Reasonable’ Due Diligence for Buying a Medspa

What your broker won’t tell you

Cheryl Whitman, CEO,

Beautiful Forever Medical Spa & Practice Consultant 

What is due diligence? The phrase due diligence is used most often in connection with the performance of a professional or fiduciary duty. For our purposes, let us define the term as dictionary.com does, namely, such diligence as a reasonable person under the same circumstances would use. In this article, Beautiful Forever will take you through some of the important reasonable diligence steps you need to take to ensure you reach the pinnacle of sustainable medspa ownership success.

1.    Do you understand the medspa industry?

Do you know what a med spa offers?  Do you know how large the industry or market is?  Do you know the industry and procedure growth rates?  Do you know the structural dynamics of the industry including buyers/consumers, suppliers, competitors, providers, substitutes, etc?  Do you understand what drives the industry, demand, profitability, etc?  Do you understand the economics of the industry?

2.    Have you examined local and State laws in the med spa industry?

Have you conducted local, state, and national research?  Do you have detailed knowledge about personnel, equipment, services, public policy, legal issues? Do you know who can and cannot perform certain procedures and what level of physician supervision the law requires?  Since every state has its own requirements, it would be valuable for you to find an appropriate medical spa consultant who will work with your lawyer or recommend one.  Having someone like this on hand will help you make sure that you consider all the necessary changes and implement them in the right order. Check out Beautiful Forever’s do-it-yourself turnkey system at www.MedicalSpaSuccess.com.

3.    Have you analyzed the financials and source data thoroughly?

Is the price justifiable?  What is the valuation based on?  Have you checked for accounting irregularities? Has your accountant and lawyer examined the financials and source data?  Does the seller have independently audited or certified financials?  Can you realistically restructure the business to make it profitable?  Are there obvious and real solutions or is the market just too tough and is the business not salvageable where the damage is irreversible?

 4.    Do you know the real reason the seller is selling?

Have you done some hands-on research? Have you dropped in on the other business owners in the area to assess any pending sale of the property, city ordinances, or tax implications? Have you looked into legal issues related to the owner, seller, physician employees, any pending lawsuits, regulatory problems, labor issues, overtime claims, and/or discrimination lawsuits?  Does the seller plan to sell and compete w/ you? 

 5.    What are the skeletons in the closet?

Do you know if the seller was forced to sell due to a lawsuit, disgruntled client, previous bad press, or public affairs issue? Is the spa in a turn around and in need of reorganization to produce? Do you know if the spa has experienced loss of a major supplier or client, or loss of key personnel considered vital to your immediate and near-term success?

6.    What are the agreements that you have to honor?

Consider lease and purchase agreements, healthcare and pension agreements, and intellectual property agreements. What professional consultants have reviewed your contracts? Is there a property owner involved? Are the lease terms those that you can meet?  Are there any non-compete and non-disclosure agreements?

7.    Who are the competitors?

Have you conducted your own competitive analysis? Have you visited competitors?  Have you conducted a SWOT analysis? This looks internally at the strengths and weakness of the present medspa, and then externally at opportunities, threats, and trends. How will you maintain marketshare? How will you gain marketshare from established medspas? 

8.    Have you visited the spa and conducted mystery shopping?

What impression does the medspa provide to a new customer? Have you had a mystery visit, perhaps by one of your staff members that can provide honest feedback?  Have you made mystery calls? 

9.    Is the customer database real or fictional?

What have you done to be sure that there are real clients already consistently using the medspa services?  Are people really buying their services or is it just a large database of numb or unqualified leads?"

10.    Is the location good for a medspa? Is parking easy and adequate?

Great ideas need to be surrounded by even better attributes. Is the medspa in a well-traveled location? If it is tucked away in a strip mall, how do you plan to market it? Will you leverage the fact that it is in a private location? Will you need to increase your marketing? In addition, have you checked your rental agreement to ensure adequate parking – what parking details do you need to understand now to avoid problems later?

11. Is the space plan conducive to privacy?

Why is this important? Easy. Unlike a spa, whose clientele enjoy a simple, relaxing, and pampering experience, medspa visitors are seeking anti-aging, medically designed treatments and services and may elect these services in confidence. Why tell the world that you are turning back the hands of time? Do you remember the old advertising slogan, “Only your hairdresser knows for sure?” This was in reference to women choosing to cover their gray hair with peroxide, yet not tell anyone she was doing this. We have come along way since then, and perhaps one day all the anti-aging and other beauty enhancing procedures and services will be freewheeling cocktail party chatter. For now, provide privacy for clients. They will reward you with repeat business, loyalty, and even some word of mouth referrals to their best friends.

12.    Is this a personal fit?

Will this project fit your lifestyle?  Do you have the skills and experience to make this project profitable? 

13.  Overall litmus test.

Overall, does this project make sense?  What is your gut feeling?  Get a second opinion from professional friends and relatives who are experienced in business. 

Beautiful Forever wants you to know that whether you elect a reasonable or more stringent due diligence approach, please be sure that your strategic planning is founded on a solid ground of research, exemplary consulting assistance, and lots of perseverance. The opportunities in the medspa business are truly in its infancy. You hold the keys to navigating the future standards, expectations, and benefits of the medspa industry. Go out there and create the best business possible.

For more tips, visit Beautiful Forever online at www. www.medicalspaconsultant.com and www.medicalspasuccess.com. You can also email Cheryl at cheryl@medicalspaconsultant.com.

Cheryl Whitman, CEO,

Beautiful Forever Medical Spa & Practice Consultant 

Internationally touted as one of the first spa business development consultants, author, speaker, and one-time day spa owner Cheryl Whitman, CEO and Founder of Beautiful Forever, brings 25-years of considerable expertise, wisdom, and results-driven leadership to the field of medspa business development. Keeping pace with the ever-increasing specialized skin care ingredients hitting the marketplace, Beautiful Forever works with physicians and chemists to create winning skin care formulas for private label distribution. Her flagship product, Medical Spa Success System, is a revolutionary program that provides a turnkey educational success system and consulting services package to help jumpstart the process of creating a brilliantly successful medical spa business.  For more information please call 1-800-SPAMEDI. Or visit our websites:  www.medicalspaconsultant.com, www.medicalspasuccess.com, cheryl@medicalspaconsultant.com.