April 2009

Salon Owners: Do You Want Booth Renters or Employees?

Is There a Wrong Choice?

By Ken Cassidy

There absolutely is no wrong choice!

As a management consultant I consider having booth renters and/or employees excellent ways to run a salon or spa business; what becomes a problem is how they are set up and how they are run.

That is why the majority of business owners fail – because they are not doing what’s necessary to protect their financial investment.

When all is said and done business owners discover their business plan lacks three crucial issues: The Lack of a Legal Structure; The Lack of a Profitable Structure and The Lack of a Management Structure. That is true with either an employee-based or booth rental business or having a combination (a combination becoming popular in the beauty industry nationwide).

Let’s look at both sides and help clear things up the best we can.

Employee-Based Salon

First, we’ll take a look from the employer side of the beauty industry.

Business owners know they need to maintain control over their business so they think having employees gives them the best opportunity to keep control. They remember some of their first jobs and how they felt controlled; how they punched time clocks, told when to come in, what to wear, what to do and when to do it. Little did they know the person they worked for didn’t know any more than they did on how to handle employees.

Most people are great at the service they perform but lack the skills needed to run a business.

Learning how to handle employees is crucial especially in the beauty industry if you expect to survive. You can bring in a lot of money but if you don’t have any at the end of the year, you won’t survive.

There are two times that an employee will cost the business owner the most during their time of employment and you have to be aware of them or you are setting yourself up to fail. The first time is if you offer too high a salary. When you overpay, there is little room for profit or being able to offer any benefits.

An employee manual is essential. With nothing in writing to guide and direct the employee there’s chaos.

So what is in that manual that will help guarantee owners and staff success? There are three crucial elements to empower owners and employees alike. The first is a job description; second is an employee agreement and third is a policy and procedure manual.

The benefits of having these three management tools far out way not having any when it comes to potential problems, especially when it comes to the IRS, your state or a judge, with employment issues.

A job description for any position that you have hired for, regardless of the service being provided is the first crucial element to your employee manual. This also includes the front desk or management.

The second crucial element is an employee agreement. This alone will clarify many issues such as compensation of service and retail. It should let a staff member know what they need to do to get a pay increase/bonus. There should also be a confidentiality clause in this agreement to protect client confidentiality which protects the business. This has taken the place of non-competing clauses.

These are only a few important elements that should be in an employee agreement; there are several more needed to protect an owner’s investment in dollars and staff.

The last part of the employee manual is the policy and procedure element. This would clearly define the policies of the company and the procedures of how those policies would be handled. What most staff and employers don’t realize is these guidelines protect both sides of the business. This section is Federal, and State mandated with guidelines on all sort of issues like maternity, sexual harassment, bereavement and loans to name a few.

Having employees today is a lot of responsibility for any owner. It costs way too many hard earned dollars in start up costs and running a business today must be taken seriously. Too many businesses have failed and more will surely follow in these tough times. However, a new business can be rewarding if approached correctly even with an employee based business.

Booth Renter-Based Salon

If you own a salon or spa and choose to do booth rentals as an owner you become a landlord. This means you are renting out space including common areas, nothing more. If you have set up your business correctly through a contract, you can have total control of your booth renters through the contract that you provide them.

The main thing here is a valid contract, usually requiring more than five pages, to protect both the owner and renter alike. You need to understand that you do not have control of the day-to-day issues of their working practices.

Many businesses will fail IRS and State audits, including with a judge, because they don’t have the contract making the necessary separation between each other when it comes to the payment of taxes. No contract signals to the IRS and State that the owner has employees.

Some important issues concerning rent: Rent can only be charged or paid on a flat rate period. However, a smart business owner can realize that there are six to seven ways above the base rent to earn additional income legally.

If the salon or spa business owner landlord does not own the building their business is established in all of this information needs to be in a Space Sub Lease contract. If they do own the building it is a Space Lease that is required.

There are many booth rental businesses doing things well and making good money. But the majority are only surviving at best. There is simply not enough rent charged for all the benefits to the renter.

Ken Cassidy is President of Kassidy’s Salon management consulting Company; owner of Pygmalion Salon the past 32 years; licensed hairdresser, a cosmetology instructor. He has authored several bills in Calif. to protect the beauty industry to make sure all have an equal playing field when it comes to having employees, booth renters and having I/C. You may contact him to get more information at kassidy122@earthlink or www.kassidys.com

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