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The Salon Business

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Heidi Tarman

on 16 May 2015

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Transcript of The Salon Business

THE SALON BUSINESS
LEARNING OBJECTIVES
Identify two options for going into business for yourself.
Understand the responsibilities of a booth renter.
List the basic factors to be considered when opening a salon.
Distinguish the types of salon ownership.
Identify the information that should be included in a business plan.
Understand the importance of record keeping
Recognize the elements of successful salon operations.
Explain why selling services and products is a vital aspect of a salon's success.
Why Study The Salon Business?
As you become more proficient in your craft and your ability to manage yourself and others, you may decide to become an independent booth renter or even a salon owner. In fact, most owners are former stylists.
Even if you spend your entire career as an employee of someone else's salon, you should have a familiarity of the rules of business that affect the salon.
To become a successful entrepeneur, you will need to attract employees and clients to your business and maintain their loyalty over long periods of time.
Even if you think you will be involved in the artistic aspect of salons forever, business knowledge will serve you well in managing your career and professional finances, as well as your business practices.

Going into Business for Yourself
If you reach a point in your life when you feel that you are ready to become your own boss, you will have two main options to consider: owning your own salon or renting a booth in an existing salon.
Both options are extremely serious undertakings that require significant financial investment and a strong line of credit. Salon owners have very a different job than hairdressers.
Typically, owners continue to work behind the chair while they manage the business.
Owning your own salon and renting a booth have different pros and cons.
Booth Rental
Booth Rental, also known as chair rental, is renting a booth or a station in a salon. You are basically your own boss, without all the overhead (advertising, rent, etc.). In a booth rental arrangement, a professional generally:
Rents a station or work space in a salon from the salon owner.
Is solely responsible for his or her own clientele, supplies, record keeping and accounting.
Pays the salon owner a weekly fee for use of the booth.
Becomes his or her own boss for a very small amount of money.
Unless you are at least 70% booked all the time, however, it may not be advantageous to rent a booth. Although it may sound like a good option, booth renting has its share of obligations, such as:
keeping records for income taxpurposes and other legal reasons.
paying all taxes, including Social Security (double that of an employee).
carrying adequate malpractice insurance and health insurance.
complying with all IRS obligations for independent contractors. Go to www.irs.gov and search for independent contractors.
using your own telephone and booking system.
collecting all service fees, whether they are paid in cash or via a credit card.
creating all professional materials, including business cards and service menu.
purchasing of all supplies, including back-bar and retail products.
tracking and maintaining inventory.
managing the purchase of products and supplies.
budgeting for advertising or offering incentives to ensure a steady flow of new clients.
paying for all continuing education.
working in an independent atmosphere where teamwork usually does not exist and where salon standards are interpreted on an individual basis.
adhering to state laws and regulations. To date, only Pennsylvania does not allow booth rental. Other states may require that each renter in an establishment hold his or her own establishment license and carry individual liabililty insurance.
As a booth renter, you will not enjoy the same benefits as an employee of a salon would, such as paid days off or vacation time. Remember, as a booth renter, when you do not work, you do not get paid. Most importantly, you must continually attract new clients and maintain the ones you have, which means working the hours your clients need you to be available.
Open Your Own Salon
Opening your own salon is a huge undertaking --- financially, physically and mentally --- because you will face challenges that are complex and unfamiliar to you. You need to decide what products to use and carry, what types of marketing and promotions you will employ, the best method and philosophy for running the business and whom to hire if you need additional staff, to name a few.
Create a Business Timeline
Initially you will be concerned with the first two aspects of the timeline, once your business is successful you will need to think about the others as well.
Year One: It could take a year or more to determine and complete all of the aspects of starting the business.
Years Two to Five: This time period is for tending to the business, its clientele and its employees and for growing and expanding the business so that it is profitable.
Years Five to Ten: This time period, if successfully achieved, can be for adding more locations, expanding the scope of the business (e.g., adding spa services), construction of a larger space, or anything else you or your clients need and want.
Years Eleven to Twenty: In this time period, you may want to move from being a working cosmetologist into a full time manager of the overall operation and to begin planning for your eventual retirement.
Year Twenty Onward: This may be the perfect time to consider selling your successful business or changing it in some way, such as taking on a junior partner and training him or her to take over the day-to-day operations of the business so you cna have time away fromthe business to explore interests or hobbies.
Choose a Business Name
The name you select for your business explains what it is and can also identify characteristics that set your business apart from competitors in the marketplace. It will also influence how clients and potential clients perceive the business. The name should create a picture of your business in the client's mind.
Choose a Location
You will want to base your business location on your primary clientele and their needs.
Select a location that has good visibility, high traffic, easy access, sufficient parking and handicap access
.
Written Agreements
Many
written agreements
and documents govern the opening of a salon, including leases, vendor contracts, employee contracts and more
. You must be able to read and understand them. Additionally, before you open a salon, you must develop a
business plan
,
a written description of your business as you see it today and as you foresee it in the next five years (detailed by year)
. It is basically an agreement with yourself and is not legally binding. In order to get financing, it is essential that you have a
business plan
in place first. Your business plan should include a general description of the business and the services that it will provide; area
demographics
,
which consist of information about a specific population, including data on race, age, income and educational attainment; expected salaries and cost of related benefits;
an operations plan taht includes pricing structure and expenses, such as equipment, supplies, repairs, advertising taxes, and insurance; and projected income and overhead expenses for up to five years.
A certified public accountant (CPA) can be invaluable in helping you gather accurate financial information.
The Chamber of Commerce in your proposed area typically has information on area demographics.
Business Regulations and Laws
Business regulations and laws

are any and all local, state and federal regulations and laws that you must comply with when you decide to open your salon or rent a booth.
Laws vary from state to state and from city to city, so, it is your responsibility to contact all agencies regarding business licenses, permits and other regulations, such as zoning and business inspections. Additionally, you must know and comply with all federal
Occupational Safety and Health Administration (OSHA) guidelines, including those requiring that information about the ingredients of cosmetic preparations be available to employees.
OSHA requires Material Safety Data Sheets (MSDS)
for this purpose. There are also many federal laws that apply to hiring and firing, payment of benefits, contributions to employee entitilements (e.g., social security and unemployment), and workplace behavior.
Insurance
When you open your salon, you will need to purchase

insurance
that guarantees protection against financial loss from malpractice, property liability, fire, burglary and theft, and business interruption.
Another need is disability policies. Make sure your policies cover you for all the monetary demands you will have to meet on your lease.
Salon Operation
Business or
salon operation
refers to the ongoing, recurring processes or activities involved in the running of a business for the purpose of producing income and value
.
Record Keeping
Record Keeping

is the act of maintaining accurate and complete records of all financial activities in your business.
Salon Policies
Salon Policies

are the rules and regulations adopted by a salon to ensure that all clients and associates are being treated fairly and consistently.
Even small salons and booth renters should have salon policies in place.
Types of Salon Ownership
A salon can be owned by an individual, a partnership or a corporation. Research each type of ownership to see which one is desirable for your situation. Following is some information on four different types of ownership:
Individual Ownership. If you like to make your own rules and are responsible enough to meet all the duties and obligations of running a business, individual ownership may be for the best arrangement for you.The
sole proprietor

is the individual owner and, most often, the manager of the business
who:
Determines policies and ahs the last say in decision making
Assumes expenses, receives profits and bears all losses.
Partnership. Partnerships may mean more opportunity for increased investment and growth. Be careful, and consider a third party accountant. Trust is just one requirement for this arrangement.
In a
partnership
business structure two or more people share ownership, although not necessarily equally.
One reason for going into a partnership arrangement is to have more capitol of money to invest in a business; another is to have help running your operation
.
Partners also pool their skills and talents, making it easier to share work, responsibilities and decision making.
Keep in mind that partners must assume one another's liability for debts.
Corporation.
A

corporation
is an ownership structure controlled by one or more stockholders
.
Incorporating is one of the best ways that a business owner can protect her or his personal assets
. Other advantages, for example are; the corporate business structure saves you money in taxes, provides greater business flexibility, and makes raising capital easier. However, it limits your personal financial liability if your business accrues unmanageable debts or otherwise runs into financial trouble. Characteristics of a corporation are:
Corporations raise capital by issuing stock certificates or shares.
Stockholders (people or companies that purchase shares) have an ownership interest in the company. The more stock they own, the bigger that interest becomes.
You can be the sole stockholder (or shareholder), or you can have many stockholders.
Corporate formalities, such as director and stockholder meetings are required to maintain a corporate status.
Income tax is limited to the salary that you draw and not the total profits of the business.
Corporations cost more to set up and run than a sole proprietorship or partnership.
A stockholder of a corporation is required to pay unemployment insurance taxes on his or her salary
, whereas a sole proprietor or partner is not.

Franchise Ownership. A franchise is a form of business organization in which a firm that is already successful (the franchise) enters into a continuing contractual relationship with other businesses (franchisees) operating under the franchisor's trade name in exchange for a fee. When you operate a franchise salon, you usually operate under the franchisor's guidance and must adhere to a contract with many stipulations. These stipulations ensure that all locations run in a similar manner, look the same way, use the same logos and sometimes, even train the same way or carry the same retail products.
Franchises offer the advantage of a known name and brand recognition, and the franchisor does most of the marketing for you. Owning a franchise is no guarantee of making a profit, and you should always have an attorney read the contract and explain anything you do not understand, including your precise obligations and arrangements for paying the franchise fee. In most cases, whether or not you are profitable, you must pay the fee.
Business Plan
Regardless of the type of salon you plan to own, it is imperative to have a thorough and well-researched business plan. Here is a sampling of the kind of information and material that a business plan should include:
Executive Summary
.
Summarizes your plan and states your objectives
.
Vision Statement
.
A long-term picture of what the business is to become and what it will look like when it gets there
.
Mission Statement
.
A description of the key strategic influences of the business, such as the market it will serve, the kinds of services it will offer and the quality of those services.
Organizational Plan
.
Outlines employees and management levels and also describes how the business will run administratively
.
Marketing Plan
.
Outlines all of the research obtained regarding the clients your business will target and their needs, wants and habits.
Financial Documents
.
Includes the projected financial statements, actual (historical) statements and financial statement analysis
.
Supporting Documents
.
Includes owner's resume, personal financial information, legal contracts and any other documents
.
Salon Policies
. Even small salons and booth renters should have policies that they adhere to.
Purchasing an Established Salon
If you choose to purchase an established salon, seek professional assistance from an accountant and business lawyer.
You can purchase all the assets of a salon, or some or all of its stock. An agreement to buy an established salon should include the following items:
A financial audit to determine the actual value of the business once the current owner's bookings are taken out of the equation. Any existing financial statements should also be audited.
Written purchase and sale agreement to avoid any misunderstandings between contracting parties.
Complete and signed statement of inventory (goods, fixtures and the like) indicating vthe value of each article.
If there is a transfer of a note, mortgage, lease or bill of sale, the buyer should initiate an investigation to determine whether there are defaults in the payment of debts.
Confirmed identity of owner
.
Use of the salon's name and reputation for definite period of time.
Disclosure of any and all information regarding the salons's clientele and its purchasing and service habits.
Disclosure of the condition of the facility.
Noncompete agreement stating that the seller will not work in or establish a new salon within a specified distance from the present location.
An employee agreement, either formal or informal
, that lets you know if the employees will stay with the business under its new ownership. Employee agreements should be transferable.

Drawing up a Lease
In most cases, owning your own business does not mean that you own the building that houses your business. When renting or leasing space, you must have an agreement between yourself and the owner of the building. It should be well thought out and well written.
The lease should specify clearly how owns what and who is responsible for which repairs and expenses
. You should also include the following:
Exemption of fixtures or appliances that might be attached to the salon so that they can be removed without violating the lease.
Agreement about necessary renovations and repairs, such as painting, plumbing, fixtures and electrical installation.
Option from the landlord that allows you to assign the lease to another person.
Protection Against Fire, Theft and Lawsuits
Ensure that your business has adequate locks, fire alarm system and burglar alarm system.
Purchase liability, fire, malpractice and burglary insurance and do not allow these policies to lapse while you are in business.
Become thoroughly familiar with all laws governing cosmetology and with the safety and infection control codes of your city and state.
Keep accurate records of the number of employees, their salaries, lengths fo employment and Social Security numbers as required by various state and federal laws that monitor the social welfare of workers.
Ignorance of the law is no excuse for violating it.
Business Operations
Whether you are an owner or manager, there are certain skills that you must develop in order to successfully run a salon. You will need:
An excellent business sense aptitude, good judgment and diplomacy.
A knowledge of sound business principles.
It is wise to develop these skills and also to establish a circle of contacts---business owners, including some salon owners--- who can give you advice along the way. Consider joining a local entrepreneurs' group or your city's Chamber of Commerce in order to extend the reach of your networking. Smooth business management depends on the following factors:
Sufficient investment capital
Efficiency of management
Good busines procedures
Strong computer skills
Cooperation between management and employees
Trained and experienced salon personnel
Excellent customer service delivery
Proper pricing of services
Allocation of Money
As a business owner you must always know where your money is being spent. A good accountant and accounting system are indispensable.
The Importance of Record Keeping
Good business operations require a simple and efficient record system.
Proper business records are necessary to eet the requirements of local, state and federal laws regarding taxes and employees. Records are of value only if they are correct, concise and complete. Proper bookkeeping methods include keeping an accurate record of all income and expenses. Income is ususally classified as receipt from services and retail sales. Expenses include rent, utilities, insurance, salaries, advertising, equipment and repairs. Retain check stubs, canceled checks, receipts and invoices. A professional accountant of a full-charge bookkeeper is recommended.
Purchase and Inventory Records
The purchase of inventory and supplies should be closely monitored. Purchase records help you maintain a perpetual inventory, which prevents overstocking or shortage of needed supplies, and they alert your to any incidents of theft. Purchase records also help establish the net worth of the business at the end of the year.
Keeping a running inventory of all supplies, and classify them according to their use and retail value.
Those to be used in the daily operation are
consumption supplies
.

Those to be sold to clients are

retail supplies.
Service Records
Always keep service records or client cards that describe treatments given and merchandise sold to each client. All records should include the name and address of the client, the date of each prchase or service, the amount charged, the products used and the results obtained.
Operating a Successful Salon
The only way to guarantee that you will stay in business and have a prosperous salon is to take excellent care of your clients. Clients visiting your salon should feel that they are being well taken care of and they should always have a reason to look forward to their next visit. To accomplish this, your salon must be physically attractive, well organized, smoothly run, and above all, sparkling clean.
Planning the Salon's Layout
One of the most exciting opportunities ahead of you is planning and constructing the best physical layout for the type of salon you envision.
Maximum efficiency should be the primary concern.
Layout is crucial to the smooth operation of a salon.
Costs to create even a small salon in an existing space can range from $75 to $125 per square foot.
Personnel
Your personnel is your staff or employees.
The size of your salon will determine the size of your staff. When interviewing potential employees, consider the following:
Level of skill.
Personal grooming.
Image as it relates to the salon.
Overall attitude.
Communication skills.
Making good hiring decisions is crucial. Undoing bad hiring decisions is painful for all involved, and it can be more complicated thatn one might expect.
Payroll and Employee Benefits
In order to have a successful business, one in which everyone feels appreciated and is happy to work hard to service clients well, you must be willing to share your success with your staff whenever it is financially feasible to do so. You can do this in a number of ways:
Make it your top priority to meet your payroll obligations. In the allotment of funds, this comes first
. It will also be your largest expense.
Whenever possible, offer hardworking and loyal employees as many benefits as possible.
Provide staff members with a schedule of employee evaluations.
Create and stay with a tipping policy.
Put your entire pay plan in writing.
Create incentives by giving your staff opportunities to earn more money, prizes or tickets to educational events and trade shows.
Create salon policies and stick to them. Everyone should be governed by the same rules, including you!!
Managing Personnel
One of your most difficult tasks will be managing your staff. However, this can also be very rewarding. If you are good at managing others, you can make a positive impact on their lives and their ability to earn a living. People can learn how to manage other people, just as they learn how to drive a car or perform hair services. Managing others is a serious job. It takes time to become comfortable with the role of manager.
Human Resources, or HR, is an entirely specialty in its own right.
It not only covers what you can and cannot say when hiring, managing or firing
. Even if you do not have a Human Resources Department, every business should have a written personnel policies and procedures manual, and every employee must read and sign it.
The Front Desk
Most salon owners believe that the quality and pricing of services are the most important elements of running a successful salon. These are crucial, however, to often the front desk---the operations center---is overlooked. The best salons employ professional receptionists to handle the job of scheduling appointments and greeting clients.
The Reception Area
First impressions count, and since the reception area is the first thing clients see, it needs to be attractive, appealing and comfortable. It is the nerve center of the salon. always make sure front desk is stocked with business cards and a prominently displayed price list that shows at a glance what your clients should expect to pay for various services.
The Receptionist
Your receptionist is second in importance only to your licensed professionals. This is a crucial position to fill, and should be filled with a well trained person. They should be pleasant, greet each client with a smile, and address each client by name. Efficient, friendly service fosters goodwill, confidence and satisfaction.
In addition to filling the crucial role of greeter, the receptionist handles other important functions, including answering the phone, booking appointments, informing professional that a client has arrived, preparing daily appointment information for the staff and recommending additional services to clients
. A thorough understanding of all retail products is one more among the list of duties of a receptionist.
Building Your Business
One of the first items the new salon owner should consider is how to advertise the salon. It is important to understand the many aspects of advertising.
Advertising includes all activities that promote the salon favorably, from newspaper ads to radio spots to charity events that the salon participates in
. In order to create a desire for a service or product, advertising must attract and hold the attention of readers, listeners or viewers.
A
satisfied client
is the very best form of advertising because she will refer your salon to friends and family.
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