When it comes to opening a hair salon, there is a lot that goes into planning and starting up your business. Of course, you want to make sure you pick out all of the right equipment, have all of the correct licenses, and have the best location. However, have you thought about what business structure would be best for your hair salon?
When choosing what business structure to use for a hair salon, you have five options to choose from, which include:
- Sole Proprietorship
- Limited Liability Company
- S Corporation
- C Corporation
With many small businesses, including hair salons, your best option will be a Limited Liability Company (LLC). However, all small businesses, especially hair salons, are unique, so just because a Limited Liability Company may be best for most hair salons does not mean it is your only option.
Benefits to Limited Liability Company
There are three benefits to using a Limited Liability Company business structure for your hair salon business overusing a sole proprietorship, partnership, S Corporation, or C Corporation.
Three unique benefits to choosing a Limited Liability Company are:
- It Protects Your Assets
- It Allows You To Be Your Boss
- Tax Benefits
Protect Your Assets
A Limited Liability Company is the best business structure for many small businesses, including hair salons, because it will protect your other personal assets. If someone sues your hair salon business, then they can only come after your business. They cannot sue you for your house and car when you have a Limited Liability Company.
With other business structures, you do not have this added protection, and if you get sued or something wrong would occur with your hair salon business, you could lose your things as well as your business.
Although you do not want mistakes to happen ever, and hopefully, you will never get sued. It can bring peace of mind knowing that you are not at risk of losing everything if you are sued. Using a Limited Liability Company business structure, you will not have to worry about losing your car or home if something were to happen. Your hair salon business would be the only thing at risk.
It Allows You To Be Your Boss
A limited liability company also offers more flexibility for you and your business since you will be able to be the leader of your small business.
You will not have to go in front of a board of directors or shareholders meeting every time you need to buy a new hairdryer, mirror, or curling iron. You are your boss, so you can make these purchases on your own based on your hair salon business budget.
With a partnership business structure, you do have one or two (or however many partners you decide) to work with that you must agree with when making decisions. Unfortunately, people sometimes choose to open hair salons as partnerships with people that they know, whether family or friends. When business disagreements happen, then you can lose the previous relationships that they had with these people.
Also, the more people you add as a partner in your business, the less personal control you have in your hair salon.
Unfortunately, some small businesses run into the risk of having to pay two types of taxes if you choose the wrong business structure. Hair salons who choose to use Limited Liability Company as their business structures can avoid having to pay taxes on both your income from your hair salon and having to pay taxes on the money that your business makes.
With other business structures, you may be required to pay taxes for the money that you make as a hair salon owner. Then turn around and be taxed again on the money that your business makes. This would mean you are getting taxed on the money twice.
Other Business Structure Options To Consider
Just because a Limited Liability Company is common and has many benefits it is not the only option you have. Everyone’s situation is different, and every hair salon is different. Therefore one of the other options may be better for your business.
So let’s take a look at the benefits and disadvantages of these other business structures so you can make the best decision for your hair salon.
Check out our advice on creating your business plan HERE.
In a Sole Proprietorships, there is not a line between your assets and your hair salon business. So as far as liability goes, if something happens at your business, your personal property is at risk as well.
However, there are some advantages unique to using a Sole Proprietorship business structure that other business structures do not have, which include:
- Easiest Business Structure to Start-Up
- Cheaper to Start-Up
- Personal Taxes Only
Sole Proprietorships are relatively easy to get and do not require as much paperwork and other requirements to get. If you are in a hurry to start your hair salon business and you have limited time and funds, a Sole Proprietorship may be a better option for your hair salon business structure.
Since there is no distinction between you and your hair salon business with a sole proprietorship, you pay the personal taxes that you make from your business. However, you will still be responsible for paying social security and Medicare taxes based on the money earned from your salon.
Partnerships can work well for hair salons when done with the right people. Since you can split the financial costs with someone else, it can save you money. However, you still split the profits, too, so you may earn less with a partnership than you would with other business structures.
With partnerships, you share the liability if something were to happen to your hair salon business. If something unfortunate were to happen, such as your hair salon business got sued, you could potentially lose your business, home, car, and other personal assets. Your partner in the company also may lose their personal property if something were to happen.
C Corporation Business Structure
The C Corporation business structure is the least common business structure among hair salons or other small businesses. This is because they are typically double-taxed on the income from the hair salon business and personal income. You are also a part of a corporation and have shareholders, which means being stuck in meetings and having less control of your hair salon business.
However, with C Corporation business structures, you have the least amount of liability if something unforeseen were to happen, and in case your hair salon business was to get sued, you will not have to worry about losing any of your assets, such as your home or car.
S Corporation Business Structure
S Corporation business structures share similar downfalls for hair salon businesses as C Corporations. You are a part of a large group and have less say in your hair salon business, but you also have less liability if something were to happen. Your assets are protected with an S Corporation business structure.
One positive thing with S Corporations over C Corporations is you may be able to avoid double taxation on your profits. However, this is based on the income from your hair salon. If your hair salon makes over “X” amount of money, you may still be double taxed.
Choosing the Right Business Structure
There is not necessarily only one correct answer when it comes to which business structure is best for a hair salon. Every business is different, and every business owner is different. Still, overall a Limited Liability Company business structure is most popular and has the most benefits for hair salons over the other business structures.
Can you change your business structure once you have opened your hair salon?
Yes, however, make sure you discuss this process with either a lawyer or other financial or legal expert and do not just do it on your own. There may be many legal hoops to jump through. This may not be a quick and easy process either so be patient and prepared that even though this is possible it will take some time and will not just happen overnight.
How much do hair salons make a year?
Hair salons make approximately $19,100 per year. This varies on location, services offered, and rates that you charge.
How much does it cost to form a Limited Liability Company business structure?
The cost to form a Limited Liability Company (LLC) varies based on the location of your business. For some states, such as Kentucky a Limited Liability Company only costs about $15. Whereas in some states such as California it is much more expensive and costs around $810 for a Limited Liability Company (LLC). Your company must also be renewed every year which costs an additional fee. The annual renewal fee for a Limited Liability Company costs anywhere from $20 up to $100 and varies based on the location of your business.
Looking to start your own Salon? Get the documents you need to get organized and funded here.
Please note: This blog post is for educational purposes only and does not constitute legal advice. Please consult a legal expert to address your specific needs.
About the author. Entrepreneur and Salon Business Fan.
Hi! I am Shawn and I am a happy individual who happens to be an entrepreneur. I have owned several types of businesses in my life from a coffee shop to an import and export business to an online review business plus a few more and now I create online salon business resources for those interested in starting new ventures. It’s demanding work but I love it. I do it for those passionate about their business and their goals. That’s why when I meet a salon business owner, I see myself. I know how hard the struggle is to retain clients, find good employees and keep the business growing all while trying to stay competitive.
That’s why I created Salon Business Boss: I want to help salon business owners like you build a thriving business that brings you endless joy and supports your ideal lifestyle.