© Copyright 2012 Milady, a part of Cengage Learning. All Rights Reserved. Chapter 1 Salon and Spa Types and Their Locations

© Copyright 2012 Milady, a part of Cengage Learning. All Rights Reserved. Licenses/sublicenses Alternative or special licenses Setting Up Your Salon and Spa Business © Milady, a part of Cengage Learning. Photography by Dino Petrocelli

© Copyright 2012 Milady, a part of Cengage Learning. All Rights Reserved. Setting Up Your Salon and Spa Business Read and follow the licenses required for business ownership Write all salon and spa services you wish to offer in the establishment See what licenses are needed

© Copyright 2012 Milady, a part of Cengage Learning. All Rights Reserved. What Type of Salon and Spa Do You Want? Hotel salon and spa Department store/fitness center salon and spa Mall/shopping center salon and spa Freestanding salon and spa Medical spa

© Copyright 2012 Milady, a part of Cengage Learning. All Rights Reserved. Hotel Salons and Spas Hotel offsets remote location by expanding salon and spa into a day spa Extensive range of services: –massage, makeup, hair removal, body wrap, Botox injections, manicure, acrylic nails, pedicures, false eyelashes, permanent makeup, etc.

© Copyright 2012 Milady, a part of Cengage Learning. All Rights Reserved. Additional services may be controlled by: –cosmetology/barber board –medical board Hotel Salons and Spas

© Copyright 2012 Milady, a part of Cengage Learning. All Rights Reserved. Leasing Potential unusual clauses –sign placement –cleaning and maintenance –charge system through the hotel –hours of business –decorating –subcontractor clause –customer dispute settlement Hotel Salons and Spas

© Copyright 2012 Milady, a part of Cengage Learning. All Rights Reserved. Department Store/Fitness Center Salons and Spas Salon and spa relies on department store/fitness center for clients and marketing Operates in a leased space area Often contracts with a chain salon or spa

© Copyright 2012 Milady, a part of Cengage Learning. All Rights Reserved. Chain salon and spa supply distribution – mass purchase of salon and spa supplies – salon and spa contacts home office for supplies Accounting and auditing system Base rent plus a percentage of profit Department Store/Fitness Center Salons and Spas

© Copyright 2012 Milady, a part of Cengage Learning. All Rights Reserved. Considerations: –compatible image –clarify advertising –customer complaint process –style shows –details of employee benefits, accounting procedures, etc. Department Store/Fitness Center Salons and Spas

© Copyright 2012 Milady, a part of Cengage Learning. All Rights Reserved. Benefits: –store lunchroom –employee discounts –paid vacation/sick pay –group insurance –profit-sharing Department Store/Fitness Center Salons and Spas

© Copyright 2012 Milady, a part of Cengage Learning. All Rights Reserved. Mall/Shopping Center Salons and Spas Convenient location –stores surrounding a center atrium –strip center allowing customers to go directly into your business Rent –flat rent plus a percentage of sales

© Copyright 2012 Milady, a part of Cengage Learning. All Rights Reserved. Rent varies based on: –location –type of mall –economy Negotiating rent –consider demographics, traffic patterns, seasonal considerations, etc. –hire an attorney/business consultant Mall/Shopping Center Salons and Spas

© Copyright 2012 Milady, a part of Cengage Learning. All Rights Reserved. New location –will have floor, walls, ceiling, toilet, heat/air capabilities, electrical connections, display window Existing location –you will have to work with what you have, but it may be more cost-effective as much of the work has been done Mall/Shopping Center Salons and Spas

© Copyright 2012 Milady, a part of Cengage Learning. All Rights Reserved. Freestanding Salons and Spas Corporation/partnership owns the property –“rent” goes to pay for the property –landlord/salon and spa owner arrangement –if owner lives in the structure, possible tax deductions

© Copyright 2012 Milady, a part of Cengage Learning. All Rights Reserved. Medical Spas Western and holistic medicine combined with spa services Must have a physician’s license or partner with a physician Services may include Botox, laser hair removal, chemical peels, Restylane, and dermatological services

© Copyright 2012 Milady, a part of Cengage Learning. All Rights Reserved. Sole Proprietorships Advantages –least expensive –complete control –keep all income –profits flow to owner’s personal tax return –easy to dissolve

© Copyright 2012 Milady, a part of Cengage Learning. All Rights Reserved. Sole Proprietorships Disadvantages –unlimited liability and legal responsibility (personal assets are at risk) –limited funding –employee benefits are not directly deductible from business income

© Copyright 2012 Milady, a part of Cengage Learning. All Rights Reserved. Advantages –easy to establish –increased ability to raise funds –partnership opportunity may attract employees –complementary skills Partnerships

© Copyright 2012 Milady, a part of Cengage Learning. All Rights Reserved. Disadvantages –jointly and individually responsible for the actions of the other –profits must be shared –decisions must be shared, which may cause disagreements –may have a limited life Partnerships

© Copyright 2012 Milady, a part of Cengage Learning. All Rights Reserved. Types of Partnerships to Consider General partnership Limited partnership and partnership with limited liability Joint venture © Milady, a part of Cengage Learning. Photography by Dino Petrocelli

© Copyright 2012 Milady, a part of Cengage Learning. All Rights Reserved. Corporations Considered by law to be a unique entity Can be taxed, can be sued, and can enter into contractual agreements Owners are shareholders Shareholders elect a board of directors Remains even if ownership changes

© Copyright 2012 Milady, a part of Cengage Learning. All Rights Reserved. Corporations Advantages –shareholders have limited liability –shareholders can only be held accountable for their investment in stock of the company –can raise funds through sale of stock –can deduct cost of benefits to officers and employees –S corporations can be elected

© Copyright 2012 Milady, a part of Cengage Learning. All Rights Reserved. Corporations Disadvantages –more time and money than other forms of organization –monitored by state and federal agencies –higher overall taxes

© Copyright 2012 Milady, a part of Cengage Learning. All Rights Reserved. Subchapter S Corporations Shareholder can treat the earnings and profits as distributions and have them pass through to his or her personal tax return If there is a profit, the shareholder has to pay himself or herself wages

© Copyright 2012 Milady, a part of Cengage Learning. All Rights Reserved. Limited Liability Company (LLC) Owners are members Time limit can be continued at expiration if desired Must not have more than two of the four following: –limited liability to the extent of assets –continuity of life –centralization of management –free transferability of ownership interests

© Copyright 2012 Milady, a part of Cengage Learning. All Rights Reserved. Franchised Salons and Spas Successful due to marketing and organizational strengths Offers standardization

© Copyright 2012 Milady, a part of Cengage Learning. All Rights Reserved. Franchised Salons and Spas Advantages –strong consumer marketing –group purchasing power –uniform bookkeeping systems –centralized training –noncompetition from same franchise –exclusivity of product line –help with interior design –legal and business assistance programs –group insurance rates –group health insurance

© Copyright 2012 Milady, a part of Cengage Learning. All Rights Reserved. Franchised Salons and Spas Disadvantages –high initial costs –restrictions in franchise agreement –franchisor might go out of business –other franchisees could hurt your reputation –may be difficult to sell –profits shared with franchisor –high continuing costs

© Copyright 2012 Milady, a part of Cengage Learning. All Rights Reserved. Employee-Owned Corporations Employee owns stock in the company Only works if the personalities are compatible

© Copyright 2012 Milady, a part of Cengage Learning. All Rights Reserved. Employee-Owned Corporations Advantages –motivated employees –align employees’ interests with shareholders –recruit/retain key employees –compensate for lower salaries –pay employees in a tax-efficient way –increase loyalty –raise working capital –realize owners’ investment

© Copyright 2012 Milady, a part of Cengage Learning. All Rights Reserved. Employee-Owned Corporations Disadvantages –falling morale if share price falls –administration costs –dilution of share ownership –unrealistic expectations

© Copyright 2012 Milady, a part of Cengage Learning. All Rights Reserved. Leased Space and Booth Rental Owner contracts a given area of space Owner subdivides the space into several areas Each space is rented to a different practitioner

© Copyright 2012 Milady, a part of Cengage Learning. All Rights Reserved. Leased Space and Booth Rental Advantages –you do not pay workers’ compensation or federal and state employment taxes –you do not offer training and education –you do not provide liability insurance –you do not advertise for new customers –you do not manage employees

© Copyright 2012 Milady, a part of Cengage Learning. All Rights Reserved. Disadvantages –minimal or nonexistent business growth –high staff turnover –unable to manage and educate staff –no quality control –lack of teamwork –exposure to audits –unable to sell other salon and spa services Leased Space and Booth Rental

© Copyright 2012 Milady, a part of Cengage Learning. All Rights Reserved. Naming a Salon and Spa Your salon and spa name must: –be easy to spell –be short enough that people can remember it –clearly identify services offered Your salon and spa name should not: –be so trendy that it becomes outdated when trends change © Milady, a part of Cengage Learning. Photography by Dino Petrocelli

© Copyright 2012 Milady, a part of Cengage Learning. All Rights Reserved. Summary Each state has its own laws for salon and spa ownership All technicians need to be licensed by the appropriate board There are five types of salons and spas

© Copyright 2012 Milady, a part of Cengage Learning. All Rights Reserved. Summary Salons and spas can vary in types of ownership Corporation style of ownership offers greatest financial security against lawsuits Franchised salons and spas allow for easier startup Your salon and spa name should be easy to spell and remember