Hair salon valuations rest on SDE (Seller's Discretionary Earnings), not EBITDA, because many are owner-operated. Calculate SDE: take total revenue (haircuts, color, styling, retail, services), subtract cost of goods sold (color chemicals, retail inventory, tools, supplies), subtract employee payroll (stylist wages, assistant wages, receptionist), subtract occupancy costs (rent, utilities, insurance), subtract marketing and customer acquisition, then add back owner compensation, personal expenses run through business, and one-time costs. Your SDE is the valuation baseline.

The 1.5x-2.8x SDE range reflects buyer acquisition activity. An employee-based salon generating $150K SDE with 4 retained stylists, strong client database, and 10-year lease trades closer to 2.5x ($375K) than 1.5x ($225K). The same salon with booth-rental model and owner-dependent client base trades closer to 1.5x-1.8x ($225-270K). Business model structure creates 0.5x-1x multiple variance independent of SDE amount.

Employee-based salons with payroll create transferable revenue. A salon with $200K annual revenue split 60% employee / 40% owner generates $120K from employee staff and $80K from owner's personal clients. If the $120K employee revenue is stable and client-documented, buyers see $120K guaranteed base with $80K personal-client revenue at risk. A booth-rental salon with 100% independent contractors and zero employer obligations generates the same $200K revenue but with 0% transferability—if stylists leave, revenue disappears. This structural difference creates 0.5x-1x multiple discount for booth models.

Stylist tenure multiplies directly into revenue stability. Each stylist with 5+ year tenure represents roughly $100-150K in annual revenue (depending on salon average ticket price and stylist productivity). A salon with 4 stylists averaging 5-year tenure has $400-600K revenue base relatively stable to owner changes. A salon with 4 stylists averaging 1.5-year tenure has $400-600K revenue at risk of 40-60% loss if stylists depart. Tenure creates implicit valuation: document and highlight it prominently in seller's summary.

Client database documentation converts personal relationships into recorded assets. A salon with CRM showing 250 active clients, 80% retention rate year-over-year, and balanced distribution across stylists demonstrates that revenue isn't solely dependent on any single person. This documentation is worth 0.3x-0.5x multiple premium because it reduces post-acquisition integration risk. Without documentation, buyers assume worst-case scenario and discount accordingly.

Lease terms determine business survival probability. A salon on a 5-year lease with 3 years remaining is a 2-year-old lease expiration risk. Rent increases from $3,000/month to $6,000/month (not uncommon in strong real estate markets) could eliminate profit margin entirely. Buyers specifically underwrite lease renewal risk: they contact landlord, verify renewal options, and model rent escalation scenarios. A 10-year lease with fixed or modest escalation removes this risk and supports full multiple valuation. A short-lease salon faces 0.5x-1x multiple discount unless renewal is secured pre-sale.

Service mix composition affects EBITDA margins directly. A salon with 40% haircuts ($40-60 average), 40% color services ($80-150 average), 15% retail ($30-50 average), 5% other generates higher average ticket price and margin than pure-cut shop. Color services typically carry 65-75% margins versus 50-55% for cuts because they're faster per dollar of revenue. Retail margin is 50-70%. Mix composition affects both total SDE and multiple because higher-margin revenue is more valuable. A salon shifting from 20% color / 80% cuts to 40% color / 55% cuts / 5% retail increases margins 8-12 percentage points, which translates directly to SDE uplift.

Owner role transition is often invisible but material. A salon where owner works 40 hours/week performing services faces valuation discount of 0.3x-0.5x SDE because buyer assumes owner departure and must hire replacement stylist at market wage ($40-50K annually plus benefits). Document what happens post-sale: Will owner stay as manager for 1-2 years? Will owner transition to part-time? Will owner completely exit? Planned smooth transition with owner support improves valuation 0.3x-0.5x relative to immediate-exit scenarios.

Buyers actively acquiring hair salons include large platforms (Drybar, Glossier Salon, Neora salons, Paul Mitchell Schools), franchisors (Supercuts, Great Clips franchises expanding), and PE-backed platforms (Obvious Ventures, Stratos Capital in salon tech). Their acquisition targets are salons with $100K+ SDE, 3+ retained stylists, and employee-based models. Strategic buyers bid 2x-2.8x SDE. Financial buyers (PE) bid 2.2x-2.8x SDE because they apply expansion and operational strategies.

Timing matters for salons. Q4 (October-December) is peak season due to holiday styling demand and New Year's resolution cosmetic improvements. Close valuations in Q1-Q3 using prior full-year data so seasonal variation doesn't distort metrics. A salon showing strong Q4 numbers might appear overstated.

Regulatory and operational compliance includes: proper cosmetology licensing for all stylists, salon operating license, liability insurance, and state-specific product compliance (color formulations, safety). Document all licenses and insurance. Compliance gaps trigger buyer discount requests.