently sold. This helps them determine suitable multiples for your tanning salon. Keep in mind, business appraisers tend to value tanning salons using cash flow multiples – SDE and EBITDA.
Summary
There are a variety of valuation approaches a business appraiser can use to value a tanning salon. Often, they use valuation multiples for a tanning salon. By learning about valuation multiples for a tanning salon, you can begin to understand the value of a tanning salon. To learn more, obtain a business valuation for a tanning salon. As part of a business appraisal, you may learn the fair market value of a tanning salon. In addition, a business appraisal may help you understand how to maximize the value of a tanning salon. This is important whether you are buying, expanding, or selling a tanning salon.
Peak Business Valuation, business appraiser, works with tanning salons often. We can answer any questions you may have about valuing a tanning salon. In addition, we can provide you with a business appraisal for a tanning salon. Get started now by scheduling a free consultation with Peak Business Valuation below!
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