What You Don't Know Will Cost You

by Ken Cassidy

The reality of the old saying "What you don't know will cost you" is what complicates the lives of business owners and managers in the beauty industry.

Adjusting your business model is crucial to stay in business, as well as to be profitable.

Most owners are overpaying their employees in all the wrong ways and not creating profits for their company. If owners are not aware of where employees cost them the most, they are setting up their businesses to fail.

There are three crucial elements to protect, guide and direct an owner's success. Without the internal structure in place, most owners are constantly back peddling to resolve issues that come up on a daily bases. We call this management style MSU, (Making Stuff Up).

Take this new year as an opportunity to restructure business for the next economic business increase. It is coming sooner than you think. Will you be ready to bring on more staff and get things in line with your current staff? Your business plan should incorporate several items that you probably do not have in place if you are like most small beauty business owners. Here is an outline of what is needed to protect your financial investment and your dream.

A Partnership Agreement

This should be in place in case something happens between two or more partners. The agreement should clearly define how disputes should be worked out, regardless of the reason for separation. (no nasty divorces).

An Employee Agreement

With the way the IRS looks at the beauty industry, as well as the State and judges, it is more important than ever to have clarity with your employees to prevent any disagreements that come as a result of an audit, a court case or an unemployment hearing.

A Policy and Procedure Manual

Every owner with employees needs to have a policy and procedure manual in place. They simply state the policies of your company and the procedures to be followed by those in your company. What most owners do not realize is that these manuals will contain Federal and State mandated guidelines and cover a variety of issues. These issues can show up at the work place on any given day without warning such as the policy on bereavement leave, maternity leave or harassment of any type, etc. (Remember MSU)

Front Desk Agreements

We compensate and reward front desk personnel differently than our service providers, but it is equally important to make sure they are aware of your expectations.

Now for those owners who choose other business choices rather than having employees.

Medical Contract Referral

If an owner of a salon or spa wants to rent out space to a physician, they need an Independent Medical Contract Referral and Space Rental Agreement. This protects the salon / spa owners from the medical issues that you may not be familiar with, among other things, and protects your spa.

Salon Suites Agreements

This is another business choice: leasing out private rooms that are self-contained. This agreement is between a property and a tenant, and must be clearly identified as such with the IRS, State and / or a judge.

Salon / Spa Space Sublease Agreements

If an owner is going to have rental stations, tables or rooms and does not own the building where their salon / spa is located, they need a SSL Agreement. This is necessary to make a clear-cut separation between the owner and the booth renters according to the authorities. If an owner owns the building where their salon / spa is located, they would need a Space Lease Agreement.

Setting Up Your Business by Using Independent Contractors

This is where you would contract with a company or individual to come into your establishment and perform a service. According to the authorities, most of the beauty industry does not qualify as an Independent Contractor working within their salon or spa. This is because of the incorrect way one usually goes about using the contractor and setting up business with these individuals. We get calls on a weekly basis from owners going through an audit, and most owners are losing the battle. This costs them dearly in back taxes, penalties and interest for that time period.

Management Forms

Having the correct Management Forms in place to direct your staff, whether employees or renters, will simplify any owner's business life.They should support your legal documents if set up correctly. When is the best time to implement these legal documents? The first of the year is the ideal time to start with a clean slate tax wise. If you cannot incorporate them then, you will want to at the beginning of a new quarter.

Every owner in the beauty industry should have a foundation that will protect their businesses legally and profitably, as well as a great management structure to guide, direct and reward all working within your company. Reevaluating your business plan and starting over in today's economy has never been as important, as all of us are subject to the same laws and regulations as larger companies.

Ken Cassidy is President of Kassidy's Salon Management consulting company. He can be contacted at kassidy122@earthlink.net or www.kassidys.com.

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