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How to Open a Hair Salon

How to Open a Hair Salon

When it comes to personal care and appearance, many Americans rely on professional services. Salons offer a wide range of products and services by specialists trained in hair, nails, and more. Growing demand, coupled with high margins, can mean substantial profits for proprietors.

If your goal is to open a salon, the present economic climate is optimal. The beauty business is in a state of growth and has a low barrier to entry, making it easy for new service providers to start. With proper planning, a wise business model, and polished skills, today’s beauty maven could become tomorrow’s business mogul. This guide includes industry trends, financial considerations, and tactics to help aspiring salon owners comb through the snags of opening a salon.

Business Overview

A hair salon is a place where people go to have their hair cut, styled, and colored. They often offer other services such as massages, manicures, and pedicures.

Hair salons come in all shapes and sizes. Some are small, one-person businesses, while others are large chains with multiple locations.

Industry Summary

The 1 million-plus salons and spas in the U.S. cater to women and men aiming to look and feel their best, and the need for personal grooming and maintenance is recurrent. This makes the salon industry inherently stable and highly resistant to economic downturns.

As detailed in an IBIS World study, declining unemployment and increased discretionary income have boosted the demand for cosmetology services over five years through 2019. Within the next five years, by 2024, revenue is expected to increase from an estimated $61.4 billion to approximately $65.1 billion. This translates to nearly $7 billion in profits, most of which is pocketed by small salons.

The nation’s 50 largest salon brands earn only 15% of revenues generated from personal care services, according to SBDCNet. Independent salons dominate the beauty arena. The average salon will operate at a comfortable profit margin of nearly 11%, and the most astute owners recognize that 5% to 15% of their revenue comes from product sales – Dunn & Bradstreet. The most profitable shops can surpass the market standard by delivering excellent service while controlling costs.

Industry Trends

In recent years, social media influencers have helped create and steer beauty trends. In fact, Dove revealed that nearly 82% of women believe Instagram, Facebook, and other social media platforms are driving forces behind beauty crazes.

The power of social media is partly responsible for the expanding range of products and services. Likes, shares, and video views popularize trends and promote premium services at higher price points. IBIS World findings show that innovation has continued nonstop over the past five years through 2019, with no sign of slowing.

Basic styles have given way to advanced products and sleek results. Eyelash tinting and extensions, microblade eyebrows, threading, waxing, and facials are popular. When it comes to nail services, which bring in 16% of beauty revenue, basic manicures are often brushed off in favor of new acrylic and gel finishes. Mood changing gels, magnetic polish, caviar nails, and even nail art membership clubs are winning clients over. Traditional haircut and styling services are the most popular and earn over 45% of beauty industry revenue. However, current trending hairstyles have increased demand for niche services. Specifically, blow-dry bars are en vogue, and the Brazilian Blowout reigns supreme.

The safety of Brazilian Blowouts and other keratin treatments has come into question by beauty watchdogs. Some specialty nail treatments have also raised eyebrows regarding health concerns. Health-conscious and eco-friendly movements have prompted salons to offer non-toxic products. Natural products are more expensive than synthetic options, which helps raise revenue.

 

Target Market

Rising professionals, busy parents, senior sophisticates, and millennial trendsetters are a few viable segments of the personal care market. According to IBIS World, the main demographic of beauty salon clients is 35 to 44 and accounts for 27% of industry revenue. Those 55 and older come in at over 25% of revenue, and customers between 45 and 54 make up about 23% of revenue. Patrons 35 and older have established income streams and more discretionary income than millennial consumers, who account for 16.5% of revenue. With hair coloring and tinting services responsible for 17% of sales, we attribute a significant portion of sales to graying baby boomers.

In an investigative piece, the San Francisco Chronicle discovered that consumers between the ages of 35 and 64 with children in the home would spend up to 38% more than the average client. While women make up a greater percentage than male customers, ignoring men could cost you. Studies show that more men are becoming increasingly image-conscious.

Ambitious owners with a deep understanding of the market can effectively identify target consumers, attract those customers, and earn their loyalty

Checklist for Opening a Hair salon

Starting a hair salon can be an incredibly rewarding experience, but it’s important to make sure you’re prepared for the challenges ahead. Use this checklist to help get your business off on the right foot.

Step 1: Write a Business Plan

After coming up with a business idea, the next step in starting any business should be to write a business plan. Not only will a bank require you to have one to get funding, but multiple studies have shown that a business plan helps increase the odds of starting a successful business. A well thought out salon business plan will serve the entrepreneur as the road map for their business, helping them achieve their business goals.

Related: How to write a business plan

Step 2: Name the Business

Finding the perfect business name can be challenging. Not only does the salon name have to resonate with your customers, but it also has to be available to use.

Related: Tips and ideas for naming a hair salon

Step 3: Form a Business Entity

A business entity refers to how a business is legally organized to operate. There are four primary business entities to choose from, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.

When deciding on which business entity is best for a hair salon, it normally comes down to the sole proprietorship and Limited Liability Company.

A general partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay. The corporation can be a good choice because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible to repay them. The downside to the corporation is that it is more complicated than all the other entities and requires more administration than the LLC. If you plan on raising a lot of investment though, the corporation is usually the better choice.

That leaves the sole proprietorship and LLC.

The sole proprietorship is the least expensive and easiest entity to start which is appealing. The downside is the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.

Related: Guide to forming your LLC
 

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.


Some popular LLC formation services include:


IncFile - $0 plus state fees & free registered agent for 1 year!

IncAuthority - $0 plus state fees & free registered agent the first year!

ZenBusiness - $49 plus state fees & free registered agent for 1 year!

Step 4: Select your Location

It’s generally beneficial for a salon to be located in higher-traffic or high-visibility locations, though the downside usually means a higher rent or purchase price.

Related: Choosing a business location

Step 5: Register for Business Licenses and Permits

Owners must obtain licenses and permits before opening, and most notably, all working hair stylists must acquire a state-issued cosmetology license. Depending on the state, training can take up to 15 months, with 600 hours of additional coursework for those who specialize. After passing a written and practical exam, the now licensed professional may begin working. To stay licensed, there are continuing education requirements.

In addition to stylist and salon license requirements there are also general business license requirements as well. Some of the common local, state and federal registrations include a sales tax permit, Employer Identification Number (EIN), and Certificate of Occupancy.

Related: Common business licenses, permits, and registrations by state

Step 6: Find Financing

Coming up with a good business idea and having the skills to run it are one thing, but getting the funding to start a salon is another. Fortunately, the cost to start a hair salon can be relatively low, with most of the costs going towards remodeling, booths, and equipment. Funding for a new start-up can be difficult as banks are typically going to want the borrower to have good credit and personally invest 15-25% towards the total startup costs.

Related: Finding the money to start a business

Step 7: Open a Business Bank Account

Keeping your small business and personal finances in separate bank accounts is important to track the income and expenses of your business and identify trends.
 
Many banks offer free business checking accounts, so be sure to find a cost-effective option for your business.

Step 8: Get your Marketing Ready

Now that you are getting close to opening, it’s time to get marketing materials planned and created. It’s important to understand your market and what media they consume so you can effectively reach out and let them know you’re open.

Brand identity is the message consumers will receive from your salon. Visual identity, brand voice, the value of service, and personality set the tone for what clients will expect. Company logo, furnishings, phone manner, and everything customers see, hear, feel, and smell reinforce the brand. Owners must cement the salon’s brand identity and carve out a place in the market.

Monitoring online reviews from Google and Yelp are important as your customer reviews start coming in. Be sure to address any issues right away as there is no way to make everyone happy, but if the reviews go unanswered, potential customers may pass your salon by.

Related: Low-cost ideas to market a new business

Every business is going to need a logo. Make a professional logo in no time with the free logo makers from BrandCrowd and Canva.

Step 9: Hire Employees

You may start out as the only person working in your salon; however, it’s important at some point to bring on additional stylists as retail hours are typically long, and you will need a break or time off if you are sick.

To save on the complexities and cost of hiring additional stylists, many salons will rent booth space. With booth rental, each stylist is an independent contractor (meaning they have their own business), and they pay a rental fee to the salon owner to use the booth. The renter will need to have their own equipment and can make an additional commission by selling hair product.
This model provides consistent income, however the owner has less control of how the independent contractor does their job.

Related: Hiring your first employee

Step 10: Get Business Insurance

There are several types of insurance to consider when starting a hair salon business. A few of these include:
Professional liability insurance covers claims of negligence due to failed or mistaken services, such as when a hairstylist makes a mistake or harms the clients due to inexperience, carelessness, or accident
General liability insurance offers coverage if a customer is injured onsite, such as slipping and injuring themselves on a wet floor
Commercial property insurance covers the cost of equipment that could be lost or damaged in a fire or another event.
Worker’s compensation insurance covers expenses like lost wages or medical bills if an employee is ever injured while working.

The costs of insurance coverage will vary based on the business’ location, the value of its equipment, and even the number of employees on staff. To get the best idea of what insurance will cost, request quotes from multiple insurance providers. Compare the quotes, paying attention to factors like premiums, deductibles, and coverage limits and exclusions.

Related: What types of insurance does a hair salon need?

Step 11: Set up an Accounting System

Setting up an accounting system is critical to the long-term success of your small business.

Staying on top of taxes not only keeps the business out of trouble with the government, but the numbers can be used to track and monitor trends and cash flow in the business and maximize profits.

Related: Setting up the accounting for your business

The thought of accounting can be intimidating for a lot of new entrepreneurs. There are a number of ways of handling bookkeeping, from DIY to hiring a bookkeeper. These include:

- Pen and paper - Low expense, but difficult to track.
- Spreadsheet - Low expense, but easy to make errors.
- Accounting software - Medium expense, but owner typically inputs expenses. Some great accounting software programs include Freshbooks or Wave Accounting.
- Hire a bookkeeper - Higher expense, though very affordable at $100-$200 per month in most cases. A dedicated bookkeeper will probably save money because, in addition to handling all of the bookkeeping (so you can focus on the business), they also provide personalized tax advice and ensure the business is in compliance.

Find bookkeepers in your local area or use a service like 800Accountant.

How much does it cost to start a hair salon?

The costs of opening your own salon can require a large investment of capital. Unless you have significant cash saved, it may be necessary to obtain a small business loan, explore partnerships, or seek investors. Depending on the concept, the initial investment may range from $30,000-$150,000, according to The American Barber Association.

Acquiring the funds to open your salon is just the beginning. Owners must keep meticulous records, maintain strict budgets, and minimize spending where possible. Keeping track of revenue, growth, and appointments can become seamless for owners who utilize accounting and inventory tracking software.

As estimated by Evergreen Beauty Collegestaffing expenses will cost approximately 10% of sales, payroll taxes will come in at 7.6%, maintenance and insurance will cost about 5% combined, and marketing costs will range from 2% to 5%. Provided below are basic breakdowns of typical items a new salon will need to purchase in addition to common ongoing expenses.

Some common salon equipment and supplies needed to open a hair salon include:
– Salon station with chairs, dryers, shampoo bowl, sink, etc.
– Furniture and décor
– Inventory such as shampoo, conditioner, dyes, etc.
– Website
– Business software
– Training and certifications
– Franchise fees, if applicable
– Working capital to cover the first few months of payroll, lease, utilities, etc.

How much does a hair salon owner make?

Once your hair salon is open, smart business practices can lead to long-term financial success. To stay competitive, salons must deliver excellent service and value. These are key to earning referrals and a brand-loyal customer base.

Add-on services such as massage, manicures, and pedicures are common for hair salons to generate additional revenue from their existing clientele. Sales of hair care products can also generate additonal income without needing additional staff.

Location, clientele and other factors determine an owner’s take-home pay. For example, the average earnings for a Washington, DC salon owner is $100,000, as quoted by Comparably.com. In contrast, the average salary for an Orlando, Florida proprietor is about $71,000.

Are there grants to start a hair salon?

It’s extremely rare to find a grant to start a hair salon. If you search for business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.

Legitimate federal grants can be found at Grants.gov and you can check on your state’s economic development office to see if they have any grants available.

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.

Related: What is a NAICS code and how to find yours

Resources
American Barber Association
Professional Beauty Association
Salon & Spa Professional Association
Salon Today

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