Selling a hair salon or barbershop in Canada

A hair salon or barbershop is a room, a lease, a group of regulars and the people who cut and colour their hair. Buyers pay for the clients and the stylists who will keep coming after you leave, so most of the work in selling is showing that both are real. Here is what to expect and how to prepare.

What buyers look at first

Most salon and barbershop buyers ask the same questions early. Have clear answers ready before you list:

• The lease and the location. How many years are left, including renewal options, the rent and costs, parking, visibility and whether the landlord will consent to an assignment.
• Sales. Monthly sales for the last two or three years, split between services and retail product if you can.
• You. How many hours you still cut or colour, and how many regulars book specifically with you.
• The team. Who works there, whether they are employees or booth renters, how they are paid and who plans to stay.
• Prepaid work. Unused packages, memberships and gift cards still owed to clients.
• Equipment and fit out. Chairs, stations, wash stations, colour equipment, point of sale hardware and any leased items.

Buyers will check these during due diligence, so it helps to gather them now. Our list of documents needed to sell a business is a good start.

Clean, matching numbers

Your booking system and point of sale are your best records. Pull sales by month, by service type and by stylist, and make sure they match your bank deposits and the sales on your tax and GST/HST returns. Cash tips that never reach the books cannot be shown, so a buyer generally will not pay for them. If you pay yourself a wage or run personal costs through the salon, list them clearly as add-backs with proof.

Be honest about trends. If walk ins slowed after a nearby competitor opened, say so and show what you have done about it. A buyer who finds a drop on their own will trust the rest of your numbers less. Our guide to selling when sales are down may help.

Many owners still take a large share of the appointments themselves. If clients come for you, a buyer will worry about what happens when you leave. Moving regulars onto other stylists over time, writing down colour formulas and opening routines, and keeping the booking system current all help. See making your business run without you.

Client list and privacy

Your client names, contact details, colour formulas, visit history and booking records are personal information. In British Columbia, section 20 of the Personal Information Protection Act lets a business share personal information about customers and employees with a prospective buyer without consent, but only if it is needed to decide whether to go ahead and the buyer has signed an agreement to use it only for the deal. If the sale does not go ahead, the buyer must return or destroy it. After closing, the information can pass to the buyer if it is used for the same purposes and clients are told the sale happened.

In practice, many sellers share totals and anonymous reports first, under a confidentiality agreement, and the full client list only near closing. Ask your booking software early how client profiles and appointments move to a new owner. Agree with the buyer how and when clients are told. Our guide to telling customers when selling covers timing and wording.

Prepaid packages, memberships and gift cards

Salons often hold money for services not yet delivered: colour packages, memberships, series of cuts, deposits on bridal or group bookings and gift cards. In most sales the buyer agrees to honour them, and because the buyer is delivering work you were already paid for, you agree a price credit on closing for the unused balance. Run a report from your system on closing day and write the counting method into the purchase agreement.

Old cards still count. In British Columbia, gift cards with a dollar value generally cannot have expiry dates. Other provinces have their own rules, so check before you assume a balance has lapsed.

Booth renters versus employees

Salons and barbershops often mix arrangements. Some people are employees on wages or commission. Others rent a chair or booth, keep their own clients, set their own hours and pay you rent or a share of their sales. A buyer will want a clear list of who is who, the written agreements and who plans to stay, because the deal looks very different if half the chairs empty on closing day.

Getting the status wrong can mean unpaid payroll deductions later. The CRA looks at the whole working relationship, including control over the work, who supplies tools and product, whether the worker can send a replacement and their chance of profit or loss. If a status is unclear, either side can ask the CRA for a ruling. Have the agreements ready for due diligence.

Employment law is provincial. In British Columbia, section 97 of the Employment Standards Act says that if all or part of a business is disposed of, an employee's employment is deemed continuous for the purposes of the Act, which can affect vacation and length of service for staff who stay on. That rule is about employees. True independent booth renters are usually a separate conversation about whether their rental agreements continue with the buyer. Ask your lawyer what you owe on closing, and plan when and how to tell the team. See what to tell employees.

Municipal licences and health approval

Most cities and towns require a business licence for a salon or barbershop. Licences are usually issued to a named owner at a set address. In an asset sale the buyer often has to apply in their own name, or both of you complete a transfer form. Cities such as Vancouver publish a transfer process with fees and checks for zoning and other approvals. Check how long your city takes and whether an inspection is needed.

In British Columbia a hair salon or barbershop is a personal service establishment under public health rules. Health authorities regulate infection control, sinks and equipment. Interior Health, for example, says a previous owner's health approval is not transferable and each new operator must apply, with a floor plan, a list of services and equipment and an infection control plan. Other health authorities follow the same idea. Make the buyer's municipal licence and health approval a condition of closing so neither of you is left waiting with the doors closed. Our guide to transferring contracts, licences and permits has a wider checklist.

The lease

For most salons the location is a large part of the value, so the lease is central to the sale. Read it for the assignment clause, renewal options, any limits on use or signage, and whether you stay liable after assigning. Landlords often ask for the buyer's financial information and sometimes a personal guarantee. Talk to the landlord early, with your lawyer. Our guide to the commercial lease when selling covers this step by step.

Equipment, product stock and other contracts

In an asset sale, write a list of what is included: chairs, stations, wash stations, dryers, colour equipment, sterilizers, mirrors, the point of sale and booking hardware, and any build out the landlord does not own. Note anything leased or financed, because those agreements need the lender's consent or must be paid out. Retail product on the shelves is usually counted on closing day at cost. See selling a business with inventory.

Also list the accounts that keep the salon running: booking software, payment processor, website and domain, social accounts, phone number, email list, product suppliers, laundry or towel service, cleaning, alarm and insurance. If your salon is a franchise, the franchisor's approval comes first; see selling a franchise business. Running a shop, gym or restaurant instead? See selling a retail store, selling a gym or fitness studio selling a restaurant or selling a cleaning business.

Tax on the sale

How the sale is taxed depends on whether you sell assets or shares and how the price is split between goodwill, equipment and inventory. See asset sale vs share sale, goodwill when selling and taxes when selling a business.

For GST/HST, the CRA explains that you and the buyer may be able to jointly elect under section 167 of the Excise Tax Act, using Form GST44, so that no GST/HST is payable on the sale. This generally needs the buyer to get at least 90% of the property needed to carry on the business, and if you are a registrant, the buyer must be one too. In British Columbia, PST generally applies to taxable goods in the sale such as chairs, stations and equipment, but not to goodwill or to inventory bought for resale, and the Province says a buyer should get a PST clearance certificate before buying a business. Alberta has no PST. WorkSafeBC also asks buyers to get a clearance letter before buying the assets of a firm, because unpaid premiums can lead to a lien. See GST and PST when selling a business.

A simple worked example

These numbers are made up and rounded for illustration only. Your own deal, timing and tax will differ.

Questions to take to your lawyer and accountant

• Will my landlord consent to an assignment, and will I stay liable after it?
• How should we count and credit unused packages, memberships and gift cards on closing?
• What client information can I share before closing, and what must the buyer agree to?
• Are my stylists and barbers set up correctly as employees or booth renters?
• Which licences and health approvals does the buyer need, and should they be conditions of closing?
• Which equipment is leased or financed, and should I pay it out on closing?
• How should we split the price between goodwill, equipment and product stock?
• Can we use the section 167 election for GST/HST, and how are PST and WorkSafeBC clearance handled?

For more, read what your lawyer and accountant do. Running a spa, massage or wellness clinic instead? See selling a spa, massage or wellness clinic in Canada. Grooming pets instead? See selling a pet grooming or dog daycare business in Canada. This guide is general information, not legal or tax advice for your situation. Questions about listing with us go to hello@sellmybusinessdirect.com.