How to Open a Beauty Salon

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According to a study by the online coupon giants Groupon, women spend nearly a quarter of a million dollars in their lifetime on their appearance. This roughly breaks down to an average of $3,756 a year or $313 a month. In other words; beauty salons can be very lucrative. America’s 1 million beauty salons and spas pull in $46 billion annually, but success only comes after you’ve checked all the boxes.

The world of beauty salons is a large one, covering everything from manicures and tanning to hair removal and highlights. When it’s good, it’s great, and some celebrity salon owners can command upwards of $1,200 per cut. When it’s bad, you face becoming another empty building with a “for rent” sign in the storefront window. Regardless of whether you specialize in hair, nails, skin or all of the above, every beauty salon needs a solid business plan to ensure its success.

How to Open a Salon

Beauty salons have a lot of moving parts, and like any other business, it requires careful planning. This opening a salon checklist can help pave your path to beauty success:

What Makes You Special?

There are already 1 million beauty salons across the nation, and your only shot at success is by standing out among them. You may think offering a wide variety of services is your best bet because it will bring in more customers, but that's not the case. Focusing on a niche service, such as alternative women's haircuts or Japanese-style nail art will help bring in loyal customers, and those are the ones who keep your finances afloat. Find out what makes your business unique, and let it shine.

Decide On A Business Model

Beauty salons have a variety of different services, and each one warrants a different business model. Are you planning to build your salon from the ground up or are you opening a franchise? To ensure your salon’s success, you have to nail down the “what.” What services are you selling and how?

Salons, especially in the nail and hair space, operate on two major models: commission and chair-rentals. In the chair-rental model, stylists and nail technicians are independent contractors. They have their own insurance and pay their own unemployment taxes. This model is great if you’re planning to run a smaller operation, but it’s not ideal if you want to expand. Though you’re responsible for employee-related expenses in a commission model, such as workers’ compensation insurance and payroll taxes, you stand to earn the most money depending on the size of your shop.

No one model is the correct model. Just make sure that once you choose, you don’t switch after opening. Stylists are way more likely to leave if you change the way they’re being paid.

Find Your Partners

You don’t necessarily need partners to run a successful business, but you may want them anyway. Whether you’re looking for an investor who can help ease the financial blow of opening a new salon or someone who’s familiar with the ins-and-outs of the industry, most salons benefit from having one person in charge of the business side of things and another in charge of the creative direction.

Many salons also partner with products, which can be quite lucrative for a brand and help put a dent in any overhead you have. Remember: the average person spends around $57 a month on creams and lotions and $58 a month on hair products. These are all things your salon can sell.

Create Your Business Plan

You can’t be successful if you don’t have a map that shows you how to get there. Your map is a business plan, and all businesses need one. The plan should focus on your business needs, including overhead costs and estimated revenue, but it should also cover things like marketing and brand identity. The latter is what sets you apart from the competition. Make sure you enlist an accountant to help you map out your strategy.

Get Financing

Odds are you may not have enough cash to launch your business fully. Many people are going to need to get outside financing. As a rule, you should have at least six months of capital before jumping in. Remember, it’s OK to start small and expand later.

So, where do you get the cash? It’s extremely difficult for a small startup to get a business loan, so many small business owners opt for personal loans or investments from family and friends. After your business is already established about a year or so in, you can try to get a loan from a bank or credit union. If you can't secure financing through traditional methods, some startups have found success with crowd-sourcing by using a website like Kickstarter or GoFundMe.

Get Your Salon

To open a salon, you need a physical salon space. And finding the perfect space is no easy feat. You don’t want to open a salon in an area with too much competition. Opening a nail salon across from a nail salon is a recipe for disaster, but it may make sense to open a nail salon near an existing hair salon. What woman wouldn’t want to get their appointments out of the way in a one-two punch?

As a rule, the average salon is 1,200 square feet and has six operators from estheticians and hair stylists to assistants and receptionists. Consider what the landlord gives you: if you’re there for five-to-10 years, will they update the space? Do you have to put in your own, expensive HVAC system? Make sure a contractor reviews the space before signing on the dotted line.

Sort Out Your Corporate Structure

According to Forbes_,_ obtaining a state license to operate a salon is both quick and cheap, but first, you need to sort out the corporate structure of your beauty salon or spa. Most likely, you’ll want to operate as an LLC or limited liability company. You can create an LLC online, then get a federal tax identification number so you can pay taxes on your revenue.

Hire Your Employees and Hit The Ground Running

Now, you have the space, you have the plan and you have the equipment. The final steps to opening your salon are hiring employees and opening the doors for the first time. Play with pricing and hours to find your sweet spot. You’ll want to follow the marketing strategy laid out in your business plan, but to give yourself an edge, you might also want to join trade organizations. Organizations like the Professional Beauty Association or Association of Cosmetology Salon Professionals can help you with all aspects of running your business. They give you HR manuals, help you with marketing ideas and keep you up-to-date on trends. After all, the heart and soul of a successful salon are staying on top of what’s in vogue.

How Much Does it Cost to Start a Beauty Salon?

Beauty salons have a lot of upfront costs, mostly related to real estate. You can expect to pay between $75 and $125 a square foot for your space. If your salon is in a more affluent area, you might be shelling out as much as $300 per square foot. As a general rule of thumb, you should set aside $100,000 to $500,000 for your salon space. You might also want to set aside some cash for building improvements and remodeling. On average, salon owners spend $32,000 on design elements that make their business unique. This includes things like custom signs, interior furniture and art.

On top of the space, you’ll also be shelling out cash for licenses, legal fees, insurance, permits, a website, supplies and equipment. Salon owners can expect an upfront investment of about $27,000 for equipment (hood dryers, color stations, clippers, etc.) and as much as $20,000 for supplies (salon robes, curlers, shampoo, conditioner, etc.). Your computers and POS system should cost between $550 and $2,500 a year. Keep in mind that a barbershop or nail salon has less equipment than a beauty salon, so there’s a smaller upfront cost. What you'll need up front depends on your business model.

How to Find Employees for a Beauty Salon

Let’s be real; no one is returning to a hairdresser who melts her hair off with bad balayage. Your employees are crucial to your salon’s success. Of course, you want skilled workers but all the technical ability in the world doesn’t matter if their attitude turns off customers and they’re unreliable. The truth is that salons have a lot of turnover. Stylists often decide they can make more money on their own and jump ship to start their own business once they’ve got a full client list.

They key to finding the right employees is all in the paycheck. You get what you pay for, and if you offer competitive commissions and generous packages, your employees will be more likely to stick around. You'll want to hire a receptionist and salon manager. Depending on your business model, you may want to hire a hairstylist, colorist, shampooer/salon assistant, manicurist, esthetician, massage therapist and electrologist. Your employees must hold a cosmetology license, which usually allows them to cut and color hair, give manicures and facials and sometimes give hand and foot massages. They’ll need additional licensing for other services like massage therapy and laser hair removal. Make sure to check with your state cosmetology board.

To find the best employees, you'll probably want to start by tapping your professional and personal network. The best way to find someone reliable and passionate is through mutual connections. Odds are if you’re opening a salon, you already have a network of like-minded beauty aficionados. If that search isn’t fruitful, advertising online is your next best bet.

The Potential Earnings of a Beauty Salon

Though celebrity salon owners can rake in over $1,000 a haircut, that’s far from the norm. That doesn’t mean most cosmetologists can’t make a good living. According to The Bureau of Labor Statistics, the median cosmetologist makes $24,900 per year, but this spikes for master stylists, senior stylists and those working in expensive cities like New York.

It's important to remember that hairstylists rely on tips in addition to their salary or the standard 35-to-50 percent commission. As an owner, you might also choose to offer haircuts and color services yourself. The amount of money you make depends on your clientele, your retail sales, your employee pay structure and if you're working alongside your stylists.

Other Considerations for the Salon

There are several permits and licenses required to open a salon, though Forbes claims this is the easy part compared to the years you need to spend in cosmetology school. You’ll need the same permits as any other business including and not limited to: a certificate of occupancy, a business operation license, a retail license, a fire department permit and a cosmetology license. Licenses typically cost between $100 and $2,000. You can usually file for any of these online on your state’s or city’s municipal website or schedule an appointment with the proper state agency.

For a cosmetology license, you’ll want to contact your state’s department of cosmetology. You’ll need to meet electrical, fire and sanitation codes in addition to proving your employees hold the proper licenses to perform their work.

You’ll also want to consider insurance to protect your investment in the event of a break-in, natural disaster, fire or accident. Coverage should include general liability, business property, business interruption and professional liability insurance.