In my last article (see December 1994), I reviewed most of the guidelines that protect both booth renter and salon owner/landlord according to the IRS and most states. This article will offer an in depth look at the booth renter’s responsibilities in setting up her own business. I will cover how to protect yourself by following all of the IRS guidelines, most state guidelines, and some good old-fashioned commonsense business recommendations.
I believe that most salon professionals currently operating as booth renters are not in compliance with all of the appropriate regulations. So if you’re already a booth renter, get into compliance immediately. If you’re just starting out as a booth renter, the following information can help you do it right the first time.
Choose a name for your business. Be clear and precise in your selection. As a renter, remember, your own business name is different from the salon name.
Develop your corporate identity or logo. Remember, this is the image your clients and potential clients will retain each time you hand out a business card. So whether you ask your local printer to design something simple and inexpensive or you choose to hire a marketing expert to assist you, the logo should reflect who you are. Make sure your logo appears on every piece of printed material you use: business cards, letterhead, envelopes, invoices, etc.
Although you will want to include the salon name on your business card, your own business name should be larger than the salon name. This delineates that there are two separate business entities.
Notify your current clients of your new situation. If you are changing to independent contractor status, you’ll want to send out a letter to your existing clients announcing your new name, location, etc. Assure clients that you are making the change to better service them.
Open a business bank account. If your business has a name other than your own, you will have to file a DBA (doing business as) form with the City Clerk before the bank will open an account under your business name. Be sure to have a separate account for your business. All related business income and expenses now should be written from this account. Keeping personal and business banking together is unwise.
Set up a simple record-keeping system. Find a spiral-bound appointment book with at least three columns per page. You will record every transaction you perform:
- Each client appointment; include client’s name, time of appointment, phone number
- Indicate service(s) provided
- List amount charged for each service
- Indicate gratuity received
- List retail sale(s)
- Include sales tax
- Indicate method of payment---cash/check/charge. Totaling each day, week, and month gives you a good idea of how your business is doing and where you might need to improve. These records will also be extremely helpful if you ever decide to expand and need a bank loan or if you make a major purchase such as salon equipment, an automobile, or a home.
Find a bookkeeper to set up your business accounting system. You need to determine how much capital you will need to start and keep your business running for the first few months; how much draw you will take, whether weekly or bi-weekly; expenses such as rent, supplies, taxes, licensing fees, marketing, etc. You will also need to set up your quarterly tax payments with the IRS based upon your previous year’s earnings. It is more cost-effective to use a bookkeeper during the year to assist in the accounting functions than to take your books to an accountant at the end of the year to prepare your taxes. Record-keeping is like housekeeping; it’s a lot easier if you keep up with it every week.
Special note: Be sure your accountant and your attorney are familiar with the contract labor issues involved in the salon industry. There are special circumstances in our industry that can cause tremendous problems for you if they’re not handled appropriately now. In California, for example, one salon owner I know was advised by an accountant who was not a specialist in our industry, and he is now in court appealing a state ruling against him. I am currently assisting a salon owner in Michigan who set up her business within what she knew to be the law at the time and is now embroiled in a particularly unnerving IRS audit because the IRS is interpreting the law differently from the way her accountant did. Law is subject to change and subjective interpretation. It is your responsibility to keep abreast of the laws that affect our industry, both nationally and at the state level. Hiring the wrong professionals is not a defense.
Obtain all appropriate licenses. Some state cosmetology boards require booth renters to have a license separate from the owner’s license. Check with your state board to determine its requirements. Check your local ordinances as well. Different municipalities have additional licensing requirements.
Obtain appropriate insurance. As an employee, your salon owner/employer paid your worker’s compensation insurance. As a booth renter/business owner, you must provide that coverage for yourself. Investigate disability insurance coverage as well to protect yourself if you are injured or ill and cannot work. Your salon owner/landlord will probably require you to carry professional , malpractice liability insurance, the amount can vary from salon to salon. It is customary to name the salon owner/landlord as additional insured on your policy. If the landlord will carry you on his policy, be sure you have your own copy of the policy indicating that you are covered. You must pay separately for that coverage; it cannot be provided as part of the rent.
Formulate your advertising plan. You are responsible for generating your own clients, so be sure to have your name included on all advertising, even if you are joining with other renters in the salon for the same ad. Be sure to pay for all advertising directly to the publication or station that is running the advertisement. Your cancelled check is your receipt for tax purposes.
Pay for your referrals. If the salon refers a client to you, you should pay a referral/advertising fee to the salon. The salon cannot legally give you a client. However, after the initial fee is paid, that client becomes yours 100% for as long as the client remains with you. The amount of the fee is negotiable with the salon owner/landlord and should be clearly spelled out in your lease agreement.
Set up your own telephone/appointment-making operation. The most clearly definitive way to do this is to have your own telephone number billed to your business and have an answering machine pick up your messages. If the salon receptionist is going to make appointments for you, you must negotiate a fee for this service with your landlord and pay this separately from your rent.
As you can see, the whole idea of legal booth rental is to separate your business from the salon owner/landlord as much as possible. It is your business now.
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