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The 7 Step Guide to Opening a Salon

When Karen Gordon first became a hairstylist more than three decades ago, she loved everything about salons: the smell of hair products, the music that played overhead and her fellow stylists’ fashions.

That luxurious and soothing salon aesthetic Gordon adored is often what drives hairstylists to open their own spaces, but Gordon knows firsthand how much work it takes to create that atmosphere. Gordon is the owner of J. Gordon Designs in Chicago’s Lincoln Park neighborhood. Gordon’s late husband, Jerry, opened the salon in 1974 and the couple ran the business together until Jerry’s death nearly three years ago. Gordon is also incoming president of Cosmetologists Chicago/America’s Beauty Show.

Running a successful salon requires more than having a background as stylist and a roster of loyal clients. You need to be business savvy and have a willingness to make sacrifices for the sake of the salon, Gordon said. Even though she had years of experience standing behind the chair, Gordon earned a master’s in business administration to supplement her knowledge to become a better salon owner.

“The artistry is very different than the business side,” Gordon said.

Benefits of owning a salon

Creative freedom. One of the main benefits of owning a salon is the freedom to create your own environment, Gordon said. You can choose your own designs and create your own ambiance. That autonomy is often what motivates many stylists to open their own spaces, Gordon said.

“They think it looks fun and glamorous,” she said.

Status in the industry. Operating your own salon gives you a chance to build your reputation, Gordon said. You also have the opportunity to create a recognizable salon brand.

“If you work hard in the industry, there’s a certain notoriety that comes as a salon owner that might not come if you’re a member of the team,” she said.

Challenges of owning a salon

Staying competitive. In Chicago, hair salons must be 1,000 feet from another salon or beauty shop, but that’s not the case in every city. You could have three salons on your street that you must compete against. In 2016, there were 673,700 stylists in the U.S. earning a median yearly salary of $24,900. The number of stylists is expected to grow by 13 percent, or 87,600 stylists, by 2026.

“You always have the challenge of how to stay ahead,” Gordon said.

Maintaining a wide client base. Hair trends can affect your client base and the frequency at which customers come in for service, Gordon said. For example, many younger women have long hairstyles. They don’t need to visit the salon for upkeep as often as women did in past decades when short hairstyles were trendy, Gordon said. Current hair color trends emphasize dark roots, which means women don’t need to regularly come to the salon for color touch-ups, Gordon said.

“You need, proportionally, a much larger clientele than you did years ago,” she said.

Keeping stylists satisfied. New owners are usually not accustomed to meeting the expectations of multiple stylists, said Kathryn Moroz, founder of Spa Advisors Inc. in Arizona. As the salon owner, you have to make sure your employees or contractors are properly compensated and have the supplies they need to do their best work. Unhappy employees could lead to additional issues within your salon.

“A lot of what owners wrestle with is needs of employees,” Moroz said.

7 steps to start a salon

Find a location.

Set up your salon in a high-traffic area with a large population. Your rent should be proportionate to your projected revenue. The most cost-efficient option would be buying the property, if possible.

Establish your salon structure.

Hairdressers typically fall into one of three categories:

  • Booth renter
  • Salon employee
  • Independent contractor

How you categorize your stylists would affect your salon’s bottom line. For example, if all of your stylists rent space from you, you would receive the booth rental fee from them each month and nothing else. You would have more opportunity to generate profit if you hire employees, but you would also have employee-related expenses such as employment taxes and workplace health insurance. The most common structure is a commission-based salon with independent contractors, followed by booth rental, then employee-based salons as the least common.

Obtain the proper licenses.

You need a personal cosmetology license and a salon license to operate a hair salon. Licensing requirements vary in each state, but you would generally need to complete a set number of hours in cosmetology school. Each stylist working in your salon also needs their own cosmetology license. In addition to your cosmetology licenses, you would need:

  • Business operation license
  • Certificate of occupancy
  • Retail license, if you sell products
  • Building permit

Complete required inspections. Before you can open your salon, you need to pass safety and sanitation inspections. Aspects of the inspections could include electrical and fire safety practices, proper ventilation and regular disinfecting of supplies and equipment. Your state cosmetology board may conduct annual inspections to make sure your salon remains compliant.

Learn more about small business licenses with this checklist.

Determine your prices.

After you decide which services to offer, you would determine a pricing structure. Prices can heavily impact your business – high prices could limit your customer range, while low prices could restrict your profit margin and potential success. You should base your prices on the following factors:

  • Labor and supplies – including salary and benefits
  • Overhead – costs required to operate the business
  • Profit – your ideal profit margin

Salon pricing is typically similar across a city or town and usually falls into either a high-end, moderate or low-end tier. A woman’s haircut at low-end salon generally starts around $12.99, then jumps to $35 to $60 at a moderate salon and increases to $65 or more at a high-end salon.

Consider a brand partnership.

If you want to be affiliated with a large salon brand like Aveda, for instance, you would need to establish a partnership with the company. The vendor would supply retail products for your salon, stylist training and branded signage for your space. For example, Aveda requires all new partners to purchase branded merchandise to sell at their salon in exchange for staff support, education and marketing. Merchandise orders for new partners could range from $4,500 to $7,200, depending on the agreement. Partnering with a well-known brand may help you bring in new clients, but it isn’t cheap.

Gain traction in the community.

Building your social media presence would help you raise awareness for your new salon. Teaming up with a local social media influencer would also build brand recognition. You should ask your core clients to post positive online reviews of your salon to establish credibility.

How much does it cost to open a salon?

The cost of doing business is typically high for salon owners across the industry, and “salons are not high-profit margin businesses, for the most part,” Gordon said.

For each client that visits a salon, a small amount goes to the salon itself, Moroz said. After paying for the products needed for each service, as well as the stylist’s earnings, there’s not much money left, Moroz said.

The biggest factor in determining the cost of a new salon is the build-out of a new location, Moroz said. Outfitting the plumbing systems, storage space and air conditioning units for a new salon, among other construction expenses, could quickly add up. Moroz advises clients to expect to spend $125 to $200 per square foot of the space. A less expensive option would be finding an existing salon business to purchase, she said. New owners should have six to 12 months’ worth of cash saved up before opening the business.

When opening a new salon, it’s important to calculate financial projections with an adviser, Gordon said. New owners should expect to spend at least 25 percent more than they originally planned because hidden costs could come from anywhere, from your interior design to building construction to signage.

“It creeps up everywhere,” she said.

Here are a few expenses you may encounter as a new salon owner:

Furniture and equipment

Salon owners spend a large portion of their budget on furniture and equipment, Gordon said, as these pieces are essential to the salon’s operation. Because so much of your equipment relies on electricity and plumbing, you would need to make sure those systems are well-functioning. You may also need an advanced air filtration system if you provide chemical treatments for clients, Gordon said.

Equipment and furniture you would need to get started:

  • Stylist stations
  • Chairs
  • Mats surrounding styling chairs
  • Mirrors
  • Reception desk
  • Table and couches for reception area
  • Shampoo bowls and chairs
  • Cabinets for shampoo room
  • Towels
  • Light fixtures
  • Optional manicure or makeup stations

Your fixtures and furniture could be as basic or elaborate as you like. For instance, Gordon features prestigious French artwork throughout J. Gordon Designs. If you prefer uniformity throughout your salon, you may also want to supply items like hair dryers and flatirons to ensure all stylists use the same tools. If not, stylists would rely on their own tools.

Training new stylists

When Gordon hires new stylists, she supports them through a one-year training program. It takes them another year to build a client base and she doesn’t see a return on her investment until three years after they join the team. In the meantime, Gordon pays their wages and provides other benefits. New stylists can be a big expense for salon owners, she said.

If you require new employees to take supplemental training outside of the salon, you should cover that expense as the owner, Moroz said. Though it could be costly, providing additional education for your stylists would benefit your business.

“The most valuable thing you can give to your employees is better education,” Moroz said. “That’s an investment I write into everyone’s budget.”

Business insurance

Salon owners need to carry a couple of insurance policies to protect them against the unexpected. You may need to purchase:

  • General liability insurance: Covers your business’s liability for any professional errors or mistakes.
  • Commercial property insurance: Covers the salon’s physical space, including equipment, tools, products and furniture. Your landlord or lender may require you to purchase property insurance.
  • Health/life insurance: As a business owner, you have to provide your own personal insurance coverage.You may also want to offer health insurance for your employees if you have a small staff. You would be required to provide health insurance if you have at least 50 full-time employees.

Product

The cost of product, such as shampoo, conditioner and hair color, ranges from 4 to 15 percent of the total sales for each service in most salons, depending on the prices of the items you’re using, Moroz said. Product is one of the biggest expenses for a salon owner, as you have to cover the cost of what each employee needs.

How to finance your salon

New salon owners in need of capital could apply for small business financing to get the business off the ground. Funding options could include:

 

Need business funding? Learn more about small business loan options here.

Is a salon business right for you?

Running a salon is drastically different than working as a hairstylist, and many stylists have trouble making the transition to business owner, Moroz said. Salon managers often have an easier time with the switch, as they already have experience with administrative and management tasks.

One of the surprises new salon owners may encounter is a smaller paycheck than anticipated, Moroz said. As with any new business, profitability doesn’t come right away.

“You’re not going to get rich being a salon owner,” Moroz said. “Your goal is to break even.”

The best way to determine your potential success would be to sit down and write a full business plan, Gordon said. If the numbers make sense, then you’re on the right track.

Salon owners need to be disciplined and able to create a structured environment in the workplace, Gordon said. You need to have handbooks and operational systems in place to make sure the business runs smoothly. Before opening a salon, Gordon recommends new owners take a few business courses and find a reliable accountant and attorney to help iron out details.

A salon owner also needs to be prepared to make sacrifices. Much of the responsibility and stress of keeping the business open and successful falls on the owner, Gordon said.

“Typically, the person who doesn’t take a check is the salon owner. The person who doesn’t sleep at night is the salon owner,” she said.

Despite the challenges of running J. Gordon Designs, Gordon still finds her work rewarding. She enjoys bringing in young stylists fresh out of beauty school and helping them refine their skills.

“The thing that pushes me forward is watching people develop and grow,” she said. “You get to be part of their development.”

Gordon also appreciates her ability to give her employees a way to provide for their families. Many of the stylists at her salon are the main source of income in their household, and several of them are also single parents. Some of the stylists have worked at the salon for years and the staff has formed a tight bond. The sense of family within salons is one of the aspects of the industry Gordon likes most.

“All salons are a family,” she said. “Maybe a little dysfunctional, but still a family.”

 

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