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Opening a Salon in 7 Steps

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Opening a salon requires more than having a background as a stylist and a roster of loyal clients. You need a location in a high-traffic area, proper equipment and tools, a team of trained stylists and several state and local business licenses.

You also need funds to cover your startup expenses. Expect to spend up to $250,000 on the building alone if you purchase an existing salon, or up to $500,000 to build a new salon from scratch. Owning a hair salon may seem overwhelming at first, but taking the right steps could lead you down a smoother path.

How to open a salon in 7 steps

From finding the perfect location to hiring stylists and securing funding, here are a few basic steps and guidelines to follow when opening a salon.

  1. Write a salon business plan.
  2. Find a location.
  3. Obtain the proper licenses and permits.
  4. Secure hair salon financing.
  5. Set your hair salon prices.
  6. Hire and train stylists.
  7. Spread the word about your salon.

1. Write a salon business plan.

When starting a business, it’s important to lay out your expectations and strategy to achieve success. You’ll need to map out what services your salon will offer and how you’ll stand out from the competition.

All business plans typically include the same general sections. Your salon business plan may include:

  • Executive summary: Explain your salon’s business objectives as well as a mission statement for the business.
  • Company description: Describe details related to your salon’s theme or concept. Include a description of your desired market and target client demographic.
  • Market analysis: Highlight your market research and how you plan to stand out in the field. Conducting a separate competitive analysis would help you better understand your competitors and how you could beat them.
  • Organization and management: Outline your salon’s personnel needs, such as how many managers, stylists and other term members you expect to hire. You’ll also identify your salon’s business entity in this section. Your business entity reflects the legal structure of your salon, and you may choose from entities such as a sole proprietorship, limited liability company or corporation, among others.
  • Services and products: Illustrate the service you plan to provide at the salon and any additional products you want to sell. You’d need to discuss where you would purchase products and how you would manage your salon’s inventory.
  • Marketing and sales: Discuss your strategy for building up a client base and increasing your salon’s brand awareness. You could also lay out your pricing plan in this section. We’ll discuss how to set salon prices later on.
  • Financials: Create a financial outlook for the salon, including balance sheets, cash flow statements and income statements for your first five years in business. If you plan to seek funding, this is the section where you’ll outline how much financing you need and how you’d use the money.
  • Appendix: Include any additional documents or forms that didn’t fit in previous sections.

Settle on a salon structure

In addition to choosing a legal business structure, you’d need to decide how to categorize stylists working at the salon. Stylists can either be:

  • Salon employees: Stylists work on the salon’s schedule and use salon-supplied products. Salon employees may earn tips and commission, as well as a W-2 form summarizing their yearly earnings.
  • Booth renters: Independent contractors may rent booth space for a regular fee and use their own products and tools. Renters may set their own hours and do their own bookkeeping, and take care of self-employment taxes.

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 rentals and employee-based salons. When choosing your structure, said Kathryn Moroz, founder of Spa Advisors Inc. in Arizona. Moroz recommends understanding your state and local laws regarding contract workers.

“It is important for salon owners and operators to understand that just designating someone an independent contractor or renter to avoid employment taxes does not necessarily make them an independent contractor (in) the eyes of the law in their particular state, city and county,” she said.

2. Find a location.

The location of your salon should be easily accessible to customers. Look for a space in a highly visible area that offers plenty of parking. Nearby retail businesses may boost traffic, but distance your establishment from other salons. In Chicago’s business districts, hair salons must be 1,000 feet from another salon or beauty shop, but that’s not the case in every city. The more salons in the area, the more difficult it may be to stay competitive.

You may choose to set up your salon in a freestanding building or as part of a storefront property or shopping center. Most salon owners choose to rent or lease their salon space, but purchasing property is also an option and may be more cost-efficient. You might consider hiring an attorney to review your commercial lease agreement, as leases can be complex.

Before making a final decision, evaluate the size of the space. If you expect to grow or expand your salon, see if you could do so in the space you’re considering or if you’ll need a bigger space in the future.

3. Obtain the proper licenses and permits.

A cosmetology license is not required to open a salon, but you would need one if you plan to carry out salon services yourself. Cosmetology 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 cosmetology licenses, you would need a:

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

Before you can open your salon, you’d 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.

4. Secure hair salon financing.

As a rule of thumb, new business owners should aim to save enough funds to cover the first six months’ expenses before the salon is established. If that’s out of reach, or you need additional capital, you may need to seek outside financing like a small business loan.

You may not be eligible for traditional bank loans until you’ve been in business for at least a year. There are a number of online, alternative business lenders that offer hair salon financing if you don’t qualify for bank loans. You may be able to borrow as much as $500,000 to cover the cost of salon equipment, supplies, inventory and more.

5. Set your hair salon prices.

Once 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 success. Base your prices on the following factors:

  • Labor and supplies, including salary and benefits
  • Overhead costs required to operate the business
  • Your ideal profit margin

Your pricing would also depend on your area. 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 a 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.

6. Hire and train stylists.

As a new salon, consider attending networking events, workshops and trade shows to connect with stylists. You could ask other salon owners or professionals in the industry for recommendations to find talented stylists.

Cosmetology school graduates may also be interested in full-time work or internships. But keep in mind that you may need to provide extra training to recent grads who have not yet worked in a salon.

Karen Gordon, owner of Chicago salon J. Gordon Designs, supports new stylists 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.

7. Spread the word about your salon.

Promote your salon within your community to reach local customers. You would need an online presence, including a functional website and an account on social media platforms such as Facebook, Instagram and Twitter.

Posting photos online, especially “before and after” photos, would showcase your services and attract customers. You could also engage people through online giveaways or exclusive deals.

In-person networking is also crucial. Connect with nearby businesses and pass out flyers at local events. You may consider advertising in local publications, too, if that’s within your marketing budget.

Tip: 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. Though it isn’t cheap, partnering with a well-known brand may help you bring in new clients.

Requirements to open a salon

In addition to the business licenses and permits mentioned above, there are a few other items a salon needs before opening day.

Business insurance

Salon owners need to carry a couple of small business insurance policies to protect themselves 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, depending on the size of your staff. You would be required to provide health insurance if you have at least 50 full-time employees.

Furniture and equipment

Certain pieces of furniture and equipment are essential to a salon’s operation. Because much of this equipment would rely on electricity and plumbing, make sure those systems are well-functioning in your building. You may also need an advanced air filtration system if you provide chemical treatments for clients.

Equipment and furniture you may need to get started could include:

  • Stylist stations
  • Chairs
  • Carts and trolleys
  • 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

Purchase your equipment about eight to 12 weeks before opening day. This should give you enough time to handle any unforeseen obstacles or delays.

Your fixtures and furniture could be as basic or elaborate as you like. 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.

Product

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

If you plan to sell products at the retail level, you’ll need to keep inventory stocked as well. Expect to carry two times your monthly retail sales in inventory. For instance, if you sell $500 in product each month, you should keep $1,000 worth of product on hand. Keep your best-selling items fully stocked to meet customer demand.

How much does it cost to open a salon?

The biggest factor in determining the cost of a new salon is the build-out of a new location. Outfitting the plumbing systems, storage space and air conditioning units, among other construction expenses, for new commercial real estate could quickly add up. Moroz advises her 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. New owners should have six to 12 months’ worth of cash saved up before opening the business.

When opening a new salon, consider working with an advisor to calculate financial projections. You may also want to cushion your startup budget, as hidden costs could come from anywhere.

Resources for new salon owners

There are a number of resources and tools out there to make life easier as a new salon owner. Here are a few to check out.

Trade organizations

You may be able to connect with others in the industry and find support through trade associations and organizations. You could become a member of one or more of the following:

Booking tools

Booking software and platforms can streamline the scheduling process for salon owners. Here are a few tools that may fit your budget:

Marketing resources

New salon owners can find tips and tricks from online blogs covering best marketing practices for salons. If it’s in your budget, you may even consider hiring a marketing firm to create campaigns for your business. Here’s some reading material from a few agencies to get started:

Running a salon is drastically different than working as a hairstylist, and many stylists may find it difficult to make the transition to business owner. You’ll need to have handbooks and operational systems in place to make sure the business runs smoothly. Before opening a salon, consider taking a few business courses and find a reliable accountant and attorney to help iron out details.

 

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