Much Is Your Spa Worth?
Skip & Marc
have been around now for several years and are beginning to be
purchased and sold as a commodity or business investment.
If you already own a Spa then you’ve probably wondered how much
your Spa Business is worth, even if you are not ready to sell
you have probably already learned, the Spa Business is tricky.
Each Spa has its own personality, varying in size, services, pricing,
and most certainly it’s earning potential. So how does one
determine its value?
assigning a value to your business you must remember that to a
Buyer, your business must be a “worthwhile investment”, which
means he/she must be able to recoup their investment and begin
to make profit on that investment within a reasonable amount of
example; A Buyer would not want to invest $300,000 to $500,000
for a business that would make him/her the same amount of money
they are presently making in their existing job, especially if
that meant that they would need to leave their job to manage this
there are three methods used when it comes to business valuation.
When placing a value on a business it usually assumes one or more
of these methods.
first method is the “Asset Value”. This method takes the
replacement value of all the Furniture, Fixtures, and Equipment
(FF&E), minus depreciation, plus the Inventory value, adjusted
for stale inventory, plus the depreciated value of the build out
(or construction), and real estate value (if applicable).
you add all of this up you have determined what the value of the
assets are. In the Spa business this would only be a good
way of valuing your business if you have low or non existent levels
of profit, because as a business, this may not be a good investment
to a Buyer, however, purchasing someone else’s assets can be easier
than starting a new Spa Business from scratch.
second method is the “Market Value”. This method works much
the same way as when you buy a home, your real estate professional,
your appraiser, and your lender will usually “pull comps” which
means they look at other similar homes in the same geographic
area and look at what they have recently sold for.
Appraisers often do the same thing when determining the value
of a business. The problem with using this method for the
valuation of Spas is two fold. Firstly, there is rarely
much data (especially recent or relevant data) available within
a geographic region for Spas sold and how much they sold for.
Secondly, as stated earlier in this article, no two Spas are alike
in size, service offering, etc.
method is best used with businesses that are very similar from
facility to facility, such as a gas station or convenience store,
and NOT usually a good method for Spa Valuation unless the facility
is part of a franchise that you could compare it to other VERY
similar stores within the franchise chain.
third and last method is the “Income Value”. This method
looks at the earning potential of a business and bases its valuation
on a “reasonable return on investment”. This assessment
is best left to a professional, but will usually yield Sellers
a higher value if they have been diligent at building a profitable
enterprise, and will make sense to the Buyer as well because he/she
will know what their return on their investment will likely be.
Spa Business Valuation Professional will first determine what
your Spa’s present adjusted earnings are. He/she will adjust
your net profit by backing out taxes, depreciation, owner’s auto
leases, above/below average management salaries, and other expenses
that cloud the picture of the “probable earnings”.
the Professional has determined the “adjusted earnings” he/she
must then determine the Income Capitalization Rate or “Cap Rate”.
The Cap Rate is a number used to multiply the adjusted earnings
to determine a “reasonable value” of the business. This
rate is usually stated in the form of a percentage which you can
convert into a multiplier by simply dividing the Cap Rate into
the adjusted earnings. For example a 33% cap rate would
equal a 3X multiplier and a 5X multiplier would equal a 20% cap
type of business has its own range of multipliers. These
multipliers are further refined based on a risk assessment of
is the most commonly used method for the valuation of US based
businesses. It rewards Sellers for their ability to build
a profitable business and reduces the risk to Buyers by giving
them a predictable rate of return on their investment.
your Spa business is profitable, then this is probably the best
method for cashing in on your hard work. When we at Resources
& Development are asked to perform a Spa Business Valuation
we use both the Asset Valuation Method and the Income Valuation
Method and compare them. Whichever one yields the higher
value becomes the most logical method to use in determining the
value of your business (more information click
buying a Spa business here are a couple of words of caution.
DO NOT buy the corporate stock, instead buy the assets of the
business which can include trades secrets, business name, client
lists, and other such items that may not be considered hard, tangible
assets. This will allow the Seller to retain the liability
for any of the business they did prior to the closing of the sale.
This also means that the Seller assumes the repayment of any and
all liabilities (debt) that the company has recorded on its books
at the time of the sale.
the Buyer wishes to assume one or more of these liabilities the
Seller should reduce the sale price accordingly. This could
be a creative way for the Buyer to finance a portion of the sale,
without borrowing it all from a lending institution. This
leads me to the second caution which is somewhat unique to the
if you purchase an existing Spa Business and plan to keep it open
under the same name, then you will probably want to assume the
liability of the outstanding Gift Certificates. What you
will need to do is determine the amount of outstanding Gift Certificates.
If the accounting was done correctly then this number is already
on the Balance Sheet for the business, but beware that many Spas
do NOT account for Gift Certificates properly and you may have
to do some investigative work to determine what the outstanding
determined, you should not only reduce the sale price by this
number but require the Seller to indemnify you against any “old”
Gift Certificates that get redeemed over and above the agreed
upon value that you have already determined.
you are a Buyer or a Seller, determining the Value of any business
is not always easy, but with the variables in the Spa Business
it is best to get the help from a professional, a professional
that understands the Spa Business, to help you navigate these
Wishes & Healthy Profits
& Marc Williams