How To Start Your Own Salon | Part 2: Funding Your Vision
In Part 1, we discussed the first step to start your own salon which is your vision. Then, we sprinkled in a dose of reality and explained that you really need to cut your vision in half to ensure that you are starting small and working towards your dream salon. Now, we are going to discuss how to fund that dream!
How are you going to get the money to start your salon? Although there are several different ways to secure funding, it only seems right to share what I have done. When I opened Be Inspired Salon in 2010, it was 750 square feet with five stations, two shampoo bowls, two dryers, and an exposed color-mixing area. It was a very small, boutique-style salon that I started with less than $100,000. How the heck did I make that tiny space work on a shoe-string budget? Let’s dive in!
Now Accepting Donations
When I started my salon, I didn’t have any liabilities. I didn’t have any bad debt—no credit card debt, no car loan, no mortgage debt. That all sounds great, right? But, that also meant that I didn’t have any assets. In other words, I didn’t have anything that the bank could take away from me if I failed. Even though I had a great business plan that demonstrated my success as an independent contractor, it was a struggle to secure funding from banks and investors, so I needed to look elsewhere.
Pro tip: you need to be on the lookout for expensive money. While you may find a bank that is willing to take a risk and lend you money, it could come with astronomical interest rates! Interest rates upwards of 16% are not cool! In our current market, you should expect rates to vary between 4-5%. And just remember, the better the economy, the higher the interest rates. I could do an entire blog about buying when the market is down and selling when it’s up—but we’ll save that talk for another time!
Since I wasn’t having any luck with the traditional route, I took my business plan to potential investors. I specifically looked for individuals who did not want to have any stake in the company. These are investors who are lending you money, but they do not receive any ownership nor any profits from the company. In other words, you agree to return their investment with interest. You will not see this on Shark Tank.
With hard work and perseverance, I secured my first community investor called Madison Development Corporation. Each year, the corporation chooses a promising start-up company and offers a business loan. The Madison Development Corp. gave me a $20,000 loan! This was an excellent start. There are awesome opportunities like this in almost every city, so start looking! Community investors give time and money to start-ups who will employ locals and grow their neighborhood—these are amazing groups who want to see a success story!
Now, I have $20,000; what about the other $75,000? This is where things got a little crazy and really exciting! My next step was sitting down with my parents to ask for an investment. In my family, my parents gift each of their children $10,000 for their wedding. Instead of waiting for the wedding, I asked them to invest $10,000 into the salon with a return of 7%. Fortunately, they said yes!
With a commitment from my parents, I went to my business attorney to write a promissory note—you will need to do this! The promissory note becomes the legal agreement between you and your investor which details the amount invested, interest rates, and timeline for payment. Another great benefit of working with investors instead of a traditional financial institution is that you can negotiate the repayment timeline. For example, each of my investors agreed to give me 3-6 months before I had to start paying the loan back. This small grace period allowed my business to build some momentum which was a true blessing!
Are you keeping up with the math? At this point, I have $20,000 from Madison Development Corp. and $10,000 from my parents. So, I’m now at $30,000. The remaining $65,000 came from a truly amazing person! My father had a friend with a money market account that was making close to nothing. In 2009, nothing good was happening with the economy, so his money market was only making about 3%. Instead of keeping his money around 3%, he chose to invest $65,000 in my salon with a 7% return. This investor decided to take a chance on me because he believed in my business plan, and I was offering a good return. How amazing!
Paid in Full
What happened with my business and investors? The business blew up, I am happy to report that all three investors were completely paid off within three years! At the three year mark, we actually found ourselves needing to expand our salon! Since I now had three year’s worth of profit and loss reports, tax returns, etc., I could demonstrate our amazing financial records to a banking institution. So, the bank funded an addition to our salon at an interest rate just under 4%—which is less than the 7% that I paid back to my original investors. Now that our salon has been open for almost seven years, we are looking for an even bigger and better space!
If you are as excited as I am to talk about business and financial planning, being a business owner may be a great fit for you! If you have more questions—everyone’s personal situation is different—please contact me. I will offer a non-biased opinion, and I care deeply about beauty industry professionals! Although we say profit isn’t everything; honestly, it is the only thing. Yes, people come first. If you don’t build up your team and equip them for success, they will not make you a profit. And without a profit, you cannot keep going. If you would like personalized attention on this topic, reach out to me at info@beyondthetechnique.com.
We will see you next week for Part 3 where we share some insider tips about securing the perfect location for your salon! In the meantime, check out our weekly podcast and follow us on social media!