Med spas are more popular and profitable than ever, and buyers have taken notice.
The medical aesthetic market in the United States is growing at a rapid pace. According to the American Society of Plastic Surgeons, people in the U.S. spent more than $16 billion on cosmetic producers in 2016, which was an all-time high. A Transparency Market Report projects that figure will eclipse $30 billion by 2024. Although 9 of 10 procedures are still performed on females, ages 25-64, numerous trends are pointing to growth in this industry coming from other large population segments, which is adding to the excitement in the industry.
Cosmetic procedures among men are becoming more and more commonplace. The American Society of Plastic Surgeons reports a 20% increase in male aesthetic patients since 2010, driven heavily by minimally invasive treatments such as Botox and other fillers. In addition to more men investing in their appearances than ever before, the Bureau of Labor Statistics reported that 18.8% of Americans ages 65 and over were employed in 2016, compared to only 12.8% in 2000. With an aging workforce trying to compete in the same arena as younger professionals, cosmetic procedures for seniors have increased as well.
Given the current market conditions in the med spa industry, coupled with all the signs pointing to these conditions continuing to improve in the short and long term, now is a great time to sell a med spa. The first step in this process is to find out how much your business is worth. We have provided some basic formulas you can use to estimate the value of a med spa and get a rough idea of where you stand. Keep in mind, however, there is much more to putting an accurate value on your business than these simple guidelines. A professional business broker can analyze your entire business operation and give you a true market valuation.
- 2-3x SDE
- 75-100% Total Revenue
Now that you have an idea of what your business is worth, you might be wondering what you can do to increase that value before you sell. Obviously, growing revenue and profitability will add value, but there are also other important attributes specific to med spas that not only improve your value, but also you marketability.
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How to Increase the Value of Your Med Spa
In today’s cyber world where people are so empowered by the ability to make anonymous comments and reviews on anything and everything, personal services businesses like med spas can be at their customers’ mercy. Before deciding to sell your med spa, make sure your online reputation is as impressive as possible! Keep a constant eye on your online reviews. If there is ever anything negative posted, make sure and take the appropriate steps to remedy that post as quickly as possible. Additionally, encourage your customers to go online and write reviews. Inevitably the vast majority of online comments are negative, but they only represent a small percentage of a business’ actual customers. So the more people you can get to write reviews the better.
Most med spas are owner-operated to some extent, but nothing can hurt the value and marketability of a med spa faster than an owner that is too involved in the day-to-day operation. Keep in mind that most med spa buyers do not have any formal training in the treatments and services offered. So if the owner also serves as a technician providing treatments to patients, that can limit your buyer pool and lower your value. As an owner of a med spa, ideally you are not directly involved in the treatment of customers. One way to make your business more attractive to buyers is to limit your involvement to administrative and back-office duties.
Probably the most enticing aspect of owning a med spa is the recurrence of revenue. The fact that these aesthetic treatments are entirely temporary means that customers will need to have procedures done again and again. In order to capitalize on that need and make your business more valuable, your med spa should have some sort of customer loyalty or incentive program in place that encourages patients to return to your med spa. These programs can be as simple as regular email campaigns or as complex as POS systems administered by third parties.
A high employee turnover rate is a major concern for potential buyers of a med spa. Not only do buyers see hiring and training new staff as a risk and hassle, but in personal services businesses like med spas there is the issue of customers’ relationships with the service providers. If you have an employee turnover issue, give some thought to tweaking your compensation plan or working conditions to encourage retention. There are literally dozens of effective employee retention programs we have seen med spas utilize to overcome retention issues – sometimes it’s as simple as altering the commission structure or even changing work schedules.
At its core, a med spa is a retail business. As is the case with the overwhelming majority of retail businesses, many customers pay in cash. While some med spa owners treat cash the same way they treat credit cards or personal checks, others may have a tendency to handle cash differently. To be blunt, sometimes cash goes unreported. We’re certainly not here to judge how you manage your revenue, but we are here to tell you how that impacts your business’ value and marketability. If cash revenue goes unreported, it lowers the value of your business. Simply put, if we can’t find the revenue you say you have, we can’t value your business properly. If reporting cash revenue is something you’ve avoided in the past but you want to maximize your business value today, then it’s time to start recording and reporting that cash.
Work With Sigma Mergers & Acquisitions to Sell Your Med Spa
Hopefully these five tips can help you find ways to increase the value and marketability of your med spa. Today’s market conditions for these types of businesses, along with more and more financing available for acquisitions, make this a tremendous time to consider selling your business. Whether that’s in the cards for you today, or you still need some time prepare to sell a med spa, a professional business valuation is a great resource to have. That’s why we always offer business owners a no cost, no obligation business valuation before doing anything else. Feel free to contact us today and we can get that process started for you.
Scot Cockroft is the Owner & President of the #1 ranked Business Brokerage, Business sales and M&A firm in Texas. Scot has been named Named Deal Maker of the Year by Dallas Business Journal.
He is committed to a “different” type of business brokerage firm, one that is NOT about a sales pitch but, rather, results! In short, a business brokerage firm that is committed to performance-based compensation. Scot believes in these principles as well as a candid honesty with clients. His candid style often takes buyers and sellers by surprise, but is often what assures successful connections between the two.
Feel free to reach out!