Naming your business is fun! You get to be creative and come up with a name that defines you and your salon culture.

Once you have decided on your business form for your salon, you need to get it set up legally.

In the process, you will also select your business name.

If you choose a D.B.A., this is the name you operate under. If you choose an LLC or INC, this will be your legal name.

Follow the steps below for the business form you chose from the previous module.

LLC

1. An LLC is set up through your state. You may choose a company like LegalZoom.com or NOLO.com, or Incfile.com, to assist you or you may do this yourself.

2. For a clear step-by-step guide on setting up an LLC in your state, go HERE.

3. The filing fees with the state are typically between $50-$500. If you hire a service to assist with the legal set up, this fee will be in addition to the filing fees.

DBA

1. Typically, you will file the DBA paperwork at your local or county clerks' office or online if available.

2. You will be required to search a database, and sometimes even old logbooks, to be sure the name you chose isn't already taken.

3. Once you have selected your name, you will file the appropriate paperwork with your local or county clerk's office and pay the fee. This us usually well under $100.

INC

1. An INC (corporation), is set up through your state. You may choose a company like, LegalZoom.com, NOLO.com, or Incfile.com, to assist you or you may do this yourself.

2. For a clear step-by-step guide on setting up an INC in your state, go HERE.

3. The filing fees with the state are typically between $50-$500. If you hire a service to assist with the legal set up, this fee will be in addition to the filing fees.

S Corp Tax Election

This is the bonus tax election we discussed in the previous lesson.

You need to start with either an LLC or Corporation (INC) to make this election.

The benefit is the tax savings of 15.3% of self-employment tax on any profit over what would be considered a 'normal' wage.

Steps to make the S Corp Tax Election

1. Complete and file this IRS S Corp election form, Form 2553. Click HERE for the instructions to compete this form.

2. These states also require you to make the election. All other states recognize the federal election.

• Arkansas (Form AR11003 must be filed), click here for the form

• New Jersey (Form CBT-2553 must be filed), click here for the form

• New York (Form CT-6 must be filed), click here for the form

Max Profit tip

As a profitable salon, you will save the most money on taxes by choosing an LLC or Corporation business form, then making the S Corp tax election. You will save 15.3% on any income over a “normal” salary.

Action for this lesson

Form your business following the steps in this lesson. Choose a name and:

DBA – File with your local or county office.

LLC – Set up through your state. You may want to hire a company to assist with this.

INC – Same as an LLC for set up

Your federal tax ID number identifies your business for the purpose of taxation.

You can easily apply for your federal employer tax identification number online directly on the IRS website. This is also referred to as an "EIN."

BEWARE: There are services on the internet that charge a fee. This does not cost anything if you go through the IRS website.

To start, go HERE.

Choose the business entity you chose to set up for your salon.

If you have a DBA and didn’t choose another business form, you are a sole proprietor or partnership if you have a partner.

From here, answer the questions on the following screens that relate to your business entity.

Max Profit Tip

You can get an EIN even if you do not have a legal business entity like and LLC or INC. Using your EIN rather than your social security number provides some privacy and reduces your risk of identify theft.

Action for this lesson

Obtain your federal employer tax identification number. Go HERE now to get started.

Most states require hair stylists to attend some form of beauty school or receive some form of formal training. Typically, this training comes together in a license that shows you are allowed to operate in a given state. Often, this license will need to be renewed every couple of years.

In this course it is assumed you already have your license, so the following are tips in keeping your license current.

Keeping your cosemetology license current.

Go HERE for information about your license including:

• Renewal information for your state.

• Reciprocity of your license if you want to work in another state.

• Continuing education requirements.

• Direct links to your state's licensing page.

Also, for even more detailed information on your states licensing see the attached download, Licensing by State.

* Remember to display all licenses and permits where they are visible in your shop.

Max Profit Tip

Keep your license current. If your license expires and you continue to offer your salon services, you may incur penalties and fines as a result.

Save yourself the headache and mark your calendar so you renew on time.

Action for this lesson:

1. Update your calendar with your license renewal date at least a month in advance.

2. Plan out your continuing education now based on the requirements of your state. Don’t get caught at the last-minute scrambling to get it done.

Opening your Salon

To open your new salon location, you will need to obtain the proper salon business operation license and business permit, if required by your state.

Before getting into the specific business licenses and permits you may be required to obtain, I need to mention that every state and locality have their own licensing requirements. The exact licenses and permits you need in one state, town, or city might be different from those that you would need if you were to open your salon somewhere else. Do your homework and consider all these factors when deciding where you want to locate your salon.

Ensure that you are complying with the state laws and regulations. If you have to make some adjustments to your plan because of regulations and laws, do so early so that you can avoid potentially having to stop your operation later or [having to pay] a fine."

These are some of the common licenses, regulations and permits required for salons:

• Salon license

• Cosmetology license(s)

• Employer Identification Number (EIN)

• Building permit

• Sanitation

• OSHA requirements

Not sure which licenses and permits are necessary? Here are some options of where you can reach out for more information.

• City Hall

• Your local Chamber of Commerce

• Your state’s Chamber of Commerce

• The U.S. Small Business Administration (SBA)

• Other salons in the same state/city where you want to be located

Common Local Permits

The local government in your area, such as that of your city or county, may require specific permits and licenses. Each municipality may have its own unique regulations. Here are some of the most common licenses and permits you may need.

• Alarm Permit

• Building Permit

• Business License and/or Tax Permit

• Health Permit

• Occupational Permit

• Signage Permit

• Zoning Permit

You will need the following informaiton to complete the applications:

• Your Federal Tax ID number. (see "Legally Setting up Your Business" if you haven't obtained this yet.)

• Your business organization structure: Sole Proprietor, Partnership, LLC, or Corporation.

• Your business name, address, phone and email address.

• What business activities you will engage in. The NAICS, beauty salons fall into is category 8121 – Personal Care Services.

• Your physical location.

• Who will be the owner of your business. This would be you if you are a sole proprietor, or the name of your business entity if you are an LLC, Partnership, or Corporation.

Additional information:

All US states require that you have a business license.To apply for your business license at you state department you can go to The U.S. Small Business Administration. You just need to fill out a form with your social security number and profession.

a good idea to talk to your trade association for more guidance. They should have experience in this area. Some examples of trade associations are: Association of Cosmetology Salon Professionals, Professional Beauty Association, and Salon & Spa Professional Association.

* Remember to display all licenses and permits where they are visible in your shop.

Max Profit Tip

Avoid fines and penalties. * Remember to display all licenses and permits where they are visible in your salon.

Action for this lesson

1. Research your state and local area for the licenses and permits you will need to open your salon.

-City hall, your local and state chamber of commerce and associations can be helpful resources. ( Association of Cosmetology Salon Professionals, Professional Beauty Association, and Salon & Spa Professional Association. )

-Also, an existing salon would be an excellent place to start.

2. Obtain the proper licenses and permits you identified in step 1.

What is a Certificate of Occupancy?

• The Certificate of Occupancy is a document that is issued by a local government agency or building department that certifies that your property is compliant with the requirements for the type of business you are planning to run. You should request this certificate before any work is done on the property.

• You can get a Certificate of Occupancy through your local government, either your town or county's department of housing.

• Your salon will need to pass a series of inspections to obtain a certificate of occupancy. This may include plumbing, electrical fire safety, and a general building inspection.

• If you don't pass inspection, you will be given a list of items to correct to conform to the code. You will have a certain amount of time to make the corrections and then request a re-inspection.

• The cost for a certificate of occupancy is typically around $100.

How much does a Certificate of Occupancy cost?

The cost for a Certificate of Occupancy is around $20 to $80 depending on where your business is based and the size of your property. Commercial business spaces under 1’500 sqft are typically around $30 whereas bigger ones go up to $80.

The certificate will be issued when all inspection checks have been done. These inspections include an electrical inspection, plumbing inspection, fire safety inspection and a general building inspection.

Max Profit Tip

A C of O certifies your salon’s structure is fit for occupancy and ensures it complies with all building codes. If you apply for a loan for the property, you may be required to have this.

Action for this lesson

1. Reach out to your local government agency or building department to start the Certificate of Occupancy application.

2. Complete the requirements to obtain your C of O.

When you open up your shop you will want to make sure you are properly insured. The following insurance types are considerations for your salon.

Here are some common types of business insurance for salon owners.

1. General Liability Insurance

• Protect your business if a customer is injured at your salon.

• This coverage protects you if you are held responsible for any medical or liability expenses that result from injury,

2. Business Property Insurance

• Protect your building, sign, and contents in case of a loss at your salon due to fire, burst water pipe, or another covered event.

3. Business Owners Policy

• A BOP combines general liability coverage with commercial property damage, along with any additional coverages you may select.

Four steps to choosing business insurance (SBA.gov)

1. Assess your risks. Think about what kind of accidents, natural disasters, or lawsuits could damage your business. If you need help, the National Federation of Independent Businesses (NFIB) provides information for choosing insurance to help you assess your risks and to make sure you've insured every aspect of your business.

2. Find a reputable licensed agent. Commercial insurance agents can help you find policies that match your business needs. They receive commissions from insurance companies when they sell policies, so it's important to find a licensed agent that’s interested in your needs as much as his or her own.

3. Shop around. Prices and benefits can vary significantly. You should compare rates, terms, and benefits for insurance offers from several different agents.

4. Re-assess every year. As your business grows, so do your liabilities. If you have purchased or replaced equipment or expanded operations, you should contact your insurance agent to discuss changes in your business and how they affect your coverage.

Get the exact cost of business insurance for your salon.

You can request a free insurance cost quote online with Hiscox. Just fill out the simple questionnaire and Hiscox will provide the exact cost to expect.

Max Profit Tip

Protect your business financially from loss due to accidents with customers. Protect your business financially from damage to your physical salon assets resulting from fire or water damage.

Action Steps

1. Reach out your local government agency or building department to start the Certificate of Occupancy application.

2. Complete the requirements to obtain your C of O.

What is a Retail Seller Permit?

Retail products can be one of the most profitable parts of your business. In order to sell retail products, you will need to obtain a retail seller permit.

This has several names depending on the state you live in. For example, reseller permit, resale permit, permit license, sales tax permit, resale ID, state tax ID number and reseller license permit.

In Addition:

While every state has its own rules and regulations, if they have sales tax, they will require you to carry a sales tax certificate if you are selling or planning to sell physical merchandise.

Whether your business is a corporation, an LLC, or a D.B.A., you must have and keep a current sales tax permit.

Permits may also be required by the county or local governments. Please be sure to check with your state and local agencies to determine what retail seller permit you need.

How to Apply

Although requirements and applications vary by state, the general process consists of:

1. Register your business with your state.

2. Apply for a reseller permit.

3. Download a copy of your states' reseller permit/certificate (discussed in the next lesson).

I have put together a page that includes links to your states' department of revenue where you will register your business for an account with your state.

Go HERE to Register and Apply.

You can also talk to your city’s Chamber of Commerce to learn about the specific permit requirements in your location.

How much does a reseller permit cost?

A reseller permit typically does not cost anything.

However, you may be required to place a security deposit to cover any un-payed taxes in case the business closes.

The amount of the deposit will be determined at the time of application.

Max Profit Tip

Keep track of your retail sales for your sales tax records. In the event of a sales tax audit, you need to have this information available for the auditor. Missing documentation can lead to penalties and fines.

Action for this lesson

1. Go to your states’ department of revenue page to register your business.

2. Apply for a reseller permit.

You can go here for quick links for your state’s online registration and sale tax application.

Go HERE to Register and Apply.

What is a resale certificate?

A resale certificate allows you to purchase products you will resell without paying tax. This is to avoid paying double sales tax. This may also be called a resale permit.

In contrast, the reseller permit from the previous lesson gives you the ability to collect sales tax on these products and pay them to the state/local government.

First you will need to get your reseller permit (from the previous lesson).

Then you can download your states resale certificate.

You will submit the resale certificate to vendors you purchase your products from to exempt you from tax on products you will resell.

Obtain your state's resale certificate

Go HERE for the link to download your states' resale certificate.

Filling Out Resale Certificate Form

• The next step of applying for a resale certificate is to actually fill out the form.

• You may need your sales tax permit for your application. You must also include details about your business and specify the types of products that should be exempt from sales tax.

• Depending on your location, you will either submit your application to the state or to the supplier.

Using your resale certificate

• You do not need to pay sales tax on products you resell and charge and submit sales tax on.

• You will need to supply your states resale exemption certificate to the vendor you purchase your products from to exempt you from paying sales tax.

• The resale certificate must be dated prior to your purchase. You may need to update this yearly. Be sure to confirm with your state.

• You may need to complete a new resale certificate for each vendor so consider making copies and keeping them on file.

Max Profit Tip

Be sure to obtain your resale certificate and use it for products you will resell. This will keep you from paying tax on the products you purchase for resale twice.

Action for this lesson

1. Find your states’ resale certificate for download or application.

2. Complete the form.

You can go here for quick links for your state’s online registration and sale tax application.

Go HERE to Register and Apply

State Sales tax due dates

Most common sales tax filing period is quarterly filing. The quarters are as follows:

Q1 (January 1 -March 31) – Due April

Q2 (April 1 – June 30)- Due July

Q3 (July 1 – Sept 31) – Due October

Q4 (October 1 – December 31) – Due January

Sales tax is due the following month after the sales tax is collected. You may have to pay monthly or quarterly at first. If you have little sales tax to report, you may be moved to an annual filer.

Be sure to confirm all sales tax submission due dates with your state. If the due date lands on a Holiday or Weekend, the due date will be the next business day.

Your state agency will let you know when your sales tax returns are due and if they move you to a monthly, quarterly or annual filing.

Some localities charge their own sales tax. Check with your local agency to confirm if you must pay sales tax locally as well.

Please note, some states also tax salon services, not just product sales. I have put together a list of what I found in my research but be sure to confirm with your state.

States that tax salon services in addition to product sales:

Connecticut (hair removal, electrolysis or hair waxing, hair weaving or replacement)

Hawaii, (GET- general excise tax on salons that wholesale products,

Iowa, (taxes beautician services, state and locally),

New Mexico, gross receipts tax rate varies throughout the state from 5.125% to 8.6875% depending on the location of the business. It varies because the total rate combines rates imposed by the state, counties, and, if applicable, municipalities where the businesses are located. The business pays the total gross receipts tax to the state, which then distributes the counties’ and municipalities’ portions to them.

Ohio, Personal-care service, including skin care, application of cosmetics, manicures, pedicures, hair removal, tattoos, body piercing, tanning, massage and other similar services. It does not include the cutting, coloring or styling of an individual’s hair, or service provided by or on the order of a licensed physician or licensed chiropractor.

South Dakota, Services provided by barbers, cosmetologists, nail technicians, and estheticians are subject to state plus applicable municipal sales tax. Other services that may be performed at salons are also subject to sales tax. Examples of these services include: permanent makeup, tattooing, tanning services (spray tans or tanning beds), ear candling, massage therapy, reflexology, aromatherapy, piercing and branding.

New York State: Beautician, barbering, and hair restoring services, including haircuts, hair coloring, shampooing, blow drying, permanents, hair extensions, hair straightening, hair restoration services, etc. 4½% NYC local rate

States with no LOCAL tax for Salon Owners: Indiana, Montana, New Hampshire, Oregon, New Jersey, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, Rhode Island

The following states have no state sales tax

Alaska , Delaware (does impose a gross receipts tax of up to 1.92% on the income of many businesses within the state), Montana (may have local sales tax, confirm with your local government), New Hampshire, Oregon, New Jersey, New Mexico does not have sales tax, only gross receipts tax on the business.

Here is a summary of due dates by state for quick reference:

State's due the 12th of the following month:

Missouri

State's due the 15th of the following month:

Maine (sales permit required)

State's due the 20th of the following month:

Alabama, Arizona, Arkansas, Colorado, Connecticut, Georgia, Hawaii, Idaho, Illinois, Kentucky, Louisiana, Florida (sales permit required), Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Nebraska, New York, Oklahoma, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Virginia.

State's due the 23rd of the following month:

Ohio

State's due the 25th of the following month:

Kansas, New Mexico, Vermont

State's due the 30th of the following month:

Indiana

State's due the the last day of the following month:

California, Iowa, Nevada, North Carolina, North Dakota, Rhode Island, Utah, Washington, Wisconsin, Wyoming

ALWAYS FILE.

Even if you have zero dollars to report, you need to file a $0 sales tax return. If you don't file it will be considered late and you will be charged a penalty.

Be sure to file your sales tax return prior to the due date to avoid penalties.

Some states offer a small credit for filing on time.

Where to file sales tax

You will file your sales tax returns where you registered your business with your states' department of revenue.

Go HERE for a link to your sales department of revenue site where you will file your sales tax. It is where you registered your business.

Max Profit Tip

When you obtain your reseller permit, which allows you to collect and pay sales tax, you must file a tax return regardless, even if you don’t have sales. You will be charge late fee if you don’t file, even if you owe $0.

Action for this lesson

1.Determine when your sales tax returns are due

2.Put the recurring due dates on our calendar so you are reminded at least a week before the return is due.

3.Login to your account at your states’ department or revenue site so you know you are fully set up to file your sales tax return.

Go HERE for Quick Links to your states website to file.

As you grow your salon, you may choose to hire people to work for you or to rent a chair in your salon. They will either be considered contractors or employees. There is an important difference between the two and it's important to classify correctly.

There are hefty fines that result if you are audited, and it is determined you classified someone incorrectly as a contractor instead of an employee.

How to determine the difference

Likely a contractor

• she rents space from you

• chooses her own hours

• brings in her own clients

• is paid a flat fee for her work

• uses her own methods to get the work done

• invests in her own supplies and equipment

Likely an employee

• you provide the workspace at no cost

• require specific work hour

• provide the clients

• purchase the products and supplies

• pay her hourly or weekly

• you direct how she performs the work

• you instruct on what tools to use or supplies to use

• you provide training on how to do the work

Downside of misclassifying a contractor

If you classify an independent contractor incorrectly as an employee, this could be caught in an unemployment audit. An audit could be the result of a former hire filing for unemployment.

You will pay hefty fines. I personally ran into this situation and the fine for misclassification was $10,000! If someone files an unemployment claim, an audit is likely. The actual unemployment insurance cost was just a little over $200. The cost of insurance was a fraction of what the fine was.

Max Profit Tip

Save money and headaches by classifying employees and contractors correctly.

Action for this lesson

1. Determine if new hires are contractors or employees.

2. Then follow the steps in lesson 2 or 3 in this module.

What is an employee

A person you have hired and pay a wage or salary. The terms of employment are specified by an offer letter, employment contract, or verbally.

What are the filing requirements? (per the Small Business Administration)

1. Obtain an employer identification number.
Get an employer identification number (EIN) if you haven't already done so from the IRS website HERE.

2. Register with your state's labor department.
Once you bring on employees, you will have to pay state unemployment compensation taxes. TGo to the Department of Labor's website for a list of state unemployment insurance tax agencies.

3. Get workers' compensation insurance.

Workers' comp insurance is required in the vast majority of states, although some make an exception for very small employers. Go to thi link to find out what the workers' comp laws are in your state and how to obtain it.

4. Set up a payroll system to withhold taxes.
You'll need to withhold a portion of each employee's income and deposit it with the IRS, and also make Social Security and Medicare tax payments to the IRS. You may also have to withhold taxes for your state. For more information, check with your state's tax agency; you can find links to each state's agency at the website of the Federation of Tax Administrators at www.taxadmin.org/state-tax-agencies.)

Consider using an app like Square or QuickBooks for do-it-yourself payroll or hire a payroll company.

5. Have each employee fill out IRS Form W-4, Withholding Allowance Certificate. This tells how many allowances they are claiming for tax purposes, so that you can withhold the correct amount of tax from their paychecks. Click HERE for form W-4.

6. Fill out Form I-9, Employment Eligibility Verification for each new employee.

Click here to acces form I-9.

7. Report each new employee to your state's new hire reporting agency.
The new hire reporting program requires employers to report information on all new employees for the purpose of locating parents who owe child support. Each state has a different new hire reporting agency. To find the name and address of your state's new hire reporting agency, see the State New Hire Reporting page at the Administration for Children & Families website (www.acf.hhs.gov).

8. Post required notices.
Go to the Department of Labor website at www.dol.gov/elaws/posters.htm. The DOL's "Poster Advisor" will help you determine which posters you must display in your workplace. In addition, you must comply with your state department of labor's poster requirements. A list of state departments of labor is included on the federal Department of Labor's website.

9. File IRS Form 940 each year.
You must file IRS Form 940 to report your federal unemployment tax for any year in which you paid wages of $1,500 or more in any quarter or for any year in which an employee worked for you in any 20 or more different weeks of the year. You can find the form HERE.

10. Adopt workplace safety measures.
Virtually every employer must comply with the requirements of the Occupational Safety and Health Act (OSHA) by, among other things, providing a workplace free of hazards, training employees to do their jobs safely, notifying government administrators about serious workplace accidents, and keeping detailed safety records. For information on these rules, go to website of the Occupational Safety and Health Administration at www.osha.gov.

11. Set up personnel files.
For each employee you hire, create a file in which to keep job-related documents, such as job applications, employment offers, IRS Form W-4, performance evaluations, and sign-up forms for employee benefits. Medical records should be kept in a separate, confidential file, in a locked cabinet. And you should store I-9 Forms, which document an employee's immigration status, in a separate file as well.

12. Supply a W-2

Provide a W-2 form to each employee by the end of January of the following year. You can get a copy of the form HERE.

Also, send a scannable copy of W-2 to the IRS by January 31:

Social Security Administration at Data Operations Center, Wilkes-Barre, PA 18769-0001.

Max Profit Tip

Consider hiring a payroll company. This will save you time and headaches and possibly money in the future.

Action for this lesson

Consider hiring a payroll company. This will save you time and headaches and possibly money in the future.

What is a contractor?

A person is a contractor if you have the right to control or direct the result of the work but not what will be done and how it will be done.

Hiring requriements for a contractor

Hiring a contractor is much simpler than an employee.

1. Have the contractor complete form W-9 for your records. Get the form HERE.

2. Provide a scannable form 1099NEC to the IRS by January 31 or the following year, and a copy of the form to the contractor. Get the form HERE.

3. Also, send form 1096 to the IRS by January 31 of the following year. This form is the summary that combines the amount paid for all 1099NECs. Get the form HERE.

Where to mail form 1099NEC and form 1096

Department of the Treasury

Internal Revenue Service Center

P.O. Box 219256

Kansas City, MO 64121-9256.

Max Profit Tip

Be sure to send the IRS and the contractor form 1099NEC by January 31 of the following year. There are penalties for not doing so.

Action for this lesson

1.Have call contractors complete form W-9.

2. Provide form 1099NEC to your contractor and mail the scannable form to the IRS by January 31 of the following year.

3. Send scannable form 1096 to the IRS that summarizes the total for all 1099NEC forms.

What happens when you increase productivity?

• Reduce downtime.

• Get new clients to come back.

• Fill in cancelled bookings.

• Get closer to being booked 85% or more.

• Increase client booking frequency.

Goals for increasing productivity

• Retain 75-80% of new clients. Prebook clients before they leave the salon.

• Increase client frequency, along with prebooking, use automated marketing programs, online booking and courtesy calls.

• Focus on continuous training to improve technical abilities and increase services you can offer at your salon.

• Increase sales at the appointment, suggest add-ons, offer other services at the time of their visit.

Tips for increasing productivity

• Distribute the workload/reward team effort, reward staff for bringing in new clients, get clients used to working with other people in the salon to keep clients in house is a someone leaves; connect with ALL clients so they come back to your salon despite team change.

• Consultation- offer a true consultation, explain what you are doing and best products that will fit their needs and how they are used. They may have no idea what their hair type is, so tell them. You're the expert. :-)

Switch up timing

• Salons are generally busiest at 10 a.m. on the weekend and 3 p.m. during the week.

• A promotion for an off-peak time encourages customers to come in when things aren’t as booked up.

• Alternatively, off-peak times can give you a chance to train or bond with employees or give everyone a quick break.

Max Profit Tip

Pick one area at a time to focus on when working to increase productivity. Once you get good at that, move on to the next.

Action for this lesson

1. List the areas you want to increase productivity. For example, increase product sales, number of hours booked, or percent prebooked at the end of an appointment.

2. Determine the steps you will take to make step one happen.

Why track and manage inventory?

Your product inventory is a key part of your salon and can have a huge impact on your business in a profitable way if managed properly.

The numbers

Salon retail can average 10-25% of total salon revenue.

By offering top-selling salon products, around 50% of each sale goes to the salon. Even after factoring in overhead, hair salon retail sales can be the most profitable.

Key areas your salon will benefit

• Reduce downtime.

• Match products to services to track profit per service.

• Meet demand and reduce waste.

• Improve business cash flow.

• Improve profits.

• Improve customer experience.

• Improve ordering process.

• Reduce shrinkage (wasted or lost product).

• Reduce overstock.

• Save time.

Choosing the products you will sell

Keep it simple.

Consider limiting the number of brands to 3 so you can build relationships with your vendors and get to know the products well.

Other Considerations (as suggested by Genesis Private Label)

• Client tastes for your target audience – is it fashion, being natural, science based?

• Cultural fit with your salon culture.

• Price point.

• Support that the brand offers – don’t underestimate the value that this can translate to your business.

• Availability – do you want something that’s very mainstream and widespread/available in drugstores or something more unique to you.

• Performance – your hairdressers have to love it and believe in it.

Max Profit Tip

Focus on having an efficiently inventory management system. This is a key to increasing your salon's profit.

Action for this lesson

1. Determine what your profit margin is on each product you sell (sales prices less the what you paid for it).

2. Keep it simple and choose brands that fit your clients and salon culture.

Managing inventory

Increase profit and run a smooth salon business.

How to manage inventory

1. Understand how much stock you have currently.

• List all products and what you paid for them.

2. Do a stock take once a week.

• Stock taking is the process of counting and recording the amount of stock you have.

• Set a specific day and time each week to count and calculate the value of stock for every product you use and sell. You may want to use software or an excel spreadsheet for this.

3. Know what you need for your staff and clients and take seasonality into account.

• Use past sales information to determine what you sell a lot of and what doesn’t sell.

• Don’t let discounts influence your purchasing decisions. Purchase the stock you know you can sell at a profit and within a reasonable time frame.

• Think about your promotions and marketing campaigns. Consider the impact this could have on your stock levels.

• Don’t over order. Holding inventory can use up cash you can use elsewhere in your business. Don’t order extra stock if you can’t store it properly.

• Keep shelf life in mind. You don’t want to risk stock going out of date before you get a chance to use it, so only order when stocks are running low.

4. Create an ordering system and process that’s consistent and works for you.

• Your in-salon and retail stock must be sufficient to meet the needs of your customers and staff without running out or tying up too much of your budget. You need to consistently complete stock takes.

• The goal is to have enough product on hand for one month of in-salon and retail sales. You could also set your own minimum levels of inventory, so you know when to reorder.

• To calculate this, determine your supplier lead times and your sale levels of each product. For example, if it takes a supplier five working days from order to delivery of products, and in five days you historically sell 10 bottles of shampoo, your minimum threshold for that product is 10.

• For incoming orders, ensure what you received matches the invoice.

5. Think about storage

There are a few things to think about when it comes to storing your stock:

• Do you have products that need to be kept in certain conditions? e.g. not in direct sunlight.

• If you have more stock than what’s on display, ensure you have enough space to store the excess somewhere.

• Note where your excess stock is stored. It’ll allow you to keep stock organized, is quick to find, and ensures stock takes can be completed fast.

• Keep in mind expiration dates. If there’s old product on your shelf, don’t put the new stock in front of it, put it at the back so you’re using older products first.

Max Profit Tip

Managing inventory properly will increase cash flow, reduce downtime and provide a more efficient running salon. This leads to increased profits.

Action for this lesson

1.Determine how you will calculate and track your inventory. Come up with a weekly system that is manageable and put it on your calendar.

2.Create an ordering system that follows the guidelines in step 4.

3.Think about training a staff member to update the current inventory status weekly.

What is bookkeeping?

Bookkeeping is recording all financial transactions that occur in your business.

It also involved preparing documents that summarize the financial aspects of the business.

Why make bookkeeping a priorty?

Being organized from the start will save time, money and headaches down the road.

Find a simple way to keep yourself organized that works for you. This doesn’t have to be complicated.

Save time

• By keeping track of your income and expenses on a daily, weekly or even monthly basis, you will save yourself time come tax time or when you need to apply for loans.

• Present time is the easiest way to capture this information and will save you a great deal of time in the long run.

Save money

• It’s difficult to remember everything after a year has passed so tracking income and expenses on a more current timetable will prevent leaving out deductions. This will inevitably save you money on taxes.

• Save money on penalties that may be incurred from missing tax return deadlines.

Make better decisions

• You will be able to make better decisions by tracking your financial activities, income and expenses, on a regular basis.

• You will know if you’re making profit or loss and determine what areas you may need to cut back on or ramp up to increase your profit.

• Have peace of mind knowing you will be prepared come tax time or when you need to apply for a loan.

Max Profit Tip

Tracking your salon’s day-to-day financial activities so you know where you stand regarding making a profit.

By knowing this, you can make better decisions that will improve your salon’s profit.

Action for this lesson

1. Understand what bookkeeping is for your salon.

2. Make bookkeeping a priority. Learn what to do in the next lesson.

What is bookkeeping?

Bookkeeping is recording all financial transactions that occur in your business.

It also involved preparing documents that summarize the financial aspects of the business.

Why make bookkeeping a priorty?

Being organized from the start will save time, money and headaches down the road.

Find a simple way to keep yourself organized that works for you. This doesn’t have to be complicated.

Save time

• By keeping track of your income and expenses on a daily, weekly or even monthly basis, you will save yourself time come tax time or when you need to apply for loans.

• Present time is the easiest way to capture this information and will save you a great deal of time in the long run.

Save money

• It’s difficult to remember everything after a year has passed so tracking income and expenses on a more current timetable will prevent leaving out deductions. This will inevitably save you money on taxes.

• Save money on penalties that may be incurred from missing tax return deadlines.

Make better decisions

• You will be able to make better decisions by tracking your financial activities, income and expenses, on a regular basis.

• You will know if you’re making profit or loss and determine what areas you may need to cut back on or ramp up to increase your profit.

• Have peace of mind knowing you will be prepared come tax time or when you need to apply for a loan.

Max Profit Tip

Tracking your salon’s day-to-day financial activities so you know where you stand regarding making a profit.

By knowing this, you can make better decisions that will improve your salon’s profit.

Action for this lesson

1. Understand what bookkeeping is for your salon.

2. Make bookkeeping a priority. Learn what to do in the next lesson.

What are deductible expenses?

Consider anything you purchase for running and operating your business, that is a normal expense, as a deduction.

Common salon expenses

Products and supplies: Shampoo, conditioner, styling products, hair color and wax removal, styling tools

salon supplies like towels, caps, clips, etc.

Furniture and Equipment: Chairs, stools, carts and trays, waiting room area items including furniture and magazines, computers, tables or iPads at the reception, credit card processors and hardware.

Training and Continuing Education: You can deduct the cost of classes to improve your job skills or that your employer requires. This includes Subscriptions to trade magazines and journals, online training and trade shows and certifications. You can write-off any classes (e.g. for coloring techniques), seminars, conventions, and hair publications (e.g. that highlight new styles or methods) that help you improve your business.

Travel Expenses: If you traveled to attend classes and salon-related functions, you can deduct travel expenses to include transportation, meals, mileage and hotel.

Employee Expenses: Salon owners with employees can deduct salaries, benefit plans and uniform expense.

Advertising: Deduct any expenses associated with advertising your salon; online ads, signs, print ads, videos, website hosting fees, flyers, and social media.

Promotional Goodies: If you give away items like hairbrushes or pens to help promote your business, keep the receipts… promo goodies are deductible!

Bank Charges: You can deduct bank charges and merchant fees for your business bank accounts. If you borrowed money for your business, interest incurred on loans and credit cards are deductible as well.

Capital Expenses: Make sure to keep records of your capital expenses as you can write off your business start-up costs, business assets and improvements. Portion of start-up costs is written off in the first year with the remainder depreciated annually over the next 15 years. With Section 179, you can write off new purchased equipment up to $500,000. This includes furniture, salon equipment and office equipment like computers, scanners, and printers.

Clothes: Clothing, such as beauty tunics and salon uniforms, is deductible if they cannot be worn off the job.

Licenses: Both business and professional license

Repairs and Maintenance: Services that you utilize to keep your business running smoothly, like sharpening scissors, equipment maintenance and salon cleaning services, are also deductible.

Software Services: Software services like online booking services and business-related online subscriptions like cloud services are acceptable as well.

Insurance: Business and liability insurance.

Rent: Salon space is deductible whether it is owned or rented (including booth rent). You can also deduct if space in home is used (portion deducted of house expenses such as cooling, heating and insurance).

Telephone/Cell phone: Your business operations rely heavily on your telephone and internet services, so be sure to include those as well.

Utilities: Gas, electric and water are needed to keep the salon running so you can deduct these, too.

Charitable Deductions: If your business donates to the community which include out-of-pocket costs, you can also deduct them from your return.

Meals and Entertainment Deductions: To qualify, be sure to keep detailed records that document for each expense the amount, the place, the people attending and the business purpose. Without that documentation, you get no deduction.

Energy Efficiency Improvements: Are you using solar technology for your business? Being an eco-friendly salon has its benefits. If you’ve made energy improvements to your salon or building before 2016, you may qualify for a tax credit. While different from a tax deduction, tax credit allows you to get a dollar-for-dollar discount on your federal taxes.

Mileage: You can deduct all business-related miles if they are not miles to and from your salon. Miles include those such as going to the store to pick up supplies for the salon, training sites or trade shows, and work related errands, such as going to the bank.

If you choose to take the standard mileage deduction, keep in mind that you cannot deduct individual vehicle expenses like gas, oil changes, car repairs, and car insurance.

Printing and Copying: Keep your receipt anytime you print or copy work-related materials like marketing flyers, brochures, and office records. Print jobs are deductible!

Parking & tolls

Health Insurance: If you don’t get health insurance via a spouse or employer, you can deduct 100 percent of your monthly premiums. Keep in mind that if you receive a government subsidy, you can only write off the amount you pay each month (not the original price of your plan). Note: your health insurance premiums are taken as a personal deduction on Form 1040, NOT deducted as a business expense.

Some Common Expenses You Can’t Deduct

The IRS deems some common expenses as non-deductible. These include:

• Personal hygiene expenses, like haircuts, clothing that can be reasonably worn outside of work, and dry cleaning (unless it’s for a uniform)

• Legal violation fees, like parking tickets or court fees

• Commuting mileage if you work at a permanent office away from home

• Life insurance premiums when you are the beneficiary, even if you take the policy out to secure a business loan

Max Profit Tip

Now that you know what expenses to track, determine how you will track them and stick to it.

In the long run, this will save you time and money.

Action for this lesson

1.Download the sample list of expenses to track.

2.Track these with the system you chose from the previous lesson.

How do you pay yourself form your business?

There are two main ways to pay yourself:

1. Salary- like an employee of a company, and have taxes withheld.

2. Owners Draw- withdraw money from profits of the business as needed.

Payroll (any business form)

How to properly pay yourself as a DBA

• You can withdraw what you need from your business. You may also pay yourself a salary as an employee on the payroll.

• Either way, your net income is considered income for tax purposes, even if you don't withdraw the money from the bank.

How to properly pay yourself as an LLC/S Corp - Owners Draw/Salary

• An owner's draw is not taxable on the business's income. However, a draw is taxable as income on the owner's personal tax return. This is like a D.B.A. draw.

• Either way, your net income is considered income for tax purposes, even if you don't withdraw the money from the bank.

• Business owners who take draws typically must pay estimated taxes and self-employment taxes. Some business owners might opt to pay themselves a salary instead of an owner's draw.

• You may also pay yourself a salary. With an S Corp, this is required, and payroll taxes will be withheld.

How to properly pay yourself as an LLC/S Corp - Distributions

• Distributions are a payout of money you put into the business, which is considered a return on your investment. You do not have to pay income tax on these distributions.

• Distributions paid out after you have been paid back any money you put into the business are taxable to the owner.

• How to properly pay yourself as a Corporation

• Dividends come exclusively from your business’s profits and count as taxable income for the owners.

• Dividends are distributed from your corporation and are included in your gross income on your tax personal tax return.

• You do not have to take a dividend from your corporation.

• Your corporation will pay tax on net income. You will pay tax on the dividend distribution on your personal tax return.

Max Profit Tip

There are various ways to pay yourself depending on your business form.

As an S Corp, you save on employment taxes by paying yourself a salary as an employee and only paying income tax on the rest of the profit.

As a corporation, you have the option not to take dividends and not include it in taxable income on your personal tax return.

Action for this lesson

1. Determine how you will pay yourself. The options will depend on your business form. All business forms allow you to pay yourself a salary as an employee.

2. Work with a tax accountant to help you decide what the most cost-effective way is to pay yourself.

What makes up self-employment tax?

Self-employment tax is the combination of income taxes plus Social Security and Medicare taxes on your net business income (gross income minus expenses).

Social security and Medicare tax

• Social Security and Mediare tax is 15.3% on the profit form your business earnings. The 15.3% is made up of 12.4% for Social Security and 2.9% for Medicare.

• Note: Starting in 2023, Social Security tax will increase by 0.1% each year until 2028. By 2028 Social Security tax will then be 15.8% rather than 12.4%.

• The 15.3% is calculated on your net income, regardless of your tax status standard deduction and other deductions.

Federal and state income tax

• These are taxes owed in addition to Social Security and Medicare taxes.

• Federal and state income taxes tax your net business income after certain deductions.

• Federal and state income is reduced by the standard deduction for your tax status, the retirement contribution deduction and other deductions you may qualify for.

• The income left after these deductions is then taxed at the Federal and state income tax rate based on certain tax brackets which is determined by your final taxable income.

• Not all states have income tax.

Additional income to consider when calculating self-employment taxes

• When it comes to tax time, you may have additional income form other sources that will be included on your personal tax return in addition to your business income.

• Other income will not affect your Social Security and Medicare tax owed on your net business income, but it will affect your federal and state income tax rate.

• I recommend contacting a tax professional to assist you in calculating your federal and state income tax owed to take into account other income you might have.

Other income sources to include:

• interest and dividends

• income from your spouse

• income form another job

• retirement account withdrawals

• any other income you will need to report on your income tax return

When to pay self-employment taxes

Payments made before you file your tax return are called estimated tax payments.

These payments are made on a quarterly basis as follows for the current tax year:

• April 15, June 15 and September 15 of the current tax year.

• January 15 of the following year for the current tax year.

• For example: For tax year 2022, you will owe estimated tax payments on April 15, 2022, June 15, 2022, September 15, 2022, and January 15, 2023. If the 15th is a holiday or weekend, the due date will be the following business day.

How to pay self-employment taxes

To pay your estimated social Security, Medicare and federal income taxes quarterly, go to https://www.eftps.gov/eftps/login/loginInitial. You wil first need to enroll before you can make estimate tax payments.

To file your state estimated income taxes, you will go to your states department of revenue site where you registered for a sales tax reseller permit. Go HERE for a quick link to your states site.

Max Profit Tip

By tracking income and expenses through the year, you can estimate how much you will owe in self-employment and income taxes and pay these prior to the end of the year.

1.This reduces any surprise come tax time and having to come up with funds all at once.

2.You avoid penalties from underpaying tax for the year you earned the income.

Action for this lesson

1.Determine if you will need to make estimated tax payments before the end of the year.

1.What is your profit after expenses for the quarter?

• If you have a profit, pay at least 15.3% for Social Security and Medicare taxes.

• Consider contacting a professional tax preparer to estimate how much you should pay in federal and state income tax.

2.Enroll at https://www.eftps.gov/eftps/login/loginInitial, to pay your federal estimated taxes.

3.Go Go HERE for a link to your states department of revenue page to pay your state estimated income taxes.

Recap of Business Set up Tasks

1. Choose your business form.

2. Set up your business form legally.

3. Get your EIN number.

4. Register your salon with your state if required and obtain the proper permits for your location.

5. Register with your state's department of revenue and get your resale permit and resale certificates. Remember to check with your local goverments at well.

6. Set up a system to track productivity.

7. Set up a system to manage inventory.

8. Implement a bookkeeping process, weather by hand, or using software.

9. Pay self-employment taxes.

10. Year end, prepare for income taxes.

Below is a list of all the links in this course:

1. LLC Setup: LegalZoom.com or NOLO.com, or Incfile.com, to assist you or you may do this yourself.

• For a clear step-by-step guide on setting up an LLC in your state, go HERE.

2. INC Setup: LegalZoom.com, NOLO.com, or Incfile.com, to assist you or you may do this yourself.

• For a clear step-by-step guide on setting up an LLC in your state, go HERE.

3. Steps to make the S Corp Tax Election

1. Complete and file this IRS S Corp election form, Form 2553. Click HERE for the instructions to compete this form.

2. These states also require you to make the election. All other states recognize the federal election.

• Arkansas (Form AR11003 must be filed), click here for the form

• New Jersey (Form CBT-2553 must be filed), click here for the form

• New York (Form CT-6 must be filed), click here for the form

4. Obtain your Federal Employer Tax Identification Number (EIN. Go HERE now to get started.

5. Keep your cosemetology license curren. Go HERE for information about your license including: renewal, reciprocity, continuing education and the link to you state's licensing page.

6. The U.S. Small Business Administration (SBA)

7. Association of Cosmetology Salon Professionals

8. Professional Beauty Association

9. Salon & Spa Professional Association

10. Business Insurance. Request a free insurance cost quote online with Hiscox.

11. Register for your retail seller account with your department or revenue, obtain you reseller permit and resale certificate.

Go HERE to Register and Apply.

12. Hiring Employee Links

• Register with your state's labor department. State unemployment insurance tax agencies.

• Get workers' compensation insurance. Go to this link to find out what the workers' comp laws are in your state and how to obtain it.

• Set up a payroll system to withhold taxes. For more information, check with your state's tax agency; you can find links to each state's agency at the website of the Federation of Tax Administrators at www.taxadmin.org/state-tax-agencies.)

• Have each employee fill out IRS Form W-4, Withholding Allowance Certificate. Click HERE for form W-4.

• Fill out Form I-9, Employment Eligibility Verification for each new employee. Click here to acces form I-9.

• Report each new employee to your state's new hire reporting agency. To find the name and address of your state's new hire reporting agency, see the State New Hire Reporting page at the Administration for Children & Families website (www.acf.hhs.gov).

• Post required notices. Go to the Department of Labor website at www.dol.gov/elaws/posters.htm. A list of state departments of labor is included on the federal Department of Labor's website.

• File IRS Form 940 each year. You can find the form HERE.

• Adopt workplace safety measures. For information on these rules, go to website of the Occupational Safety and Health Administration at www.osha.gov.

• Supply a W-2. You can get a copy of the form HERE.

13. Hiring contractors. Get the form HERE.

14. Productivity calculators. Go HERE for a quick calculator to calculate your Productivity %, Avererage client bill, Returning client percentage.

15. Standard mileage deduction. If you choose to take the standard mileage deduction, keep in mind that you cannot deduct individual vehicle expenses like gas, oil changes, car repairs, and car insurance.

16. Self-employment tax. To pay your estimated social Security, Medicare and federal income taxes quarterly, go to https://www.eftps.gov/eftps/login/loginInitial. To file your state estimated income taxes, you will go to your states department of revenue site where you registered for a sales tax reseller permit. Go HERE for a quick link to your states site.

17. Email any questions you have directly to Jennifer. Email: Support@SimpleSavvySupport.com

See attached downloads from the course.