A hair salon can be a profitable business. Little blond long hair girl has haircare by stylist. The cost to start up a hair salon business varies depending on the type of business. A small booth salon, where you rent a section of an existing salon as your own business, costs infinitely less than purchasing a large well-known franchise. Both may share similar start-up costs, but the amounts will be different. Equipment In a booth rental situation, the salon supplies the chair, sink and hair dryers as part of the monthly rent. If you are purchasing an existing salon, you can negotiate the price of the equipment as part of the sale and some equipment will be part of the price as a fixture, such as the sinks, receptionist desks, booths and supply area. An existing franchise comes with the necessary equipment while a new franchise will involve an outlay of funds to purchase the equipment. Costs for equipment range from zero dollars for booth rental up to $32,000 at a franchise. The cost depends on the type of salon, amount of chairs and services offered.
Supplies Supplies for a salon can become costly. Not only are there the products for use on the client for services, but there is also the cost of the products you sell. These prices depend on the brands, such as Matrix, Abba, Nexus or OPI, and can go up to $23,000 as an initial cost. Other supplies include sanitizers, perm rods, hair capes, towels, cleaning supplies and a washer and dryer. Most salons require the hair stylist to provide their own scissors, blow dryers, brushes, razors and combs. Some salons provide clippers although many stylists have their own. Business Start-Up Costs A booth rental can require a monthly rent up to $1,000, but it includes insurance, utilities and the business license for the establishment. As a sole business or a franchise, you are required to pay rent, insurance, deposits and utilities. These fees can range up to $10,000. An attorney can be required to negotiate or review the contract for the rent or franchise agreement at an additional hourly cost from $250 an hour or more, Promotion One area you do not want to neglect is the promotion of your new business.
The expenditure of this money can lead to the infusion of cash you will require over the next several months as you build up the business. Promotions can include radio advertising, television advertising, flyers in the mail or left on cars. Promotions prices can vary and range from a couple of dollars for the flyers to hand out up to $15,000 for the television spots. References Entrepreneur: How to Open a Salon or Day Spa; August 2005Fantastic Sam's: Investing In A Hair Salon FranchiseSport Clips: Franchise Opportunities Photo Credits Little blond long hair girl has haircare by stylist. Suggest an Article CorrectionA long standing custom in the hair salon industry is owners of salons leasing out booths to hair stylists. If not properly documented and exercised appropriately, the owner opens the door for many legal issues. Booth rental is legal in many states but you must adhere to several contractual compliance requirements to completely separate your salon from the renter. In addition, the Internal Revenue Service requires a far more restrictive arrangement to allow separation of the salon owner from the tax obligations of the booth renter.
This article is written to assist the salon owner in meeting these various requirements. In addition, the Internal Revenue regulations are described and explained so the reader can understand what to do and how to carry out these rules. Contents1 Independent Contractor or Employee 2 Separation Requirements3 IRS Compliance 4 Suggestions The underlying issue in the salon industry relates to the independence of the stylist. The stylist is mostly concerned with two personal goals. First is the greater increase in income via separation from the salon as an employee. The secondary goal is more independence in setting their personal schedule e.g. what days to work and hours of operation. For the owner of the salon you must realize that you have two governing bodies that must recognize the stylist as an independent contractor in order for this to work. The first is your respective state law and court case history related to the contractor/ subcontractor relationship.
The second body that must recognize the relationship is the Internal Revenue Service. The one mutual requirement that exists in law and in the tax code is a ‘Contract’ between the parties. This contract should include the following elements: Control over the End Result Govern by the Board of Cosmetology/Professional Regulation Collection of Customer Payments Rents can be fixed or have a fixed component and a percentage of the sales the renter collects. The key here is that renter provides an accounting of some sort to validate the sales volume in which a rental percentage is paid. The preponderance of the total rent should be fixed in nature so as to maintain a true appearance of independence for the stylist. Identify in the contract what the rents covers, such as their particular spot in the salon, utilities, access and costs for receptionist to receive all customers and for scheduling. I urge you to have a written contract and a compliance program in your salon.
The contract is signed by both parties and should have a life of one year with automatic renewals unless terminated with proper notice (time and statement). For compliance issues, I encourage you to have the stylists insurance binders copied to your business address. Their binders should have the salon listed as additional insured and have you as an individual listed as an additional insured. Monitor the business license and the corresponding Board documents as identified above. In addition to the above requirements, the IRS has an additional set. For the independent contractor, they must prepare a Form 1099 identifying the rents paid to the salon. This is often confusing as in many salons, the customer payments are collected up front and the salon issues a 1099 to the booth renter identifying their respective earnings. YOU CAN’T DO THIS. The IRS is adamant in making sure the independent contractor collects their own fees for the services they render. Look at the outcome of this particular Revenue Ruling:
Revenue Ruling 73-591, 1973-2 C.B. 337 Facts: Salon agrees to furnish, repair, and maintain all equipment; hair stylist is paid on a percentage of gross receipts; no credit work or free work can be done without the approval of the salon owner; working hours are set; hair stylist furnished a report each day to the owner reflecting the day’s receipts. Here’s another with a slightly different variance from 73-591: Wolfe v. United States, 77-1 U.S.T.C ¶ 9346 (D.N.D. 1977) Facts: Hair stylists are paid on a percentage of gross receipts; hair stylists handle own clients; hair stylists provide own supplies; appointments are made through one receptionist; hair stylists set their own hours and have their own keys to the shop; money from services is paid to the salon; hair stylist decides what prices to charge; hair stylists are responsible for bounced checks; and hair stylist are not required to work on salon’s customers. Based on many rulings and court cases, it is obvious that the requirement for collection of payments has to be done at the booth and not up front.
The stylist must control their income just like any other business. If the salon fails to comply then the salon owner opens their business up to employment tax consequences. This can be extremely expensive given the fact that you did not collect the money or have control over the money to pay the respective taxes. You must maintain a preponderance of the evidence that the booth renter controls their own destiny. In general, I don’t encourage the booth renting format in a salon. Nor do I recommend any combination of renters and employees. I strongly encourage owners to use a pure employer employee relationship. A really good model for compensation is illustrated in this article: Hair Stylist Compensation Model . My primary concern is that the salon owner exposes their business to a lawsuit by not only the stylist, but by the stylist’s customers. The customers are generally not aware that their stylist is a booth renter. In addition, the IRS strongly encourages the employer employee relationship and will use any form of discovery to negate an independent contractor status.