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Water boils at 212°F. At 211°F all you have is hot water, and so it is with about 50% of the more than 12,000 Spas in the country. At a certain dollar amount they begin to make money and anything less is simply an expensive, time consuming, hobby.
Many Spas have won awards, have accolades from copious Clients about how wonderful their experience was, have amazing decor, and many have substantial Client lists; yet hot water is all they are.
These Owners have worked more hours in one week than 6 of their employees combined and still they wish that they could just make minimum wages for their toil. Instead they have gambled their life savings, and many teeter on bankruptcy, and the evolution of business dictates that many of them will.
Would any sane financial institution or investor lend them even more money? Frankly that Spa owner has a better chance to become the next CEO of Bear Stearns than to obtain financing themselves.
My good friend and fellow DSA member Dan Hussey often says, “A business should only borrow money to increase sales or decrease costs’, and I could not agree more. Borrowing money to stay in business is the definition of insanity unless you are somehow going to use that money to do things radically different. Otherwise Spa Owners are only digging a deeper hole of debt that will insure failure instead of happiness. Believe me when I tell you I speak from personal experience on this topic.
“But Skip”, you say, “they are so close to boiling, they have done 90% of the work, surely all they need is a little longer in the pot”. To which I reply, ” A little longer at what cost?” Extra time comes at an extra price! The goal of success is then burdened with a heavier load. If a business is ever to turn itself around and get on the profit side of the equation then it must make a paradigm shift, it can no longer afford to continue to do the same things, operate the same way, and expect a new, better, or different result.
This equation does ,however, provide opportunity for investors; investors that are savvy enough to analyze what is broken inside a business, or savvy enough to hire the right professional to analyze and get the job done.
For not a lot of money an investor can buy into or take over complete operations that are already at over 200°F. Spas that are so close to breaking even, or have the capacity to make great money, are for sale at rock bottom prices. If that investor can turn around this broken Spa (or hire a management company that is capable) then the return on investment can be phenomenal.
The timing is one that all Wall Street investors would envy, and i.e., stepping into a business after someone else has taken all the losses and then putting the gasoline on the fire and working the upside.
Tricky? YES absolutely, but one that reduces much of the downside that opening a Spa from scratch would have been burdened with. In fact, that is what Resources & Development® is doing right now, for an investment group. We find the Spa Purchase candidates facilitate the valuation, due diligence, and offer process, and then manage and turn these properties around. Never before in the short history of the Spa Industry have I seen the ROI (Return On Investment) potential as I do right now. (If you are interested in joining this investment group please contact me directly for more information.)
Is this being opportunistic? Of course it is, such is the way of American business, but more importantly when you invest in a failing Spa you are saving someone from possible bankruptcy, foreclosure, and financial ruin, and providing employment for the community. Frankly you are the White Knight in this scenario saving Camelot from its own demise, or so it seems to me…
Best Wishes & Healthy Profits,
Skip Williams
skip@ResourcesAndDevelopment.com
www.ResourcesAndDevelopment.com
Filed under: DSA Biz Paradigm Shifts |
DSA Spa Industry Blog 
You are so right, Skip. There can be tremendous opportunities in saving a drowning spa. As you said, any investor considering this absolutely must have a thorough analysis done of the financials for the business they are planning to purchase.
So many times clients have called me AFTER the purchase in a panic. They are in a state of shock as to why they can’t make money either and are in fact often losing money worse than the previous owner was. This is usually due to a lack of due diligence on their part and failure to get the help of a consultant who is familiar with the industry. They don’t have a good understanding of the numbers and act without getting an objective, experienced opinion on the purchase.
For anyone who is looking at making this type of investment or starting up their own spa, I strongly encourage you to hire a consultant that can steer you and your new business in a profitable direction:-)