Due diligence on a salon

A salon’s financial statements can look perfectly clean and still miss the question that actually determines whether the revenue survives a change of ownership: how securely the stylists, the clients and the retail supply are actually tied to the business. Because so much of a salon’s value sits in relationships rather than hard assets, due diligence has to go past the top line and into the staffing contracts, the classification risk they carry, and the supplier and booking-system arrangements underneath them. None of these checks are exotic, but skipping any one is exactly where a buyer discovers, weeks after closing, that the salon they bought is not quite the one they thought.

Read every stylist agreement closely

Request the full set of stylist agreements — booth-rental, commission and employment alike — and review each one for its non-solicitation and non-competition terms, its notice period, and how long the stylist has actually been with the salon. An agreement that reads well on paper but was never drafted with real enforceability in mind offers less protection than the paperwork suggests, and a lawyer familiar with personal-service businesses can tell you which of these terms would actually hold up if tested.

Check the worker-classification exposure

Whether a booth-rental or commission stylist is genuinely operating as an independent contractor, or is in substance being treated as an employee, is a question of fact under the employment-standards and tax rules of the province where the salon operates, and it is a recurring diligence point in this sub-sector specifically. Review how the arrangement actually functions day to day — control over scheduling, tools, exclusivity — rather than relying on what the paperwork calls it, and have a lawyer or accountant assess the exposure before you rely on the current structure continuing unchanged under your ownership.

Verify the retail dealer agreement on its own terms

Request the actual retail product-line agreement, not a summary of it, and confirm whether it transfers automatically to a new owner, whether it carries exclusivity or minimum-purchase obligations, and on what notice either side can terminate it. A retail relationship that turns out to be informal or priced specifically for the outgoing owner’s volume is a revenue line at real risk under new ownership.

Client and booking data need their own check

Confirm how the salon’s booking system and any loyalty program will actually transfer, including what consent, if any, is required before client contact information moves to a new owner. This matters more than it might first appear: a large share of a salon’s recurring revenue sits inside that booking history and rebooking pattern, and a transfer that stalls on a software or consent issue can slow the business right when it can least afford it.

Confirm the lease and what happens to the build-out

Request the lease itself, not a summary of its terms, and review the term remaining, any renewal option and its conditions, and the security deposit — including whether it is confirmed to transfer to a new tenant on assignment or reverts to the outgoing owner. Because a salon’s chairs, sinks, plumbing and ventilation are typically installed as leasehold improvements tied to the specific space, confirm in writing whether those improvements belong to the business being sold or are treated as part of the premises the landlord could reclaim if the lease is not renewed. A lawyer reviewing the lease alongside the purchase agreement can flag conditions — a use restriction, a co-tenancy clause, an assignment condition — that would not surface from reading the financial statements alone. Also confirm who is responsible for removing or reinstating leasehold improvements at the end of the lease term, since that obligation can fall unexpectedly on a new owner who never installed them.

If a franchise agreement is part of the deal

Where the salon operates under a franchise agreement, request the agreement itself and confirm how much term remains, whether it renews on the sale or requires the incoming owner to sign a fresh agreement on the franchisor’s then-current terms, and what transfer or assignment fee the franchisor charges to approve the change of ownership. A franchise agreement nearing the end of its term with no guaranteed renewal right changes the economics of the purchase in a way that would not appear anywhere in the salon’s own financial statements, so this review belongs alongside the stylist-agreement and lease review, not after it.

The findings that actually end deals here

• A senior stylist responsible for a large share of bookings shows signs of leaving at or shortly after the sale
• Worker-classification exposure across booth-rental or commission stylists is larger than the seller represented
• The retail dealer agreement will not continue with the new owner on comparable terms
• The booking system cannot export client and rebooking history in a usable form
• Sanitation or tool-sterilization compliance history reveals unresolved issues raised by the local public health or municipal authority