Why 8 out of 10 Salon Businesses Fail

And 6 Things You Can Do To Make Sure You’re Not One of Them

When speaking to new hairstylists, they often describe their number one dream as being that they want to have their own salon. While this is a noble idea, and something I encourage if you’re the right person, the sad reality is statistically 8 out of 10 salon businesses will fail within 18 months of opening their doors.

closed bsuiness fail anthony presottoThe level of failure will vary.  Some will lose a little, selling the failing business to the next person and recovering some of their outlay. Others will fail massively, with the owner losing everything they invested and possibly even facing bankruptcy.

Of course, reasons for the failure of so many businesses is varied.  External conditions such as economic downturn, tax problems, sudden increase of costs or unforeseen expenses can all impact a business harshly.  Internally, poor business planning and mismanagement of the business, including pricing that is mismatched to the business image or even just plainly unprofitable, can all spell disaster for a fledgling salon.

Here are six key issues you can address to improve your chances of being one of the 20 percent who survive into the future.

  1. Make sure you have enough money.
    enough money anthony presottoTime and time again people go into business under the assumption that they are going to make money right from the start. And yes some people do, but they are the exception, not the rule. After fit-out expenses and cost of retail stock and backbar you need to have insurance, utilities, rent and money to live on. Six months of reserves is good but a twelve month buffer is even better. This particular issue is not unique to the salon industry.  I have met other business owners who failed to consider a buffer on start-up, one who lasted only a month because that was the amount of rent they paid in advance, at the end of which they had to close the doors of their cafe!
  2. Lack of business vision, plan or brand definition.
    business plan anthony presottoIf you don’t know who your market is, you cannot attract or serve them. Having a clear understanding of who your target client is, is vitally important. You need to know what you want to do and what you don’t want to do. This affects everything from pricing to the fit-out to your advertising. Remember you can’t be everything to everybody, but you can be everything to some. For example, you might be incredibly talented at blonding hair. How about opening a salon that only services blondes? Sure, you’re going to miss out on the brunettes and redheads, but you’ll get to charge a lot more as the go-to salon when a client wants to be a blonde.
  3. Getting your prices right.
    price is right anthony presottoPricing has more to do with the success of your business than the turnover. Your business could be turning over $600,000 a year, but if it’s costing you $580,000 p/a to operate, you’re not in a good position.This is one aspect I still can’t believe that the hair industry hasn’t gotten a grip on yet. So many salons go by the old ring around method. They see themselves as average, phone the nearest 20 salons (or get a friend to), take the lowest and the highest prices and then set their own prices somewhere in the middle. The biggest problem with this method?  Chances are that’s how those exact salons they phoned got their prices in the first place.The truth is, this is the last method you should be employing to set your pricing.  A simplified version of a better approach?  Look at expenses (that is, the cost of running your business including how much you want your income to be), add the profit you want to make and calculate your charges from there.
  4. Mismanagement of cash flow.
    This is a serious problem for a lot of businesses. The entirety of the cash you have coming in is not yours to personally spend. The everyday salon running costs and expenses must come out first. If you start dipping into the income before you’re making the money to pay yourself, then you will find yourself going backwards fast. 30 day accounts come around a lot quicker than you think and suppliers these days will suspend accounts at 30 – 60 days.  It doesn’t take a genius to work out that without supplies, you can’t operate your salon.
  5. Trying to do it all yourself.
    When we first start out in business, we are excited and think we can do it all, and we may have to for the first month or so. But It is important as soon as you can you retain the services of professionals to help you build your business. You might have to consider using professionals before you even open, such as a lawyer to help with lease negotiations and setting up a company, trust or LLC depending on the country you operate in. Look at getting a tax accountant and even a marketing expert to help you get those customers in the door.
  6. Get yourself a coach.
    business-success-mastermind anthony presottoThe last piece of advice that I can offer is to get yourself a coach or mentor of some kind. Find someone who has arrived at where you want to be. Ask for advice. Most people will be happy to offer some kind of help. It may not be the salon down the road but in this new era we are in, social media and forums dedicated to our industry gives you access to people from all over the world with a vast amount of knowledge and experience that can help you. The other option is to find a mastermind group that you can join of business owners that meet regularly and help brainstorm solutions to each others’ problems and hold each other accountable.

If you can get a handle on these six things the chances are high that you will make it past the first treacherous 18 months in the business and go on to have a profitable and satisfying salon business into the future.

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About Anthony Presotto

Currently one of only two Australian hairstylists who are members of the Hairdressing World Expert Panel, Anthony Presotto is on a mission to empower salon owners, sharing his expertise as an author, international speaker and salon business strategist.

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