You’ve been dreaming about owning an independent salon since your days in cosmetology school. Now it’s time to turn your dream into a reality by learning what it takes to establish your own salon business. If your ability to run a successful salon hinged on your beauty skills, you’d be set. However, a successful salon business takes equal parts dedication, preparation, planning, and know-how—in addition to being able to provide your clients with outstanding services and top-notch customer care.
The future of the U.S. beauty salon market is exciting. According to IBISWorld, a global business intelligence leader specializing in industry market research, revenue growth in the beauty salon industry is expected to increase at an average, annual rate of 3.2 percent – reaching $58.7 billion by 2019. This increase will be driven by a declining unemployment rate and a rise in per capita disposable income. Industry profits are also expected to increase during this time, thanks to higher-value products with larger profit margins. According to IBISWorld, the number of industry operators is also expected to increase at an annual rate of 5.5 percent, reaching 1.3 million operators by 2019.
If you want to get in on a slice of the beauty salon pie and open your own beauty salon business, it’s time to put the wheels in motion and find out exactly what it takes to open and run a salon business:
Building a Business Plan and Choosing a Legal Structure for Your Independent Salon
An idea for opening a salon won’t get you very far unless you put it into writing through a well thought-out business plan. Your business plan should clarify your business philosophy and clearly state your objectives.
You can find a wealth of business plans and related business forms and manuals through trade associations such as the Professional Beauty Association.
Your business plan should include choosing a legal structure. As a new salon owner, you have the choice of five possible legal structures:
- Sole proprietorship
- Limited liability company (LLC)
- S corporation,
- C corporation
Setting up an LLC protects you from personal liability; therefore, many independent salon
owners choose this legal structure. While corporations also limit your personal liability, LLCs tend to offer more flexibility, eliminating many of the formalities associated with corporations.
If you anticipate requiring help to make your salon dream a success, you may want to consider a partnership. You may be looking for an investor or investors to help fund your vision; another cosmetologist with a similar dream of owning a salon; or a financial/business whiz who will handle the day-to-day business so you can focus on the creative end of the operations.
Many salon owners also choose to partner with a partner company or product line; these type of corporate partnerships will offer support and guidance to push your salon to the next level.
You can learn more about legal structures through the Internal Revenue Service (IRS).
Considering a Franchise or Buying an Existing Salon
Your independent salon may have a vastly different business model from that of your competitor down the road. Your independent salon business model, for example, will be quite different from another salon that is part of a franchise – a privately owned independent business that is under corporate governance, for example: Supercuts, Fantastic Sams, Image Studios 360 and The Lash Lounge.
For many salon owners, starting a beauty salon from scratch is just too much of an undertaking; instead, they purchase an existing salon, saving them both time and money. An existing salon may allow you to start your own business without the need to secure a building or purchase equipment, thus saving you a considerable amount of time and money.
You will also want to consider whether your salon will be a one-person show or whether you will take on additional stylists. If your salon dream includes having a salon full of capable cosmetologists, you will want to consider whether you will operate on an employer/commissioned employee model or a chair-rental model.
How to Obtain Financing and Create a Budget
Chances are establishing your own salon business will require outside financing. Most financial experts suggest having at least six months’ worth of capital in the bank when starting your business to allot for the time it takes to become established.
Because securing a business loan is an incredibly difficult endeavor for a new business owner, you may rely on personal loans and investors to get your business off the ground. Once your business is established (usually after a year), you may be eligible for bank and credit union loans.
Small business loans and grants should also be a part of your financial plan. Your local Small Business Administration (SBA) office and small business development center are excellent sources of programs, loans, and grants.
Create a Budget
A concise and realistic budget is a necessary component of any business plan, and one that should not be overlooked. Although your budget will be unique to your specific needs and expenses, in general, you will want to create a financial plan narrative that includes a detailed view of your:
- Net worth
- Start-up costs
- Sales forecast
- Profit-loss statement
- Projected cash flow
- Balance sheet
- Breakeven analysis
Consider the following start-up costs (what it will take to open your salon doors) and monthly operating costs for the following areas:
- Business development
- Equipment leases
- Facilities (insurance, phone, property taxes, rent, security, utilities)
- Loan interest
- Legal fees
- Payroll taxes
- Repairs and maintenance
- Taxes and licenses
An important component of your budget is the pricing for your salon services. You will want to first determine which services you will offer, and then determine the pricing structure for those services. Price them too high and you will limit your customers; price them too low and you’ll limit your profit margin and potential for a successful business.
You must consider three factors that influence your salon pricing:
- Labor and supplies: Salary and benefits
- Overhead: Costs required to operate your business (other than labor)
- Profit: Your desired profit margin
Your salon’s pricing is ultimately dependent upon the demographics of your area, so it is important to research salons in your area.
Creating a budget may involve hiring an accountant or other financial professional. The Small Business Administration (SBA) provides a wealth of informational resources for your small business’ financial needs, such as preparing financial statements, estimating startup costs, and breakeven analyses.
After you have secured financing and established a business plan, complete with a business model and legal structure, you can focus your efforts on the steps needed to bring your business plan to fruition.
Select a Location for Your Independent Salon
Choosing the location for your salon is one of the most important decisions you will make. In addition to finding a property that fits your budget, you will want to ask yourself:
- Is this location convenient for customers? Is it easily accessible?
- Does this location offer ample parking?
- Is this location in a highly visible area?
- Is the surrounding area attractive, well-lit, and safe? Are there other retail establishments nearby to generate more traffic?
- Is this location large enough for future growth?
You will also want to decide whether a freestanding building, storefront property, or a shopping center/strip mall location is best for your business.
Although for some salon owners, it makes more sense to purchase a property for their salon, most choose to rent or lease their salon. Enlisting the services of an attorney may be money well spent when negotiating a lease on a salon space. Commercial leases tend to be quite in-depth, so you will want to make sure you understand all aspects of the lease before signing it– including your obligations and rights as the lessee.
Securing Insurance, Permits, and Licenses for Your Independent Salon
Before you open the doors to your salon, you must take measures to protect yourself, your clients, and your business. To do so, you must ensure you meet all federal, state and local regulations. In addition to your state cosmetology license, you will need to secure a number of permits, including:
- Business operation license
- Certificate of occupancy
- Retail license (if you sell products)
- Building permit
It is important to contact your state’s Department of Labor and Industry, your state’s Board of Cosmetology, and your local municipality to find out what regulations and laws are required.
Once you have chosen a legal structure for your salon, you will need to file with the federal government and receive a federal tax ID number. This number registers your business with the federal government.
You will also need to carry a number of insurance products, including:
- General liability insurance (malpractice): Essential for all beauty salon owners; coverage helps pay for settlements, judgments, and legal defense resulting from claims of professional errors, mistakes, or failure to perform professional duties
- Commercial property insurance: May be required by your landlord or from a lender; covers your salon’s physical space, equipment, tools, products, furnishings, etc.
- Health/disability/life insurance: As a business owner you will need to pay for your own personal insurance products.
Putting Your Marketing Plan into Motion
The success of your salon depends on your ability to reach potential customers. Take the time and perform local market research so you know more about the customers you want to reach.
Today’s marketing efforts include building an online presence through an attractive, informative, and easy-to-browse website. There’s no better place to promote your business for free than social media platforms like Facebook, Instagram, and Twitter. Your social media marketing efforts should include:
- Posting interesting content to attract your target customer
- Writing relevant posts on Facebook and posting lots of pictures to Instagram
- Engaging customers through contests and giveaways
- Providing exclusive deals to customers that “follow” or “like” your content
- Posting before and after pics
Other marketing efforts should always include networking with local businesses and engaging in co-networking activities; passing out flyers; attending local events; and advertising in your local paper.