If you have a passion for hair and want to turn it into a thriving business, starting a hair salon could be the perfect opportunity for you. Whether you’re a seasoned stylist looking to go solo or a newcomer to the industry, it’s important to understand that running a successful salon involves more than just being good with scissors.
To help you navigate through the process, this guide will provide an overview of the business, steps to get started, and answers to common questions.
A hair salon is a business that provides hair styling and cutting services, often combined with scalp treatments, hair coloring, and other hair care services. Most salons focus on servicing women, though some also cater to men. Salons range from small independent shops to chains and franchises. The services offered depend on the size and concept of the salon. Most provide basic haircuts and styling, but larger salons may also offer advanced treatments like perms, relaxers, hair extensions, and Brazilian blowouts. Salon owners can employ hairdressers or operate a booth rental model. Product sales like shampoos, conditioners, and styling products also contribute to salon revenue.
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The hair salon industry is a thriving sector with a steady demand for services. It’s characterized by its low barriers to entry, which means it’s relatively easy to open a salon compared to other businesses. However, the competition can be intense, so standing out through service quality, expertise, and branding is important. The industry is not just about cutting or styling hair; it’s about providing a customer experience that fosters loyalty and word-of-mouth referrals.
The hair salon industry in the United States is a $69 billion market with over 1,000,000 businesses as of 2022, according to IBISWorld research. The industry has been in a slight decline, with sales decreasing at an average annual rate of 1.9% over the last five years.
Most salons in the industry are small, local businesses, though larger regional and national chains operate multiple locations. According to the National Association of Cosmetology Schools, over 80% of salons in the United States have fewer than 10 employees. This suggests that the vast majority of salons are small, independent businesses. Also, the top 50 largest companies generate about 14% of industry revenue. Employment levels in hair salons reached over 2,000,000 in 2022.
Steps To Open A Hair Salon
Step 1: Research Licensing Requirements
Before starting a hair salon, be sure to understand the state licensing requirements for hair salons and stylists. Each state has specific regulations and standards that must be met to operate a salon legally. These requirements typically involve obtaining a cosmetology license, which may require completing a state-approved training program and passing written and practical exams.
If you are already credentialed and hold a cosmetology license, that’s great! You have already taken the necessary steps to meet the state requirements. However, if you are not yet credentialed, find out what your state requires before offering salon services to make sure these requirements are within reach.
Step 2: Market Research
Starting a hair salon can be exciting, but it is also risky. Many businesses fail, especially in the beauty industry, where competition is intense, because they didn’t take the time to do their market research. Market research is the process of collecting and analyzing data to determine whether there is a need for your business in a particular area.
The first step to doing market research is to examine the demographics of your target area. Look at population stats, age distribution, income levels, and other aspects. Areas with higher income levels, more women, and population growth are better targets for hair salons. Research population demographics and growth projections for your area using census data to estimate whether there is sufficient demand from your target market.
The next step is to research existing salons in the region and make note of their size, services, prices, location, and customer traffic levels by driving by, looking at their website, and exploring review sites like Yelp to gain insight into customer feedback on local salons. This will reveal pain points to avoid and uncover opportunities to improve customer experiences, giving you a competitive advantage.
Using this information can help to differentiate your salon. Determine your unique selling point (USP). Do you offer a specific service that other salons don’t? Is your location more convenient or more upscale? Do you offer an experience that is different from others? By finding out what makes you unique, you will be able to develop a targeted strategy for your business.
Step 3: Write a Business Plan
Starting a hair salon business can be an exciting idea filled with possibilities, but it is important to maintain a realistic mindset. A business plan acts as a reality check, allowing you to objectively evaluate your concept and assess the potential challenges and opportunities that lie ahead.
Writing a business plan lets you think critically about various aspects of your salon business, such as target market, competition, pricing, and marketing strategies. This process helps you identify any gaps or weaknesses in your initial idea and provides an opportunity to refine and strengthen your business concept. In the business plan, you will also project income and expenses, allowing you to estimate whether your hair salon business is financially viable. By carefully analyzing costs like rent, utilities, equipment, supplies, and employee wages, you can estimate your expenses accurately.
Related: How to write a business plan
Step 4: Source Funding
Securing funding can be one of the most challenging aspects of entrepreneurship, but there are several sources to consider. Let’s explore the most common types of funding for a hair salon business:
Self funding: The first source to look at is self-funding. Personal resources, such as savings or investments, are commonly utilized to finance a portion of the business. If your personal savings aren’t enough to cover the startup costs, exploring outside funding sources becomes crucial.
Lenders: The most common outside funding source is from lenders, such as banks or credit unions. Lenders typically require borrowers to invest a portion of their personal funds, usually between 15% and 25%, of the total cost of the project. It is important to have a good credit score and sufficient collateral when approaching lenders for funding. If the bank feels the loan is too risky, they may utilize an SBA (Small Business Administration) loan guarantee.
Friends and family: Friends and family can also be a potential source of funding for your hair salon business. When approaching loved ones for financial support, maintain professionalism and put agreements in writing. Clearly outlining the terms and expectations of the investment can help prevent any misunderstandings or future conflicts.
Microloans: If your funding needs are relatively low or traditional credit options are not available, consider exploring microloans. Microloans are small loans offered by community-based organizations and may offer business training in addition to funding, which can be valuable for first-time business owners.
Step 5: Register the Business
To properly register and make your hair salon business legal, there are several tasks to complete. Please note that specific requirements may vary by state, but here is a general overview.
Choose a business structure: The first task is to choose a business structure. There are four different types of structures: sole proprietorship, general partnership, corporation, and Limited Liability Company (LLC), and each structure has its own advantages and disadvantages.
- Sole proprietorship: This is the simplest and most common structure for small businesses, including hair salons. As a sole proprietor, you have complete control over the business and are personally responsible for its liabilities. The advantage of a sole proprietorship is the ease of startup and lowest cost.
- General partnership: If you are starting the business with one or more partners, a general partnership is an option. In this structure, all partners share profits, losses, and responsibilities. It’s important to have a partnership agreement that outlines each partner’s roles, contributions, and distribution of profits.
- Corporation: Setting up a corporation offers liability protection as it separates your personal assets from the business’s debts and obligations. However, forming a corporation involves more administrative tasks and requires compliance with corporate formalities.
- Limited Liability Company (LLC): An LLC provides liability protection like a corporation, but with simpler management and greater taxation flexibility. It combines the benefits of both a corporation and a sole proprietorship/partnership.
Related: Comparison of business structures
Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
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Business name registration: After registering the business structure, you may need to register your business name. This process will vary depending on what business structure you pick. Sole proprietors and partnerships will often be required to register a “Doing Business As” (DBA), while corporations and LLCs register with the state during the formation process.
During this time, it’s also a good idea to check if the name you want is available as a web domain, even if you’re not ready to set up a website yet.
Cosmetology license: To be able to legally provide cosmetology services, all working hair stylists must acquire a state-issued cosmetology license. This process can vary by state, with training possibly taking up to 15 months, including 600 hours of specialized coursework for some. After passing both a written and practical exam, the newly-licensed professional may begin working.
Business licenses and permits: In addition to cosmetology licensing, there will likely be a variety of general licenses or permits needed before opening. This could include a local business license, seller’s permit, and Employer Identification Number (EIN).
Step 6: Acquire & Set Up the Salon
So, you’ve got your business plan, your funding is in place, and you’ve made your salon business official. Now comes the exciting part – bringing your salon to life! This involves finding the perfect location, designing your salon layout, choosing your equipment, deciding on your product offerings, and planning your service menu.
First, before signing a lease, research the zoning laws and business permit requirements for salons in your area. Once you have that knowledge, scout potential locations in busy commercial areas with heavy foot traffic, ample parking, and high visibility. Aim for spots near malls, shopping centers, or other bustling areas, as they can provide a great opportunity for attracting customers.
Next, after getting the keys to your new shop, carefully plan your salon layout. Consider how you will set up styling stations, shampoo areas, reception, and product displays. Take into account workflow and safety to ensure a smooth and efficient operation. It’s also worth investing in high-quality lighting, such as halo or track lighting, to properly illuminate the stations and create a welcoming atmosphere.
Last, don’t underestimate the importance of retail products. Set up accounts with professional product brands to use and sell in your salon. Consider having attractive retail displays strategically placed for impulse purchases. This can be an additional revenue stream for your business.
Step 7: Hire Stylists
When it comes to bringing on stylists, there are different options to consider: hiring as an employee, independent contractor, or offering booth rental.
When you hire a stylist as an employee, they become part of your salon staff. As the employer, you have control over their work hours, tasks, dress code, and how they perform their services. It is important to note that as an employer, you are responsible for providing benefits, such as health insurance, vacation, and sick leave, and complying with employment laws and regulations, such as minimum wage and overtime requirements.
When you hire a stylist as an independent contractor, they are considered self-employed and provide their services to your salon under a contractual agreement. As an independent contractor, the stylist has more control over their work schedule, has the freedom to set their prices, and may work at multiple salons or have their own clients. It’s essential to correctly classify independent contractors to comply with tax laws and avoid potential misclassification issues.
Booth rental is another arrangement where the stylist leases a booth or space within your salon and operates their own independent business. The stylist pays you a fee (either a flat rate or a percentage of their earnings) for the use of the booth and salon facilities. Booth renters can set their own prices, operate under their business name, and establish their own client base. However, they are responsible for managing their business operations, including marketing, scheduling, and purchasing supplies.
It is important to note that each option’s specific regulations and requirements may vary depending on local laws and regulations.
Step 8: Prepare to Open!
As you near the end of your initial setup phase, there are still several key steps to ensure a smooth opening. Every business owner will have different needs, but here are some of the common items:
Business insurance: One task in setting up a hair salon business is securing the right insurance. This can help protect you from financial losses due to accidents, property damage, lawsuits, and more.
Opening a business bank account: Separate your personal and business finances by opening a business bank account. This will simplify your bookkeeping and make it easier to track business expenses.
Implementing a salon management system: A management system can streamline your operations, from scheduling appointments and managing inventory to processing payments and marketing to clients. This technology is a worthy investment that can boost efficiency and customer satisfaction.
Creating a marketing strategy: This includes designing a logo and building a website, as well as other ways to let potential customers know about your new business.
Joining industry associations: Becoming a member of industry associations like the Professional Beauty Association and the Salon & Spa Professional Association can provide opportunities for networking and professional development.
Preparing for the grand opening: Last, it’s time to plan your grand opening. This is your salon’s first impression – a chance to welcome clients and show off your team’s skills. Consider holding a special event, offering promotions, or finding other ways to celebrate this big step.
Common Questions When Starting A Hair Salon
How much does it cost to start a hair salon?
Starting a hair salon business requires a substantial initial investment. While the total cost can vary widely depending on location, size, and the level of luxury, prospective owners should prepare for the expense.
The total costs to start a hair salon typically range from $30,000 to $100,000 or more, depending on the size and scope of your business. Here are the key startup costs involved:
Business registration: filing fees to establish your business legal structure and registering your business name can cost $50-$1,000.
Salon lease: The initial security deposit on a leased salon space typically equals 1-3 months rent. For example, $5,000 for a location with $1,500 monthly rent.
Salon buildout: Building out and renovating your leased space costs $10,000-$30,000 on average.
Salon equipment: Quality styling stations, salon chairs, reception furniture, sinks, dryers etc. can cost $10,000-$20,000.
Inventory: Stocking professional haircare products for services and retail can cost $1,000-$5,000 upfront.
Technology: POS systems, salon management software, hardware, and WiFi can cost around $2,000-$5,000.
Licensing: State board exams, licenses, and permits for the salon and stylists cost around $500-$1,000 altogether.
Insurance: Shop insurance policies like liability and property initially cost $1,000-$2,500.
Marketing: Branding, promotions, and advertising to announce opening run $1,000-$5,000.
It is also highly recommended to have a financial buffer of three to six months of operating expenses on hand. This provides a safety net during the initial stages of your business, as it may take some time to generate consistent revenue.
How profitable is a hair salon?
The profitability of a hair salon business can significantly vary based on several factors, such as location, services offered, pricing, and operational efficiency. To provide an estimate of potential profit, let’s consider a common formula for salons: Revenue – Expenses = Profit.
Revenue: Suppose a salon has 5 stylists, each serving an average of 6 clients per day, charging an average of $50 per service (this could include cuts, color, styling, etc.). If the salon operates 6 days a week, the total weekly revenue would be 5 stylists * 6 clients/day * $50/service * 6 days/week = $9,000. Over a year, this amounts to approximately $468,000.
Expenses: Salon expenses can include rent, utilities, salaries, insurance, marketing, and supplies. For instance, the average annual cost breakdown could be:
– Rent ($2,500/month * 12 = $30,000)
– Utilities ($400/month * 12 = $4,800)
– Salaries (Assuming $30,000/year for each stylist = $30,000 * 5 = $150,000)
– Insurance ($200/month * 12 = $2,400)
– Marketing ($300/month * 12 = $3,600)
– Supplies ($500/month * 12 = $6,000).
The total annual expenses would be approximately $196,800.
Profit: Using the formula above, the estimated annual profit would be Revenue ($468,000) – Expenses ($196,800) = $271,200.
This is a simplified scenario, and actual profits can vary widely. Factors like the cost of living in your area, the experience level of your stylists, your salon’s reputation, and the specific services you offer can all impact your revenue, expenses, and ultimately, your profit.
What is the NAICS code for a hair salon?
The NAICS code for hair salons is 812112, which is classified as Beauty Salons.
The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.