What Weaknesses Does a Hair Salon Business Have?

Hair salons are involved in a competitive industry with diverse target markets. Strengths-
Identifying the strengths of a hair salon can, at times, be as easy as looking at the clientele. A hair salon with an abundant clientele list is a sign of successful marketing, good operations and strong client management. Still, a strong analysis will identify the reasons that those strengths are strengths. Factors like a well-trained team and a high traffic location may be the core strengths of the salon.

Anyone who graduates from beauty school probably thinks about owning a hair salon one day. The desire is often fueled by dreams of expressing creativity, developing a clientele and raking in profits. Rarely do these dreams include human resources problems, employee theft and payroll tax implications. These issues are the downside — or weakness — in the hair salon business.

High Turnover

Recruiting and employee retention are two of the biggest problems in the salon industry. Because education for hair stylists is regulated by states, there is no national standard for competency. Salon owners rely on tryouts and references in recruiting. Yet turnover remains high. Stylists who leave without notice disrupt staff schedules and client appointments. High turnover affects sales and erodes a salon’s reputation. The ease with which stylists leap from one salon to another keeps hair business owners in constant recruiting mode.

Employee Compensation

How a hair salon compensates employees dictates cash flow, turnover and taxes. Most salons pay employees a commission. They start with a 60-40 split in the salon’s favor. However, stylists and nail technicians who increase the salon’s clientele soon request a 50-50 split. In this case, the salon owner gets the short end of the deal because rent, utilities and the cost of goods sold are paid from the owner’s 50 percent. The owner must raise prices to counter the increase in compensation or accept reduced revenue. Some salons pay salaries to minimize the impact that commissions have on profits.

Taxes

Further complicating the stylist-salon owner relationship is the way the federal government taxes tips. The Professional Beauty Association has lobbied Congress for years to pass legislation that would give salon owners a tax credit on employee tips. The association seeks a deal like the one that applies to restaurant owners via section 45B of the Internal Revenue Code. As it stands, salon owners receive no tax credits and must pay taxes on employee tips. Stylists at high-end salons can generate more than $10,000 annually in tips.

Poor Industry Ethics

A software developer for a technology firm could not quit his job without notice, walk away with that firm’s proprietary information and take a job with its competitor all in the same day. This happens all the time in the salon industry. Stylists routinely take confidential client information and claim the clients as their own. Although some salon owners require employees to sign non compete contracts, these agreements are difficult and costly to enforce. Ethics problems also arise when employees steal salon products and perform additional services for free and under report tips.

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