Financing a beauty salon involves maintaining a positive cash flow against high overhead costs and an income that can be slow or inconsistent- especially in the first few years of business. To improve their cash flow, most beauty salon owners seek outside funding, but soon realize that traditional forms of financing, such as bank loans, are difficult to obtain. The answer to this dilemma for many salon owners has been to seek alternative methods of financing.
What are the Overhead Costs to run Beauty Salon?
Running a beauty salon involves several major overhead costs:
Real estate. Success with a beauty salon depends to a large extent on location. Real estate expenses will be one of your highest overhead costs.
Payroll. The success of your beauty salon is also heavily dependent on the talent, ability, and attitude of your employees. As front-line representatives, they are your greatest asset. But the investment you will make in them will also be one of your greatest expenses.
Inventory. This consists of all the beauty supplies and products that you must purchase for your beauty salon. Keeping your inventory well-stocked is essential to smooth operation.
Equipment. From blow dryers and curling irons to tanning beds and hot tubs, a beauty salon must be well-equipped.
A Beauty Salon is Considered “High Risk” Financing
Banks are reluctant to approve financing for beauty salons because they are considered a “high risk” investment. Not only is much of a beauty salon’s capital tied up in overhead, but the income it generates is generally inconsistent. Like any retail or service business, a successful beauty salon needs time to develop a loyal customer base. Thus, for the first few years revenue can be very unstable.
Moreover, in the beginning when sales are slow or inconsistent, it could easily lead to late or missed payments for loans or any other form of debt. The result is a bad credit rating that can negatively effect the chances of receiving traditional financing in the future.
What are Your Options?
For a new or expanding beauty salon to operate effectively, it needs additional sources of financing. When securing traditional financing is difficult, there are several alternative methods of funding that are suitable to a beauty salon.
Vendor financing. If you are looking for financing for equipment or supplies, then you may be able to get it from your vendor. Vendors can sometimes play a major role in financing a new or growing business. Just keep in mind that you need to shop around for credible companies, and you can expect to pay a higher interest rate on any financing that you receive.
Lease your equipment. Instead of purchasing all of your salon equipment and furniture, try leasing it. Through equipment leasing, beauty salon owners can free up their working capital which can then be used to operate and grow their businesses.
Get an unsecured business cash advance. A business cash advance is a small business finance method that is based solely on future credit card transactions. The company offering the cash advance will purchase these credit card transactions at a discount and provide your beauty salon with a quick injection of cash. The approval process is generally quick, and the money can be received within a week of approval. Since financing is based on future sales, credit and sales history are usually not considerations. Payments are also based on sales volume.
Getting the financing you need to run and grow your beauty salon is possible; you just need to know where to look.