C.O.E. CONTINUING EDUCATION

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1 Continuing legal or professional services expert licensed in your state. Page 1 of 36 SALON BUSINESS START-UP Salon Business Start-up Strategies Starting a business can be a complex and difficult process. It takes persistence and diligence, and investments of time and capital. Knowledge about state regulations, support programs for businesses and other opportunities can certainly aid and accelerate the process of getting a business started. The amount of capital needed to start a salon or spa business will vary depending on the type of services you will offer, the salon and spa equipment required the basic fixtures and administrative equipment required the opening inventory of products you will offer, and deposits for rent and utilities. Why a business plan? A Salon Business Plan will help you to understand why you need to write one. It will put you steps ahead of people that try to start a business without putting together a plan. Your Salon Business Plan will help you to start a Salon Business that will make it through the good and the bad times. Writing a Salon Business Plan is one of the first things you should do if you are planning on starting your own Salon business. A salon business can be one of the most rewarding types of businesses to start because of the personal involvement you can have with this business. You can be a part of just about every aspect of your Salon Business, and writing your Salon Business Plan will help you Salon business to grow. You can look over the operations of the whole business... Or you can simply hire someone else to take care of these tasks for you... Whether you plan on starting a beauty salon business, a tanning salon business, a nail salon business or any type of salon business, a salon business plan will ultimately help you get things going in the right direction... C.O.E. CONTINUING EDUCATION The day to day operations of your Salon Business can be overwhelming, if you don't have some type of system. Salon Business Plan System A Salon Business Plan System is what makes a business run in an expedient manner. legal or professional services expert licensed in your state. 1

2 Continuing legal or professional services expert licensed in your state. Page 2 of 36 You will need to create a Salon Business Plan System that will work for your Salon Business. A Salon Business Plan System is the way you operate your business. This system should include a plan of operation for every aspect of your Salon Business. The First System The first part of your Salon Business Plan System should include how you will run the day to day operations of your Salon Business. The Second System The second part should include all of the equipment you will need to operate your Salon Business. This part should also include the day to day operations and the maintenance that should be done on your equipment. This part should also include the preventive maintenance on this equipment as well. legal or professional services expert licensed in your state. 2

3 Continuing legal or professional services expert licensed in your state. Page 3 of 36 The Third System The third part of your Salon Business Plan System should include your Salon Business menu of services. This is the products and/or services that you will supply to your customers. C.O.E. CONTINUING EDUCATION The Fourth System The fourth part of your Salon Business Plan System will be about the way you will deliver your services to your customers. Are you going to have workers to serve your customers? legal or professional services expert licensed in your state. 3

4 Continuing legal or professional services expert licensed in your state. Page 4 of 36 Are you going to do it yourself? Or are you going to have both? The Fifth System The fifth part of your Salon Business Plan System is that, you are going to have to figure out how you are going to pay for your Salon Business. Are you going to self finance it or are you going to borrow the money from your friends and family? Or are you going to use your credit cards? Are you going to obtain financing from a bank? The Sixth System The sixth part of your Salon Business Plan System is figuring out where your Salon Business will be located. Are you going to rent or lease a business location? legal or professional services expert licensed in your state. 4

5 Continuing legal or professional services expert licensed in your state. Page 5 of 36 Are you going to buy a building for your business? Before you actually start your Salon Business, it is best that you take time to figure out if this is the type of business for you and your future. Writing your own Salon Business Plan will help you understand why you want to be in business for yourself. It will also help you to be one step ahead on your business planning. If you don't take care of your business, who do you think will do it for you? Three reasons why you should take the time to prepare a business plan: 1. The process of putting a business plan together, including the thought put in before beginning to write it, forces one to take an objective, critical, unemotional look at the business project in its entirety. 2. A business plan is an effective operating tool. If properly used, a business plan will help manage the business and work effectively toward its success. 3. Lenders require one. A completed business plan communicates ideas to others and provides the basis for a financial proposal. The importance of planning cannot be over-emphasized. Taking an objective look at the business plan will identify areas of weakness and strength, pinpoint needs that might otherwise be overlooked, and spot opportunities early. Once the plan has been written, you can then begin working on how best to achieve the business goals. C.O.E. CONTINUING EDUCATION Your business plan is a working document; use it. Don t put it in the bottom drawer of a desk and forget it. Going into business is rough over half of all new businesses fail within the first ten years. A major reason for failure is the lack of planning. The best way to enhance chances of success is to plan and follow through on that plan. Your business plan provides benchmarks and milestones for you to use as measures of your success. legal or professional services expert licensed in your state. 5

6 Continuing legal or professional services expert licensed in your state. Page 6 of 36 A business plan will help avoid going into a business venture that is doomed to failure. If the proposed venture is marginal, the business plan will show why and can help avoid costly mistakes. It is far cheaper not to begin an ill-fated business than to learn by experience what a business plan would have shown. The business plan also provides the information needed by others to evaluate a venture, especially if seeking outside financing. A thorough business plan will quickly become a complete financing proposal that will meet the requirements of most lenders. Business Plan Framework Executive Summary General Description Products and Services Marketing Management Legal Finances Operations There is no exact formula for putting a business plan together. However, a number of specific topics that should be covered. Business planning does not offer solutions to business problems, but offers the framework to structure concepts and information about a project. A well-written business plan will determine the feasibility of a project and lay out the action necessary to meet the goals. Now let s get take a look at each of these components that form the Framework of a Business Plan. Executive Summary This is an overview of the business plan. Even though it will be at the beginning of the plan, write it after the rest of the plan is completed. It brings together the significant points and should convey excitement. This section should: Be written last. legal or professional services expert licensed in your state. 6

7 Continuing legal or professional services expert licensed in your state. Page 7 of 36 Provide an enthusiastic snapshot of your company, explaining who you are, what you do and why. Be less than 2 pages in length. After reviewing this section the reader should: Want to learn more about your business. Have a basic understanding about your company. Remember that the summary, which starts your plan, is the single most important part. Many people will not read past the summary. It must present enough information so readers will continue and give a sense of enthusiasm and optimism. How long will the plan be? Probably not much more than ten pages. The complexity of a business plan will vary with the type of business, and the size will reflect that complexity. General Description Explain the type of salon. If this is an existing business, give its history. If it is a new business, note some of the qualifications to start this business. Why is this business needed and what is its chance for success? This section should include: Mission statement (business purpose). Company vision (statement about company growth). Business goals and objectives. Brief history of the business. List of key company principals. After reviewing this section the reader should know: C.O.E. CONTINUING EDUCATION Who the business is and what it stands for. Your perception of the company s growth & potential. Specific goals and objectives of the business. Background information about the company. Products and Services legal or professional services expert licensed in your state. 7

8 Continuing legal or professional services expert licensed in your state. Page 8 of 36 Describe the product and/or service. What are its unique features? Why will customers come to this business? This section should : Specifically describe all of your products and services. Explain how your products and services are competitive. If applicable, reference a picture or brochure of your products, which would be included in the plan s appendix. After reviewing this section the reader should know : Why you are in business. What your products and services are and how much they sell for. How and why your products & services are competitive. Marketing Identify your target market. There should be specific target markets that will need your products or services and be willing to pay for them. These have similar characteristics that can be identified and used in your marketing efforts. Outline your marketing strategy a competitive edge to draw customers to you rather than your competition. List your primary competitors and provide an honest appraisal of their strengths and weaknesses and how you will compete successfully against them. After reviewing this section the reader should know: Basic information about the industry you operate in and the customer needs you are fulfilling. The scope and share of your business market, as well as who your target customers are. Who your market is and how you will reach it. How your company will apply pricing, promotion, product diversification, and channel distribution to sell your products and services competitively. Management Identify the people who will be active in this business. Describe their skills and experiences. This section should: legal or professional services expert licensed in your state. 8

9 Continuing legal or professional services expert licensed in your state. Page 9 of 36 Provide a description of how your company is organized as well as an organization chart, if available. Describe the legal structure of your business (proprietorship, partnership, corporation, etc.). Identify necessary or special licenses and/or permits your business operates with. Provide a brief bio description of key managers within the company. After reviewing this section the reader should know: The legal form of ownership for your business. Who the leaders are in your business as well as their roles. Legal The general flow of operations within the firm. Describe the type of legal organization; sole proprietorship, partnership, S corporation, limited liability company, corporation. Are patents or trademarks involved? Finances State the financial requirements and where these funds will come from: project revenues, costs, and profits. Your efforts in developing the financial statements will help you understand the cash flow of your business, your break-even point and the sensitivity of your business to fluctuations in business levels. This section should include: For a New Business: Estimate of start-up costs. Projected balance sheet (1 year forward). C.O.E. CONTINUING EDUCATION Projected income statement (1 year forward). Projected cash flow statement (12 months forward). For an Existing Business: Balance sheets (last 3 years). Income statements (last 3 years). legal or professional services expert licensed in your state. 9

10 Continuing legal or professional services expert licensed in your state. Page 10 of 36 Cash flow statement (12 months). If applying for a Loan (in addition to the above): Current personal financial statement on each principal. Federal tax return for prior year. After reviewing this section the reader should: Have a good understanding regarding the financial capacity and/or projections for your company. Operations Explain any systems or processes that will be used. What facilities will be used? What supplies will be needed and where can they be obtained? Who will provide the labor and how will it be accessed? What are the hours of operation of the business? Hair and Beauty Salon Business Plan (Sample) Executive Summary Introduction Example Salon Inc. is a hair salon that allows the entire family to have their hair needs satisfied in one convenient visit. There are many "quick salons" like Example Salon; however, many of these salons, such as Cost Cutters, only provide the minimum services, whereas the upscale salons can be inconvenient due to scheduling requirements and cost. The owner of Example Salon perceives an unfulfilled customer need for a lowcost salon that provides maximum flexibility and strong customer attention. Using this strategy, Example Salon will gain significant market share and create critical long-term relationships with its clients. The Company Example Salon Inc. is an Oregon corporation owned entirely by Susan Sever and is located in Shaker Hts., Oregon. Ms. Sever will be handling all hiring and training, purchasing, and retail sales. She will also hire a receptionist to manage all of the appointments as well as the people who walk in and be responsible for the point of sale transactions. Example Salon will also be hiring six part-time hair stylists who will operate on an hourly/commission basis. Ms. Sever will be using a partial commission basis to create incentives for superior customer attention. The more her stylists attend to the customer's needs, the more money they will make off commissions. legal or professional services expert licensed in your state. 10

11 Continuing legal or professional services expert licensed in your state. Page 11 of 36 Example Salon will invest time and money into training to ensure that clients receive the best experience possible making it easier to turn them into long-term customers. Services Example Salon provides hair styling for the entire family. This includes hair cuts for men and women, permanents and hair coloring for women, as well as hair cuts for children. Shampoos will be offered for all adult services. Service is offered on a walk-in basis or by appointment. Example Salon will emphasize a customer-centric service where the customer's needs are always the priority. Example Salon Inc. will also sell hair care products which are forecasted to account for 15% of sales. These professional-quality supplies will include shampoos, conditioners, reconstructors, brushes, combs, and other styling aids. The Market The hair styling industry is highly fragmented with national chains such as Any Corporation, which operates diverse franchises catering to all the market segments, and also including thousands of "mom and pop" salons that are very restricted in scope and services. This makes for a highly competitive market that has low barriers to entry and exit. In addition, the clients of hair styling have significant leverage due to the low switching costs they have. However, most companies have tried to pursue only one general strategy in gaining market share. Example Salon believes that it is possible to offer a differentiated service through improved customer service at no greater significant cost if the right employee incentives are provided. With this strategy in mind, the company's goal is to increase the number of clients served by at least 20% per year. The Market Example Salon Inc. will target three different market segments: Men will typically make up 70-75% of the clientele. Females who cannot afford an upscale salon. C.O.E. CONTINUING EDUCATION Young mothers with children. legal or professional services expert licensed in your state. 11

12 Continuing legal or professional services expert licensed in your state. Page 12 of 36 Mission Example Salon Inc.' mission is to provide reasonably priced, convenient hair styling. We exist to attract and maintain customers. When we adhere to this maxim, everything else will fall into place. Our services will exceed the expectations of our customers. Objectives The objectives for the first three years of operation include: 1. To create a service-based company whose goal is to exceed customer's expectations. 2. To increase the number of clients served by at least 20% per year through superior performance and word-of-mouth referrals. 3. To develop a sustainable start-up business, contributing to increased employment of community residents. Company Summary Example Salon Inc., soon to be located in Shaker Hts., OH, will offer reasonably priced, convenient hair styling. Example Salon Inc. will accept walk-ins as well as appointments for the entire family. Example Salon Inc. will grow its market share based on superior customer attention. Example Salon Inc. is a family hair salon, also known as a "quick hair salon." Company Ownership Example Salon Inc. is an Ohio corporation owned entirely by Susie Q. Start-up Summary legal or professional services expert licensed in your state. 12

13 Continuing legal or professional services expert licensed in your state. Page 13 of 36 Example Salon Inc. will incur the following start-up costs: Computer with point of sale terminal. Computer with printer for back office. Five cutting stations, each station requires a barber chair, cabinet, large mirror, blow dryer, curling iron, electric razor, several pairs of scissors, spray bottle, two sided mirror, and assorted combs and brushes. Desk for reception area. Three couches for the reception area. Display shelf for sale of retail products. Assorted plants. Assorted toys for the children. Legal fees for business formation and generation/review of contracts. Table: Start-up Funding Please note that the following items that are assets to be used for more than a year will be considered a long-term assets and will be depreciated using the straight-line method accepted by G.A.A.P. Start-up Funding Start-up Expenses to Fund $1,100 Start-up Assets to Fund $103,900 Total Funding Required $105,000 C.O.E. CONTINUING EDUCATION Assets Non-cash Assets from Start-up $7,320 Cash Requirements from Start-up $96,580 Additional Cash Raised $0 legal or professional services expert licensed in your state. 13

14 Continuing legal or professional services expert licensed in your state. Page 14 of 36 Cash Balance on Starting Date $96,580 Total Assets $103,900 Liabilities and Capital Liabilities Current Borrowing $0 Long-term Liabilities $45,000 Accounts Payable (Outstanding Bills) $0 Other Current Liabilities (interest-free) $0 Total Liabilities $45,000 Capital Planned Investment Susan $60,000 Investor 2 $0 Other $0 Additional Investment Requirement $0 Total Planned Investment $60,000 legal or professional services expert licensed in your state. 14

15 Continuing legal or professional services expert licensed in your state. Page 15 of 36 Loss at Start-up (Start-up Expenses) ($1,100) Total Capital $58,900 Total Capital and Liabilities $103,900 Total Funding $105,000 Chart: Start-Up C.O.E. CONTINUING EDUCATION Table: Start-up Start-up legal or professional services expert licensed in your state. 15

16 Continuing legal or professional services expert licensed in your state. Page 16 of 36 Requirements Start-up Expenses Legal $1,000 Stationery etc. $100 Other $0 Total Start-up Expenses $1,100 Start-up Assets Cash Required $96,580 Other Current Assets $0 Long-term Assets $7,320 Total Assets $103,900 Total Requirements $105,000 Services Example Salon Inc. provides hair styling for the entire family. This includes hair cuts for men and women, permanents and hair coloring for women, as well as hair cuts for children. Shampoos will be offered for all adult services. Service is offered on a walk-in basis or by appointment. Example Salon Inc. will emphasize a customer-centric service where the customer's needs are always the priority. Example Salon Inc. will also sell hair care products which are forecasted to account for 15% of sales. These professional-quality supplies will include shampoos, conditioners, reconstructors, brushes, combs, and other styling aids. Market Analysis Summary legal or professional services expert licensed in your state. 16

17 Continuing legal or professional services expert licensed in your state. Page 17 of 36 Example Salon Inc. will be targeting three diverse groups of customers. Example Salon will work hard to distinctly appeal to each of these groups. By focusing on more than one group, Example Salon is lowering their risk that in a downturn one group will negatively affect the company. Market Segmentation Example Salon Inc. will target three different market segments: Men will typically make up 70-75% of the clientele. Men have shorter hair requiring a faster, simpler job. Females who cannot afford an upscale salon. Women tend to favor a female specific upscale salon if they can afford it. There is not often a difference in quality of an upscale salon relative to a family hair salon other than a upscale salon will tend to pamper you more, only accepts appointments, and the facility is generally a bit plusher. Someone who is fiscally responsible as opposed to someone who likes opulence will favor a family style salon. Young mothers with children. Most young children are notoriously difficult when it comes to getting haircuts. A family style salon is a more laid-back place that allows the children to play while they are waiting and then will work with the parents in calming the kid s nerves when they are ready for their shearing. Table: Market Analysis Market Analysis Year 1 Year 2 Year 3 Year 4 Year 5 Potential Customers Growth CAGR C.O.E. CONTINUING EDUCATION Males 9% 54,000 58,860 64,157 69,931 76, % Females 10% 28,000 30,800 33,880 37,268 40, % legal or professional services expert licensed in your state. 17

18 Continuing legal or professional services expert licensed in your state. Page 18 of 36 Mothers with young children 9% 23,400 25,506 27,802 30,304 33, % Total 9.27% 105, , , , , % Chart: Market Analysis (Pie) Target Market Segment Strategy Example Salon Inc. will target each of the three groups separately. The males will be targeted by offering a quick, convenient, service. Because men tend to have shorter hair, they usually require haircuts more often. If they are getting a cut every four weeks and work normal business hours, most barbers are closed when the male customers have free time. Example Salon Inc. will cater to males with evening hours, no appointments necessary, and quick turn around times. legal or professional services expert licensed in your state. 18

19 Continuing legal or professional services expert licensed in your state. Page 19 of 36 Generally females prefer the allure of upscale salons, however, not everyone can afford this luxury. For this reason Example Salon Inc. will provide the same quality hair styling, without the expensive price. Example Salon will target these customers by emphasizing the sophisticated, ultra-hip styling that Example Salon can offer. Example Salon Inc. will also target mothers with children by offering the kids toys to play with while they wait and child-friendly hair stylists. Additionally, children receive a special rate reflecting the fact that children's hair grows so fast that it can be expensive to keep up with regular cuts, as well as the recognition that it generally takes a lot less time to cut a child's hair so it should be inherently less expensive. Service Business Analysis The "hair" service industry is fairly diverse. On one end of the spectrum you have the traditional barber, on the other end you have the fashionable boutique salons. Somewhere in between there are independent hair stylists, franchise barbers and stylists, and beauty salons. Competition and Buying Patterns Example Salon Inc.' competitors include: 1. Traditional barbers. They rarely serve appointments; it is generally a walk-in service. While barbers are usually willing to provide whatever cut you are interested, they are generally providing straight forward haircuts, typically on the conservative side. The advantage of a barber is they are inexpensive and easy to use. Their disadvantages is often conservative styling capacities, sometimes a long wait as the barber may be an old timer who enjoys to chit chat. 2. Franchised "quick salons." An example of this would be Supercuts or Best Cuts. In essence this is a franchised version of Example Salon Inc.. The advantage of this style is the store will be the same from location to location and some people like this predictability. 3. Independent salons. These shops typically focus on a specific niche and do not serve a wide group of customers. The advantages to these could be an independent salon that fulfills all of your needs. The disadvantage is that because they tend to be more focused, more often than not this type of salon will not offer exactly what customers are looking for. C.O.E. CONTINUING EDUCATION The buying patterns of men and women are quite different. Typically men are more price or convenience sensitive. Men typically care less about the task of getting their hair cut. For them whatever is easiest works best. Women on the other hand are more caught up in hair styling and tend to bond more with their stylists. Because they bond more, they are much more loyal to their stylist. Once a stylist has earned their trust they are more willing to blindly put their hair in the stylists hands. Strategy and Implementation Summary legal or professional services expert licensed in your state. 19

20 Continuing legal or professional services expert licensed in your state. Page 20 of 36 Example Salon Inc. will rely on three separate strategies to grow market share. The first is superior customer service. Customers will be blown away with the level of service that they receive. They have expectations of average (at best) customer service from a quick salon based on past experiences. Example Salon will also be leveraging its high-traffic store front location in a shopping center to drive people into the store. They will benefit from the shopping center association's marketing efforts to bring more people to the center. Lastly, Example Salon Inc. will use financial incentives early on to build a large, loyal customer population. Competitive Edge Example Salon Inc.' competitive edge is based on faultless customer service. Example Salon Inc. recognizes that the hair cutting/styling market is crowded so it is difficult to stand out. Example Salon Inc. will stand out by providing superior customer attention. This is particularly important in the "quick salon" space that Example Salon operates in because margins are a bit lower and the goal of a quick salon is to crank through customers. Example Salon will invest time and money into training to ensure that clients receive the best experience possible making it easier to turn them into long-term customers. By providing superior customer service, Example Salon will be able to effectively compete against and outlast larger chains and independent stores. Marketing Strategy Example Salon Inc. will be located in a shopping center in Shaker Hts., OH. While the cost of the lease per foot is higher than in other business areas, the shopping center provides the best exposure. Additionally, the shopping center association is responsible for marketing the center's common area which will help draw a lot of traffic to the shopping center. Example Salon Inc. will market themselves as a hair salon that serves everyone, men, women, and children. This will be done through flyers to be sent out with the local newspaper. Example Salon will also have an in-store promotion for the first few months to lure new people in. Lastly, Example Salon will offer a discount for a few months to people that refers new customers. Sales Strategy Example Salon Inc.' sales strategy will be based on extremely professional interactions with the customer. Typically the "quick salons" concentrate on being quick and inexpensive, often at the expense of customer service. Anytime that a prospective customer is speaking with someone at Example Salon's the employee will have an opportunity to impress the customer. Employee training will emphasize seizing these opportunities. legal or professional services expert licensed in your state. 20

21 Continuing legal or professional services expert licensed in your state. Page 21 of 36 Example Salon Inc. will also have the opportunity to increase sales of their retail hair care products every time they have a customer in the chair. Example Salon offers deep discounts on the hair care products for employees to encourage usage so they can explain to the customer about their personal experiences. Additionally, Example Salon offers a product-based commission structure for the hair care products where they give away the product to the employee for commissions for selling the items to their customers. These personal testimonials and commission structure will allow Example Salon to generate good sales from the retail hair care products. Sales Forecast The first month will be used to set up the store and hire and train the employees. The store will be officially open the second month. Sales for month two through will four will be somewhat slow as Example Salon will be building up a customer base. From month four on sales will grow steadily. Table: Sales Forecast Sales Forecast Sales Year 1 Year 2 Year 3 Males $217,112 $395,458 $411,545 Females $21,711 $39,546 $41,155 Women with small children $2,171 $3,955 $4,115 Retail hair care products $36,149 $65,844 $68,522 Total Sales $277,143 $504,802 $525,337 C.O.E. CONTINUING EDUCATION Direct Cost of Sales Year 1 Year 2 Year 3 Males $26,053 $47,455 $49,385 Females $2,605 $4,745 $4,939 Women with small children $261 $475 $494 legal or professional services expert licensed in your state. 21

22 Continuing legal or professional services expert licensed in your state. Page 22 of 36 Retail hair care products $14,460 $26,338 $27,409 Subtotal Direct Cost of Sales $43,379 $79,013 $82,227 Chart: Sales Monthly Chart: Sales by Year legal or professional services expert licensed in your state. 22

23 Continuing legal or professional services expert licensed in your state. Page 23 of 36 Milestones Example Salon Inc. will have several milestones early on: 1. Business plan completion. This will be done as a roadmap for the organization. 2. Set up the store front. 3. Revenue exceeding $100, Profitability. Table: Milestones Milestones C.O.E. CONTINUING EDUCATION Milestone Start Date End Date Budget Manager Department legal or professional services expert licensed in your state. 23

24 Continuing legal or professional services expert licensed in your state. Page 24 of 36 Business plan completion 1/1/2001 2/1/2001 $0 ABC Marketing Set up the store front 1/1/2001 2/1/2001 $0 ABC Department Revenue exceeding $100,000 1/1/2001 7/1/2001 $0 ABC Department Profitability 1/1/2001 9/1/2001 $0 ABC Department Totals $0 Management Summary Susie Q received her bachelor's degree from Miami University in Oxford, OH. While pursuing her degree Susie worked in the restaurant industry. For the four years during school she was a server in an upscale restaurant. While this provided very good income, particularly on the weekends, she longed for management experience. After graduation she sat down with the owner of the restaurant and presented him with a well reasoned case as to why she should be manager of the establishment. Her main points were her intimate knowledge of the industry and the restaurant, her superior communication skills with the customers and her colleagues, and her ambition to succeed. The owner was surprised by the well-reasoned arguments, enthusiasm, and ambition to take on more work that he promoted her to manager on the spot. Susie worked as manager for three years, learning all the intricacies of operating a business. These were three rewarding, but long, years. Toward the end, the long hours and work at night took its toll on Susan and she was burned out. When contemplating new opportunities she was brainstorming a way in which she could combine something she loved with something that she would be the owner of. She loved hair and had the experience of operating a business so after a lot of market research she undertook the task of writing a business plan. Personnel Plan legal or professional services expert licensed in your state. 24

25 Continuing legal or professional services expert licensed in your state. Page 25 of 36 Susie will be working full time for Example Salon Inc.. She will be handling all hiring and training, purchasing, and retail sales. Susan will also hire a receptionist to manage all of the appointments as well as the people who walk in and be responsible for the point of sale. The receptionist will be paid an hourly wage. Susan will also be hiring six part-time hair stylists who will operate on an hourly/commission basis. Susie will be using a partial commission basis to create incentives for superior customer attention. The more her stylists attend to the customer's needs, the more money they will make off commissions. Susie is more than happy to pay for this type of performance. Table: Personnel Personnel Plan Year 1 Year 2 Year 3 Susan $36,000 $40,000 $44,000 Receptionist $17,600 $19,200 $19,200 Part-time hair stylist $33,000 $36,000 $36,000 Part-time hair stylist $33,000 $36,000 $36,000 Part-time hair stylist $33,000 $36,000 $36,000 Part-time hair stylist $33,000 $36,000 $36,000 Part-time hair stylist $33,000 $36,000 $36,000 Part-time hair stylist $33,000 $36,000 $36,000 Total People C.O.E. CONTINUING EDUCATION Total Payroll $251,600 $275,200 $279,200 Financial Plan The following sections will outline the important financial data. legal or professional services expert licensed in your state. 25

26 Continuing legal or professional services expert licensed in your state. Page 26 of 36 Important Assumptions The following table details important financial assumptions for Example Salon Inc.. General Assumptions Year 1 Year 2 Year 3 Plan Month Current Interest Rate 10.00% 10.00% 10.00% Long-term Interest Rate 10.00% 10.00% 10.00% Tax Rate 30.00% 30.00% 30.00% Other Break-even Analysis The Break-even Analysis indicates what Example Salon must achieve in monthly revenue to reach the break even point. Table: Break-even Analysis Break-even Analysis Monthly Revenue Break-even $31,511 Assumptions: legal or professional services expert licensed in your state. 26

27 Continuing legal or professional services expert licensed in your state. Page 27 of 36 Average Percent Variable Cost 16% Estimated Monthly Fixed Cost $26,579 Chart: Break-even Analysis Projected Profit and Loss The following table and chart shows the projected profit and loss for Example Salon Inc.. Pro Forma Profit and Loss C.O.E. CONTINUING EDUCATION Year 1 Year 2 Year 3 Sales $277,143 $504,802 $525,337 Direct Cost of Sales $43,379 $79,013 $82,227 Other Production Expenses $0 $0 $0 legal or professional services expert licensed in your state. 27

28 Continuing legal or professional services expert licensed in your state. Page 28 of 36 Total Cost of Sales $43,379 $79,013 $82,227 Gross Margin $233,764 $425,790 $443,111 Gross Margin % 84.35% 84.35% 84.35% Expenses Payroll $251,600 $275,200 $279,200 Sales and Marketing and Other Expenses $1,442 $0 $0 Depreciation $1,464 $1,464 $1,464 Leased Equipment $0 $0 $0 Utilities $1,200 $1,200 $1,200 Insurance $1,500 $1,500 $1,500 Rent $24,000 $24,000 $24,000 Payroll Taxes $37,740 $41,280 $41,880 Other $0 $0 $0 Total Operating Expenses $318,946 $344,644 $349,244 Profit Before Interest and Taxes ($85,182) $81,146 $93,867 EBITDA ($83,718) $82,610 $95,331 Interest Expense $4,500 $4,500 $4,500 legal or professional services expert licensed in your state. 28

29 Continuing legal or professional services expert licensed in your state. Page 29 of 36 Taxes Incurred $0 $22,994 $26,810 Net Profit ($89,682) $53,652 $62,557 Net Profit/Sales % 10.63% 11.91% Chart: Profit Monthly Chart: Profit Yearly C.O.E. CONTINUING EDUCATION legal or professional services expert licensed in your state. 29

30 Continuing legal or professional services expert licensed in your state. Page 30 of 36 Chart: Gross Margin Monthly legal or professional services expert licensed in your state. 30

31 Continuing legal or professional services expert licensed in your state. Page 31 of 36 Chart: Gross Margin Yearly Projected Cash Flow The following table and chart shows the projected cash flow for Example Salon Inc.. Pro Forma Cash Flow C.O.E. CONTINUING EDUCATION Cash Received Year 1 Year 2 Year 3 Cash from Operations Cash Sales $277,143 $504,802 $525,337 legal or professional services expert licensed in your state. 31

32 Continuing legal or professional services expert licensed in your state. Page 32 of 36 Subtotal Cash from Operations $277,143 $504,802 $525,337 Additional Cash Received Sales Tax, VAT, HST/GST Received $0 $0 $0 New Current Borrowing $0 $0 $0 New Other Liabilities (interest-free) $0 $0 $0 New Long-term Liabilities $0 $0 $0 Sales of Other Current Assets $0 $0 $0 Sales of Long-term Assets $0 $0 $0 New Investment Received $0 $0 $0 Subtotal Cash Received $277,143 $504,802 $525,337 Expenditures Year 1 Year 2 Year 3 Expenditures from Operations Cash Spending $251,600 $275,200 $279,200 Bill Payments $101,816 $172,090 $181,489 Subtotal Spent on Operations $353,416 $447,290 $460,689 Additional Cash Spent Sales Tax, VAT, HST/GST Paid Out $0 $0 $0 Principal Repayment of Current Borrowing $0 $0 $0 legal or professional services expert licensed in your state. 32

33 Continuing legal or professional services expert licensed in your state. Page 33 of 36 Other Liabilities Principal Repayment $0 $0 $0 Long-term Liabilities Principal Repayment $0 $0 $0 Purchase Other Current Assets $0 $0 $0 Purchase Long-term Assets $0 $0 $0 Dividends $0 $0 $0 Subtotal Cash Spent $353,416 $447,290 $460,689 Net Cash Flow ($76,273) $57,513 $64,648 Cash Balance $20,307 $77,820 $142,467 Chart: Cash C.O.E. CONTINUING EDUCATION Projected Balance Sheet legal or professional services expert licensed in your state. 33

34 Continuing legal or professional services expert licensed in your state. Page 34 of 36 The following table and chart shows the projected balance sheet for Example Salon Inc.. Pro Forma Balance Sheet Assets Year 1 Year 2 Year 3 Current Assets Cash $20,307 $77,820 $142,467 Other Current Assets $0 $0 $0 Total Current Assets $20,307 $77,820 $142,467 Long-term Assets Long-term Assets $7,320 $7,320 $7,320 Accumulated Depreciation $1,464 $2,928 $4,392 Total Long-term Assets $5,856 $4,392 $2,928 Total Assets $26,163 $82,212 $145,395 Liabilities and Capital Year 1 Year 2 Year 3 Current Liabilities Accounts Payable $11,945 $14,341 $14,968 Current Borrowing $0 $0 $0 Other Current Liabilities $0 $0 $0 legal or professional services expert licensed in your state. 34

35 Continuing legal or professional services expert licensed in your state. Page 35 of 36 Subtotal Current Liabilities $11,945 $14,341 $14,968 Long-term Liabilities $45,000 $45,000 $45,000 Total Liabilities $56,945 $59,341 $59,968 Paid-in Capital $60,000 $60,000 $60,000 Retained Earnings ($1,100) ($90,782) ($37,130) Earnings ($89,682) $53,652 $62,557 Total Capital ($30,782) $22,870 $85,427 Total Liabilities and Capital $26,163 $82,212 $145,395 Net Worth ($30,782) $22,870 $85,427 The examples that you ve just consider represents the work and determination that must be invested to successfully engineer a successful Salon Business. If time allowed us the opportunity, we could look even deeper into the process with chart examples of : The Projected Balance Sheet Business Ratios Based on the Beauty Industry Profile Sales Forecast C.O.E. CONTINUING EDUCATION Personnel Expenditures Profit and Loss Ratios And Monthly Cash Flow Projections However, the areas that we ve covered thus far will give you the basic foundation to organize your Salon business plan in a manner that will include all the important details to remain one-step ahead of the game. legal or professional services expert licensed in your state. 35

36 Continuing legal or professional services expert licensed in your state. Page 36 of 36 Keys to Running a Successful Salon or Spa Business Salon Customer Service and Satisfaction is the Key Create a Comfortable, Clean and Safe Atmosphere for your Salon or Spa Salon and Spa Convenience Marketing your salon or spa is as important to your business success as having a professional staff and competitive pricing! Create a compelling name for your salon or spa business. Create and Promote a Website for Your Salon or Spa. Increase your Salon or Spa Client Base through Regular Advertising Methods. Segment Summary The success of your salon or day spa will be directly linked to your ability to satisfy your customers. There is no better way to retain existing customers than to have them leave happy on every visit. And word-of-mouth can be an extremely effective form of organically marketing your salon or spa. Customer service starts with a courteous and professionally trained staff. From the point that customers enter your salon or spa establishment to the point they exit they should be presented with an environment that is clean, safe, comfortable and relaxing. Salon and Spa customers expect cleanliness. Make sure that floors are swept in between customers. Make sure towels, trimmers and other equipment are washed and fresh for new customers. Install comfortable couches and furniture in waiting areas. Offer magazines and/or coffee table books for reading. Anything you can do to make your salon or spa more comfortable and relaxing will help retain customers and gain new ones. One of the advantages to opening a more full service beauty salon is that it will be more convenient to your customers. If you offer hair, nail, beauty and spa services, and then you present a one-stop solution for all your customers beauty needs. A client can schedule several services in one visit, rather than having to go to several establishments at different times. Also, offering a selection of salon and spa products to your clients is a convenience for them, and generates revenue for you. legal or professional services expert licensed in your state. 36