Starting a business is a dream come true for so many in the beauty industry. Whether you’re fresh out of school or making a plan to go solo, building your empire almost always starts with a loan. Creatives like us like dollar signs, but things like business plans, lines of credit, and interest rates might not be our cups of tea. Let’s get your business started on the right foot with this guide on how to finance your small business.
Disclaimer: this isn’t financial advice, and we recommend you speak to a financial adviser with any questions!
Before you can get started financing your new salon, studio, or spa, you need to know your numbers like the back of your hand. Get familiar with your expected costs and expenses, including rent and utilities, equipment, products, wages, and more. Make sure you’re keeping track of both fixed costs and variable costs, i.e. costs that stay the same no matter how many appointments you book, and costs that can change based on how much business you’re doing.
A few common costs to know include:
Lots of us in the beauty business get started renting booths: it’s a great way to build up your experience, reputation, and book of business without paying the full price for a space. Make sure you know your monthly rent and any other associated costs.
If you own or rent your studio, make sure you’re familiar with all your costs, including:
Make sure you’re keeping your books up to date with monthly and yearly costs for your equipment and your inventory. Capture everything from brushes and appliances to latex-free gloves and hairnets. Something to note here: you’re not replacing things like appliances or barber chairs every month or year, but you’ll be buying new hair products and color treatments often.
This might sound like it’ll be a lot of homework, but GlossGenius can help you run all the reports you need to know about how much you’re spending and what you’re spending it on.
Once you understand your current or expected costs, you can start formulating a solid business plan. A business plan is essentially how you describe what you plan to do to the people you want to invest in your business: in other words, it’s your sales pitch for a loan.
Your business plan should include a summary of what your beauty business will do, the services you’ll provide (and be specific!), the customers you’ll target, and how you plan to organize your business. It should also include how much you plan to request. If you have projected pricing, profits, and costs, that’s a great place to start, too.
What matters most is that you can show the lender that you have a plan and that you can stick to it. Lenders want to know they’ll make their money back, so give them your best smile and show them you’ve got what it takes to be successful.
With a plan in place and your costs fully understood, you can start exploring how you want to finance your business. First, identify how much you’ll need to get started: that includes the cost of renting your booth or studio, your equipment, your supplies, and any other additional expenses. From there, there are several different ways to get started, and depending on how much money you’re looking for, you want to weigh all your options.
You’re going solo with your business, why not go solo with your funding? There are some inherent advantages to putting your own money into your business, namely:
There’s a lot of conflicting advice out there: some people will tell you to never spend your own money, while others will say you shouldn’t bother with a bank. Whenever you start a business, there’s always a risk you’ll lose your investment, whether the money is yours or someone else’s. If you’re planning to use your savings, make sure you’re comfortable parting with that money, potentially for good. As far as how much you should save up, a common rule of thumb is to save up at least six months' worth of wages so you have both a meaningful investment to make and a comfortable savings cushion to fall back on.
Another avenue to explore is investment from family and friends. Whether you’re calling in a favor or offering a partnership, this is a great way to get some startup funds without calling up the bank. You can gather money from friends and family in three ways:
There are a few things to look out for when getting money from friends and family. For starters, money and relationships don’t always mix well, especially in business. Make sure you have every exchange and your agreed-upon terms in writing, especially when it comes to repayment.
Loans can be a great way to finance your business. Their fancier name, debt financing, is a great way to get the money you need without having anyone have a say in how you run your business. The tradeoff is that you have to pay the money back with interest. Interest depends on a few factors, including the type of loan you take out and your credit rating. For small beauty businesses like salons and spas, there’s a few different types of loans you can explore to get those doors open.
Short-term business loans are a great way to get relatively smaller sums of cash that you can pay back fast, hence the name short-term. They’re meant to tide you over when you need cash, so you should only consider them for starting a business if you only need a small amount of money, for example to cover the cost of a down payment or for a surplus of inventory to get you started comfortably.
There are a few different types of short-term financing you can get, so study up to figure out which one works best for your business.
The SBA offers loans to small businesses through partner lenders, giving you access to a variety of different institutions through one centralized place. The SBA sets guidelines for its partners to keep interest rates low, so you can focus on getting your salon up and running without getting lost in the legalese.
There are three different types of SBA loans: 7(a), 504, and microloans. 7(a) loans are considered financial assistance with short and medium-term financing. 504 loans are long-term, fixed-rate loans meant for big ticket items like real estate and equipment. And microloans, the smallest of the bunch, are meant for small purchases of $50,000 or less.
Another option you can pursue to get startup money is a business line of credit. Unlike a loan, a line of credit is a bit like a credit card: you borrow money as you need it up to a limit, say $50,000, and pay back interest on what you’ve borrowed. You withdraw money as you need it, and repay as you can, as long as you don’t exceed your limit. A line of credit is an excellent way to get cash right away while still having the option to get more as you need it. You don’t feel pressured to spend more than you need just to make the loan worth it, and you can pay it back on your own terms.
On the note of credit cards, you should never use your own credit card to fund your business. It might be tempting to take out a cash advance, but remember that you’re putting your own credit on the line here: if your business struggles or fails, it’s your brush on the line. Even if you have a high credit limit and only need a few thousand dollars, using a personal card is rarely a good idea. Your interest rates will be higher than any other kind of loan or line of credit, and you’re limited in how much you can actually borrow.
With money secured, you can set out on achieving your dream of doing what you love. You’ve honed your craft, opened your doors, and are ready to take on the challenge of owning a business. Whether you’re renting a booth or opening a salon of your own, your next step is to bring in business. Implementing GlossGenius, the industry-leading booking app for all your business-getting needs, is a great way to get started. Start your free trial today to find out how GlossGenius can help you make the most of your new small beauty business.