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
© Copyright 2012 Milady, a part of Cengage Learning.
All Rights Reserved.
© Milady, a part of Cengage Learning. Photography
by Dino Petrocelli
Setting Up Your Salon
and Spa Business
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.
Hotel Salons and Spas
 Additional services may be controlled by:
– cosmetology/barber board
– medical board
© Copyright 2012 Milady, a part of Cengage Learning.
All Rights Reserved.
Hotel Salons and Spas
Leasing
 Potential unusual clauses
–
–
–
–
–
–
–
sign placement
cleaning and maintenance
charge system through the hotel
hours of business
decorating
subcontractor clause
customer dispute settlement
© 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.
Department Store/Fitness
Center Salons and Spas
 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
© Copyright 2012 Milady, a part of Cengage Learning.
All Rights Reserved.
Department Store/Fitness
Center Salons and Spas
 Considerations:
– compatible image
– clarify advertising
– customer complaint process
– style shows
– details of employee benefits, accounting
procedures, etc.
© Copyright 2012 Milady, a part of Cengage Learning.
All Rights Reserved.
Department Store/Fitness
Center Salons and Spas
 Benefits:
– store lunchroom
– employee discounts
– paid vacation/sick pay
– group insurance
– profit-sharing
© 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.
Mall/Shopping Center
Salons and Spas
 Rent varies based on:
– location
– type of mall
– economy
 Negotiating rent
– consider demographics, traffic patterns, seasonal
considerations, etc.
– hire an attorney/business consultant
© Copyright 2012 Milady, a part of Cengage Learning.
All Rights Reserved.
Mall/Shopping Center
Salons and Spas
 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
© 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.
Partnerships
 Advantages
–
–
–
–
easy to establish
increased ability to raise funds
partnership opportunity may attract employees
complementary skills
© Copyright 2012 Milady, a part of Cengage Learning.
All Rights Reserved.
Partnerships
 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
© Copyright 2012 Milady, a part of Cengage Learning.
All Rights Reserved.
 General partnership
 Limited partnership
and partnership with
limited liability
 Joint venture
© Copyright 2012 Milady, a part of Cengage Learning.
All Rights Reserved.
© Milady, a part of Cengage Learning. Photography
by Dino Petrocelli
Types of Partnerships
to Consider
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.
Leased Space and
Booth Rental
 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
© Copyright 2012 Milady, a part of Cengage Learning.
All Rights Reserved.
 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
© Copyright 2012 Milady, a part of Cengage Learning.
All Rights Reserved.
© Milady, a part of Cengage Learning. Photography
by Dino Petrocelli
Naming a Salon and Spa
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
© Copyright 2012 Milady, a part of Cengage Learning.
All Rights Reserved.