Money Matters

A Resource Guide for Starting Your Own Salon

Industry, business, and government organizations can lend you a helping hand when starting a new business.

Opening your own salon is a big venture, but you don’t have to go it alone. There are numerous resources for advice and assistance on everything from finding a location to developing policy manuals.

Creating a Business Plan

Before you take any step toward salon ownership, think about and devise a business plane. This tool will show you on paper how realistic your dreams are, and it will also show the people you apply to for loans and licenses exactly what you mean when you say you mean business.

A business plan is a blueprint for how you are going to set up your business and run it, says Steve Burgess, an accountant in Southern California. A business plan outlines what type of business you want to run. For example, do you want a large salon that makes the maximum profit on each dollar invested? Or are you less concerned with profits and more concerned with what benefits you’ll be able to provide employees? Either type of business is fine, says Burgess, but you need to know how to run the type of business you want while making the profit you desire. A business plan lets you determine if you can have the salon you want and make a living too.

A business plan shows the goals of the business and how you’re going to achieve them. It should include the following items:

  • Description of the business and its products and services
  • Your market – who and where your customers are
  • What your start-up and operating costs will be; financial data, including sources and applications of funds and income projections
  • Projected income and costs for the first three years of operation
  • Your business goals
  • Supporting documents, such as resumes, leases, and demographic studies

If you don’t know what things to consider, contact the following agencies for answers to your questions.

The National Cosmetology Association (NCA) offers a pamphlet titled “How to Open a Cosmetology Salon.”

The Small Business Answer Desk at the U.S. Small Business Administration has recorded messages on many aspects of opening a business.

For further information, call your state’s business agency or visit your local library. Some loan brokers will assist in business plans. Salon consultants can also help or refer you to someone.

Marketing Your Salon

This is one of the most important – as well as the most forgotten – areas to plan for, says Larry Oskin, president of Marketing Solutions (Fairfax, Va.). Too often, new salon owners neglect to leave enough money aside to build their business through advertising, marketing, promotion, and public relations, he says. “Many new salon owners run out of money for marketing and can’t properly invest in getting their business off the ground in the first year, which results in a closed business.” If necessary, says Oskin, hire a professional salon business consultant, ad copy writer, or a salon marketing consultant to assist you.

Hiring an Accountant and Attorney

Finding a professional is easy, yet important, and the most often overlooked new business necessity, says Oskin. For example, you’ll want a professional attorney to review and negotiate your lease, set up your business license, and register your business trade name, and handle every legal issue you will encounter, he says. It’s also a good idea to hire a professional CPA, an accounting firm, and a bookkeeper to make sure you are in total compliance with all of the state and federal financial and tax laws, says Oskin. And be prepared for an endless array of local business licenses, permits state board licensing, tax permits, and OSHA and business tax requirements.

To find the professionals you’ll need, there’s always the Yellow pages, but your best bet is to network with other salon owners, friends, family and relatives, recommends Oskin. Just because some attorneys have low fees or are listed in the phone book, doesn’t mean they have experience in salon business. He warns, “Saving money now may cost you your entire business later.”

Oskin suggests calling your chamber of commerce to ask for their qualified recommendations of local professional resources. You are a professional and a specialist at what you do, he says, so allow professionals to do their job for you so you can focus on what you do best – owning and operating a nail care salon.

Estimating Start-Up Costs

After writing up your business plan, you’ll need to figure out the total estimated cash you’ll need in order to open the salon. The easiest way to do this is to put together an estimated monthly expenses worksheet. One-time start-up costs should include fixtures and equipment; decorating and remodeling; installation of fixtures and equipment; starting inventory; deposits with public utilities; legal and other professional services; licenses and permits; advertising and promotion for opening; and cash (for unexpected expenses or losses, etc.).

Items you’ll need to budget for each month include: salary of owner/manager; all other salaries and wages; rent; advertising; supplies; telephone; other utilities; insurance; taxes; interest; maintenance; legal and other professional fees; and miscellaneous.

Finding a Location

When looking for a location, you will want to find a place that is accessible to the clients you want to attract. Think about a location that first your image. Will your clients want a salon located conveniently close to other stores so they can combine errands with their nail care, or will they want a quiet haven for an escape after work? Consider the following questions?

  • What is the average income for residents in the area?
  • How many salons are in the area?
  • How is your desired location zoned? Make sure the building is in a business zone.
  • How safe do you feel in the neighborhood? Crime rates should be a factor in your decision, both for you and your employees’ safety as well as your clients’.

What other businesses are adjacent or nearby? For example, if you cater to women, are there boutiques, dress shops, antique stores, or other businesses of interest to women nearby? Factors such as these will make it easier to attract the clients you want.

In addition, check the building itself to see if it has everything you need. If it doesn’t, you may have to add-on such things as storage space, a restroom, or an office. Here’s the list of what to check for:

  • Parking for customers and employees
  • Space for manicuring tables, waiting area, and reception area (estimate between 30 and 60 square feet per manicuring table)
  • Restrooms and adequate plumbing
  • Heating and air-conditioning
  • Lighting
  • Storage space, closets, and shelves
  • Room for an office
  • Your ability to ventilate – can you exhaust fumes and dust without contaminating another business?

The following resource can help you, your realtor, a real estate lawyer, your city clerk’s office, local media (they compile demographic information on target audiences), and community groups such as chambers of commerce.

The Department of Commerce, Bureau of Economic Analysis provides technical information to calculate gross national product. These figures help businesses analyze the market place and the country’s general economy.

Finding a Loan

A business plan is mandatory when getting a loan. So be sure to have it with you, as well as your market information, when approaching a lender for a business load. Keep in mind that the type of ownership you choose – sole proprietorship, partnership, or corporation – may affect a bank’s willingness to lend you money.

A sole proprietorship is the easiest, quickest, and cheapest way to start and run a business and it is the way most businesses start. However, a bank may be reluctant to loan money to a business that is depended upon the skill s of a single person.

A partnership works like a sole proprietorship except that there is more than one owner. Partners would be wise to create a written partnership agreement before going into business together. Banks are more likely to invest in a partnership than a sole proprietorship, especially if one partner has a great deal of experience or great deal of money.

Starting a corporation is more expensive and complicated than starting a sole proprietorship or partnership. A corporation is a separate and distinct fictitious entity, which means that its owners have limited liability. While a partner or sole owner has unlimited personal liability for the business, the shareholders in a corporation are liable only the extent of their investment.

The bank needs certain information (which should already be included in your business plane) in order to process a loan application: a 12-month projection of earnings, your profit and cash flow statement, and your five-year projection of earnings.

Getting the Right Licenses

Make sure you have the appropriate licenses before you go into business. These may include:

  • Business license from the city or county
  • Establishment license from the state board of cosmetology (your salon must meet its requirements, which may include providing a water supply, drinking water, hand washing and toilet facilities, and properly maintained equipment)
  • Manicurist license for each nail technician
  • Resale license from the franchise tax board, which allows you to collect tax on retail merchandise and purchase items at wholesale prices. (You are required to report and pay taxes you collect to the state each quarter.)

For more information, contact you state of board cosmetology, your state franchise tax board, your city, town, or county clerk’s office (look in the phone book under “Local Government”), or your chamber of commerce.

Buying Furnishings

Furnishing the salon can be a bigger headache than any other step, say current salon owners. You need to know what requirements, if any, your state board has for salons, such as hot and cold running water, restrooms, and hand washing facilities. In addition, salon owners say that an expert in designing salon space, as opposed to a general cabinetmaker, is extremely helpful.

In general, allow 30 to 60 square feet of space per manicuring table, but remember to allow space for waiting, reception, and retail areas. One salon furniture manufacturer recommends that new salon owners be value conscious when they purchase new furniture. Look at function, form and quality. Tables should have all the storage space and compartments you need, should look good and blend with the existing décor, should be well constructed, and have smoothly sliding drawers and a sturdy tabletop.

Besides manicuring tables and equipment, you will need to equip your salon with telephones, a cash register, a washer and dryer (optional), and a refrigerator (also optional).

For more information, contact your state board and a salon designer or furniture manufacturer (some of these can be found in the 1994 NAILS Fact Book).

Getting Products and Education

If you’ve worked in a salon prior to owning one, you probably know a little about the products you want to use, who delivers them the quickest, and where the best buys are.

If you need to brush on your technical or management skills, take advantage of what these resources have to offer: tradeshows, distributors who hold nail care classes, educational institutions, associations that offer management seminars, and your local community college.

Hiring Employees

Now you have the salon space and products chosen, but what make a business work is its employees. Learning to hire, fire and keep employees happy will be a challenge throughout your career as a salon owner.

There are a few key steps to staffing the salon.

  1. Write a job description for each position.
  2. Place an ad in the local paper and inform local cosmetology schools that you are looking for nail technicians.
  3. Create a job application that will weed out applicants who don’t have the necessary requirements.
  4. When conducting interviews, ask questions that pertain only to the applicant’s qualifications for the job, and take notes.
  5. Ask for a demonstration of the applicant’s skills.

The time to decide how you’re going to pay employees is before you hire them. Few salon owners pay a straight salary; they prefer to reward employees who bring in business. There are a variety of ways to compensate employees so that new ones can make a living until they build a steady clientele, while regarding motivated employees for their efforts.

These are standard compensation methods:

Straight percentage commission: Employees earn a percentage of their gross earnings. Sometimes a salon owner will provide a “draw”, which is an amount that she guarantees an employee will be paid monthly. However, the employee must earn that amount. A dual percentage system allows the nail technician to make a different percentage for different services she performs, while sliding percentage allows the nail technician to increase her percentage as her gross earnings increase.

Booth rental: A nail technician rents a booth or salon space from a salon owner and pays the owner wither a flat fee or a percentage of her income. Less paperwork is required for booth rental than for other compensation methods, but owners must make certain who pay business insurance on the booth and who is liable for accidents. Both parties should agree on hours kept by the booth renter and the salon’s standards for professionalism.

The following organizations are good resources for learning about being a good employer.

SBA Office of Business Development

U.S. Small Business Admin.

This office provides management counseling, publications to assist in management, and workshops and seminars on management.

Department of Labor

This department provides information on employee requirements, unemployment insurance, compensation, occupation safety and health, minimum wages, overtime pay, and non-discrimination.

Running the Business

Even when your salon is up and running, you will have questions and need advice on topics such as tax laws, job safety, labor laws, managing employees, business insurance, marketing, a and record-keeping, to name a few. If you have problems of a general nature, call your local chamber of commerce or your local Better Business Bureau.

The IRS Education Department offers services including workshops and seminars, small business tax counseling, and publications. Contact the Internal Revenue Service.

Read more in our Career Handbook: A Helpful Guide to Your Career in Nails

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