If you’re looking to open a salon, change locations, expand or remodel your current facility, it’s fairly obvious that you’ll need working capital to help realize your dream. Naturally you’ll tap into your own savings and reach out to family and friends for funds, but when that is not enough capital, look to your local bank and the Small Business Administration for a loan. To secure a loan, however, you’ll first need a rock solid business plan.
A Business Plan?
A business plan is simply a formal statement of business goals. It gives the reasons the goals are attainable and outlines plans for reaching them. This document also contains background information about the person, team or organization attempting to reach those goals. In addition to being necessary for securing a business loan, a business plan also provides the outline you’ll need to operate (or improve) your business and to provide a long-term game plan. This roadmap to entrepreneurial success is a document that generally projects several years ahead and outlines the route you intend to take to grow your business.
Here are a few tips before you begin. First, your business plan should be no more than 12 pages long plus supporting financial documents. In each section, always list qualitative objectives and quantitative goals. State any likely roadblocks along the way and indicate how you plan to overcome these issues. Keep your information concise and use visuals whenever possible and or appropriate. Last, but not least, don’t be afraid to reach out for help. There are business plan templates you can purchase online and professional associations that can help with advice and even some of the industry numbers. Also, if writing is not your thing, or if numbers make your head spin, hire a professional to help in these areas. It will make the project a lot less scary and overwhelming.
Here are some of the components of a good business plan as it specifically applies to salons and spas:
As obvious as this may be, the first page of the business plan should include your salon or spa name, address, owners' names, phone numbers, email addresses, and all other contact information. After the cover page you may also want to add a table of contents for easier reference. It also just makes the presentation look that much more polished and thought out.
This section is a synopsis of your business plan and should include your company profile and goals over the next three to five years. It should be no more than a page long and ought to include 6-10 concisely stated objectives.
Company Description & History
In this area you would include information about your salon or spa, the general products and services it provides and what differentiates your business from other salons or spas in your area. Take the time to outline what makes your business unique. Determining this could also help you stand out from the crowd and give you advantages over your competitors. Go into detail about the business location, the rational as to why you chose that location, the parking situation and even the traffic patterns. Explain the history and demographic of the area, touch upon the market your business serves and how your salon or spa will benefit your customers and the local community. Also indicate where you see the state of your business in the next three to five years and even beyond.
A good mission statement encompasses every element of salon or spa operation including customer service, hiring and training staff, ordering inventory, merchandizing retail, marketing your business, etc. This is also a good place to outline how salon and spa management software will help you run your salon or spa, as they have valuable features for client bookings, marketing, inventory control, as well as financial management.
Clearly identify your organizational, management and staffing strategies. This would include the role of the owner(s), as well as responsibilities and compensation for managers, office or front desk staff, and all service providers.
Before opening your doors for business it’s important for you to research the industry, as well as your market and local competitors. To break down some the facts for the market analysis section, start with market demographics, which can be resourced from your local Chamber of Commerce. Also reach out to trade organizations for industry trends and performance information and advice for marketing, advertising and promotions. Next, take the time to identify your local competition and research how their business is doing. Document what they're doing right and what you’ve learn from their mistakes, as well as how you can position your business to get a piece of the same market.
The first portion of the marketing plan section should outline how your salon or spa is or will be positioned in the market. For example, are you a color-focused salon with an upscale clientele, does your spa cater to couples and or working professionals with a relaxing child-free environment or are you a full service salon that is family oriented. Break down all client demographics based on age, gender, level of education, average income, and occupation and then outline typical client needs, likes, desires, and even perceptions. Next, identify how your salon or spa appeals to those targeted clients and their individualized needs. Setting realistic objectives and goals, outline a series of very precise statements detailing how you will capture your target audience and market share through specific merchandising, promotion, advertising, and public relations programs.
A bank or a loan agency needs to see a detailed breakdown of all financial information, including a startup budget if your salon is new and /or a running budget if you are already established. They’ll also want a profit and loss statement (also known as a P&L), a break-even analysis, projected cash flow, projected balance sheet, and a business ratio. This is one area were most salon or spa owners begin to go cross-eyed. If you don’t have a head for numbers, reach out to a Certified Public Accountant (CPA) to help organize and run the numbers for you. They can help with both the synopsis in the business plan for this section, as well as create the specific types of documentation required by lending institutions.
Also, understand before reading on that you are providing estimated numbers for each of these areas based on research and realistic projections. It’s best to justify how you came up with those projections and to include your research data and resources. If your salon or spa is already established, include previous documentation in all of these areas listed above and extrapolate forward accordingly. Just don’t forget to be very clear about which data is actual and which is projected.
Diving into the Numbers
Whether you do it yourself or use a CPA, here are some of the important components of the financial plan section of your business plan document. For the financial plan first identify how much of your own capital you have to invest in the business. The more you have, typically the more likely it is that you’ll get the loan and the better the interest rate will be for the loan. As the voice of experience, I highly recommend that you not tap every bit of your savings, as you will not have anything to fall back upon should the need arise. If you are starting a new salon, clearly list all expenses to secure your lease (or buy the building), get permits, do any tenant improvements, buy and install equipment, basically everything you’ll need to open your doors.
If you are looking to expand or remodel an existing facility, list expenses much the same way but take into consideration the impact the project will have on your existing business. If you are closing down the salon for the remodel or having work done while the salon is open, clearly outline the financial impact either scenario may have on your business.
In addition to everything above, make a special effort to plan to save two to three percent off the top of your revenues and hold it aside for a rainy day. You never know what the business may throw at you and it speaks volumes to a lender if you have a plan in place in case issues do arise.
The Actual Documentation
Profit and Loss Statement
The P&L statement previews the performance of your business monthly, quarterly and annually by outlining sales, costs and expenses. This important statement should break down the operating costs to run the salon or spa and the income based on both retail sales and service categories such as color services, haircuts, styling, facials, etc. List all expenses that go into generating income such as cost of goods, commissions, retail products and sales tax for retail sales. Next, list all operating costs such as rent, utilities, insurance, association dues, bank charges, payroll, advertising, etc.
A break-even analysis is an examination to determine the point at which revenue received equals the costs associated with doing business. It occurs when the fixed and variable costs intersect with revenue. This is one area where you may want to consider graphing out your findings.
Cash Flow Statement
To prepare a cash flow statement you'll use many of the same figures as you did for the profit and loss forecast. The main difference is that you'll include all cash that goes in and out, not just sales revenue and business expenses. For example, you'll include loans, loan payments, transfers of personal money into and out of the business, taxes, and other money that isn't earned or spent as part of your core business operation.
A balance sheet includes spending and income that isn’t in the P & L. It’s a financial picture that includes assets, liabilities, and capital at any given moment. It helps to understand that the P & L shows financial performance over a length of time, like a month, quarter, or year. The balance sheet, in contrast, is a specific moment in time. Usually it’s the end of the month, quarter, or year.
The business ratio assesses the percentage of sales and growth and expenses from one year to the next. Bankers, investors and business analysts assess a company’s financial status using these ratios. Lending institutions most often look at indicators, such as sales and net income trends, as well as the debt trend.
This section is optional, but is a useful place to include information such as resumes, permits and leases. If you’re not sure what to do with a certain asset that you feel might be beneficial to securing the loan, the appendix is where it will live.
In addition to helping you get a loan, a good business plan can help set you and your business on the road to success. In that case, keep in mind that it’s a living, breathing document that needs to change and grow with the times. To ensure your success, regularly review your salon's ability to meet the business plan's objectives and goals and track your financial progress on a monthly, quarterly or annual basis.