October 2008

How to Know When the Time is Right to Grow

By Jayne Morehouse

If you’re a salon or spa owner, have you considered opening a second location?

If so, perhaps you’ve had questions. How do you know when the time is right? What are the reasons to grow into additional locations, as opposed to adding on to your existing space?

To get some answers from the pros who have been there and done that, we asked some of the leaders of the International Salon Spa Business Network—formerly known as the International Chain Salon Association—to share their insights, experience and advice.

“It’s time to consider growing when you’ve reached a couple of milestones. First, when you are at maximum capacity at your existing location and second, when you have the cash flow to support a second unit,” explained Charles Penzone, chairman of Charles Penzone, Inc. in Columbus, Ohio, and secretary for the network. “That means you need to look carefully at how many hours a week your chairs are occupied and producing revenue. Look at the dollars you are generating per square foot and how much more you could generate if you double shifted your stations. If you’re close to maximum earning potential and occupancy for most chairs for most of the hours you are open, then it might be time to consider opening another location.”

Added Bob Floreak of Acuity Human Resources LLC, a company that consults with members of the network, including Philip Pelusi Salons, “When you’ve decided to grow, it’s critical to focus on your culture. The biggest issue that affects growth as salons move from one or two locations to multiple locations is that they start to lose the small business culture. ...What that means is the burden of more employees creates the increased likelihood of additional employee relations issues, turnover and even legal challenges, because it becomes more difficult to manage a large number of employees. To improve the potential for success and to mitigate the possibility of employee relations and [human resources] issues, companies need to train their managers on the basics of performance management and labor compliance as well as adopt defined [human resources] policies and procedures.”

Once you do decide to grow, Gordon Logan, president of the International Salon Spa Business Network and CEO of Sport Clips, a Georgetown, Texas-based sports themed company offering salons for men and boys with more than 500 units across the country, offers these steps to success:

1. Develop a thorough business plan. Excel spreadsheets are great for this, since you can change the assumptions to see what impact client counts, average service tickets, retail sales, etc. have on your bottom line. Factor in additional costs of two locations: communications, training, etc. Be realistic about build-out costs, you don’t want to under-estimate the cost to open. Improvements to the space, equipment, store front sign, supplies, inventory for resale, marketing costs to get the word out, ... etc. all have to taken into consideration.

“Banks loan to those who have a realistic business plan that is not overly optimistic. Develop worst-case best-case scenarios to see what happens if everything doesn’t go just like you hope it will. Be prepared for setbacks by factoring some cushion into your working capital allowances.”

2. Once you finish your business plan, talk to your banker. Don’t be discouraged if he says no. Many times, you have to talk to several lenders before you find one who understands our industry and has faith in your ability to operate multiple locations. Check into Small Business Administration loans. They are perfect for owner-operators, are usually easier to obtain unless you have a substantial net worth.

3. Make sure you have a management system in place. Running two or more locations is more complicated than just one. You can’t replicate yourself, so you have to have systems in place and you need to document them well, so someone else can do it in your place.

4. Train your manager to run the new location. If you don’t have someone in your salon that is capable of running your next salon, you need to hire someone or develop someone presently on your team. Invest in outside seminars on leadership and management, building a team, coaching and counseling, etc. Attend workshops at hair shows on management. Have your manager-to-be run your existing location for a few weeks to see if they are capable and like being in a leadership role, before taking the reins full time.

5. Join trade associations, like the International Salon Spa Business Network, where you can learn from and network with others who have opened new locations.

6. Have a strong point-of-sale computer system, so you can monitor performance and inventory, etc. at any time from your home office and your new manager can use the performance reports to coach and counsel the team.

7. Develop a stylist recruiting program. You will have more stations to fill with new locations. Talk to school owners to let them know you are planning a new location.

8. Organize your training. You can’t do it all one-on-one by yourself any more. Use outside resources, like product manufacturers, distributors, etc., to supplement your in-house resources.

9. Be prepared to work harder than ever until you get everything under control and cash flow positive. Expect it to be harder than you ever imagined.

Concluded Penzone, “Carefully studying your numbers will give you the best roadmap. Putting a location in just so you can grow isn’t always the best move to make. In fact, sometime if you already have multiple locations, you’ll become more efficient and more profitable by reducing your number of locations. Growing can be terrific, but downsizing might be the most prudent decision, depending on your financial position. Remember, over the long run, profitability is what matters.”

Jayne Morehouse is public relations director for the International Salon Spa Business Network. For more information, call 866-444-4272, visit www.salonspanetwork.org or join the network’s next conference on May 31-June 2, 2009 at The Ritz-Carlton Hotel in Amelia Island, Florida.