Small Business

Open a Spa Without Getting Soaked


The margin of error is slim for salons, where annual net profit averages 5% before taxes. Here are steps to improve your survival odds

I own a charming old house that I'm converting into a salon and spa. How do I find a good manager? I'll only be at the business for a short time each day since I work in an office next door. How do I know what to pay the manager and the stylists? I'm not sure whether to rent the four stations or do 50% commission.

—B.W., Dunedin, Fla.

Your lack of experience in the salon business and the restraints on your time raise some red flags. Unless you're hiring a trusted friend or family member, it's very risky to have someone else run your startup in an industry that you don't understand well. And even if you have an employee or friend you think you can trust, you're still running a risk if you're not there keeping an eye on things.

"The words, 'I'll only be in the business a short time each day' are a recipe for disaster," says retail consultant Bob Phibbs, of the Retail Doctor. "Unless you know what to look for, you could be ripped off easily." He suggests that you rent the house for commercial or residential use and derive income from it that way while you research the salon and spa business for several months or a year.

Work in the Industry

That may mean taking some time off from your current job and working in the industry, as well as attending some classes on entrepreneurship. You'll earn income from the rental while educating yourself and deciding whether you truly want to take your chances as an absentee business owner. If you decide to go forward with the concept, you'll be better equipped to take the risk and you'll have some industry contacts who can help you find a trustworthy, experienced manager.

Understanding the salon business from the inside out will be crucial for your future success, says Jeff Williams, of BizStarters.com. The margin for error is slim for most salons, where annual net profit averages 5% before taxes, according to the Professional Beauty Assn. "Outstanding stylists bring in repeat clientele, who tend to bond to the stylist more than the salon. The salon owner offers the stylists a compensation system that retains them in the face of blistering competition from other salons to hire their best people away. This is a constant threat because the best stylists know that they have clientele that they can take from salon to salon," Williams says. Because of the competition, more than 40% of salons allow their stylists to rent out their booths and keep all their revenue and tips.

"Not only does the booth rental system help retain the best stylists, but also it provides a tax break for the salon owner," he explains. "Under the commission-based system, the IRS taxes the salon owner on the tips each stylist receives, even though the salon owner never physically receives any of this money." Even under the booth rental business model, salon owners are responsible for attracting large numbers of target customers: Those who book regular appointments for haircuts and coloring and those who combine a manicure, pedicure, or other beauty treatment with a hair appointment.

Craft a Unique Persona

"To attract this kind of clientele, the salon owner must not only attract top-notch stylists but must also create an extremely customer-friendly environment to craft a unique persona for the salon," Williams says. Additional keys to success in the industry include boosting your profits by offering prepaid service packages and selling beauty products and accessories, such as jewelry and casual clothing, in your salon.

Once you are more familiar with the beauty industry and what drives it, you'll be more prepared to find an excellent salon manager. Look for someone who has experience working with stylists and product demonstrators, is familiar with health code requirements, is excellent at providing product and process training, and has a good sense of marketing. "Write down exactly what is expected of your new manager and then write a formal job description. Once you have the requirements in hand, you can look for certain credentials and experience," says Joe Kennedy, small business consultant and author.

Don't discuss compensation until you've got qualified candidates, Kennedy recommends: "By that time, you should know what others are getting paid. I suggest paying at least a bit more than the market rate. You do not want to train someone and then see them quit for better pay from a competitor." Make sure that you have strong, clear written agreements with your managers, stylists, massage therapists, and manicurists as to the responsibilities and compensation to all parties. These agreements should also deal with insurance, upkeep, and what happens if someone cannot perform. And definitely plan on being in the shop more than just a short time each day.

Look for hiring resources at Web sites such as Monster.com and Hcareers.com, Phibbs suggests. He also recommends that you investigate the business plans for hair salons and spas at 125aday.com. Good luck!

Karen E. Klein is a Los Angeles-based writer who covers entrepreneurship and small-business issues.

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