Understand the startup costs involved in owning a barbershop business
Is owning a barbershop profitable knowing that starting a barbershop can be costly? Typical investments can range from $60,000 to $200,000, depending on your location, business model, lease costs, equipment and supplies, training, government taxes and fees, and licenses and permits.
Assess the ongoing expenses to run a barbershop business
Don’t forget to factor in monthly barbershop expenses such as utilities, rent, advertising, insurance, and equipment costs. If you have employees, you’ll need to pay workers’ compensation, salaries, and benefits.
Determine the potential profit in owning a barbershop business
According to the U.S. Bureau of Labor Statistics, the average annual income for a barber is $27,630 per year. However, you can earn far more depending on the number of people you employ or if you are involved in haircuts and styling yourself. Other factors to consider when planning profitability are keeping rent costs low, managing expenses, and providing great service so that customers keep coming back and referring you to others.
Determine how you will charge customers
It’s not easy determining what to charge for a haircut. A good starting point is to look to your competition — both locally and within your market. Then, calculate your overall monthly costs and come up with an operating budget. Also, consider the overall number of hours that you will provide services and how long each haircut takes. Use these insights to inform what you will charge your clients in order to make a profit.
Select a business structure
Your choice of business structure — whether it’s a limited liability company (LLC), corporation, or partnership — will impact your daily operations, taxes, and the amount of risk you’re willing to take with your personal assets. Choose a business structure that balances legal protections and benefits.
The four most common are:
- Sole proprietorship: This means that the business is owned and run by one person with no legal distinction between the owner and the business.
- General Partnership: A general partnership is the simplest variety of partnerships and is created automatically when two or more persons engage in a business enterprise for profit. No state filing is required.
- Limited liability company (LLC): This is one of the most popular forms of a business entity for small businesses. An LLC offers limited liability protection (shielding your personal assets by protecting them from debts and liabilities associated with the company) and pass-through taxation.
- Corporation: A corporation is a separate legal entity owned by its shareholders, thereby protecting owners from personal liability for corporate debts and obligations.
For more information on business entity structures, read Comparing company types.
Choose a business name
Naming your business may not be as simple as it seems. When selecting a name, try to make the name short, easy to remember, descriptive of the business, and capable of drawing attention. Depending on the business form you choose, you may have to register and/or receive approval from the local or state government where your business is formed.
For more information on naming rules for different entity types, read Naming your startup business.
Register your barbershop business
Based on the location and business structure of your barbershop, you may need to register your new barber business with your state and/or local government.
To do this, LLCs, corporations, and general partnerships must register (online or through the mail) with the Secretary of State or business agency where they conduct business.
If you choose to operate your business under a name other than your personal name (even if you are a sole proprietor), you will need to register that business name with state and/or local governments, a process known as filing a “doing business as” (DBA) name.
Get federal and state tax IDs
Before you can pay business taxes, you may need to register your business with the IRS and obtain an employee identification number (EIN). An EIN is the equivalent of a social security number for your business and is required on your state and federal tax filings.
(Note: If you’re a sole proprietor without employees, then you don’t need an EIN. Instead, you will file your taxes using your social security number.)
An EIN is also needed to open a business bank account and ensure the separation of your business and personal finances.
You may also require a state tax ID. Typically, you’ll need to get an EIN before you apply for your state tax ID. Check with your state or a business lawyer, as the process will vary by state.
Open a business bank account and credit card
A business bank account and credit card keep your personal and business transactions separate and afford certain legal protections. For example, if you operate an LLC or corporation, maintaining a business bank account helps you maintain liability protection and the security of your personal assets in the event your business is sued or found liable.
A bank account and credit card also help build business credit — something that suppliers and vendors will verify before transacting business with you. For this reason, consider opening your business accounts as soon as you start incurring business expenses or accepting money.
Get licenses and permits for your barber shop business
Most small businesses need some form of business license or permit to operate. These vary by business type, location, and regulations.
State governments typically regulate barber shop businesses. But you may also require the following:
- Basic business operation license: This is a license from the city in which your business will operate, or from the local county (if the business will be operated outside of the city's legal boundaries).
- Zoning and land use permits: Local government zoning laws may prohibit certain business activity in designated areas.
- Building permit: If you plan on remodeling or building a commercial space, you'll need to get a building permit.
- Sales tax license/sellers permit/resellers permit: This license/permit has many names and those names vary by state, but it is required for the selling of almost all products and services.
- Certificate of occupancy: This certificate outlines what your building structure is used for and ensures it complies with building codes.
- Barber shop or salon license: All your employees must have an appropriate license. Furthermore, barber shop licenses are often based on the location of your business and the supervising manager must be named for each. Also, check with your state to understand safety requirements for your barber shop.
Visit your state and local websites to determine which licenses and permits you need. And be sure to manage your licenses over time, keeping track of when you’ll need to renew them.
Insurance for a barber shop business
Business insurance protects you against damage or costs incurred at your place of business. Coverage varies wildly and it’s wise to consult a broker to determine what policy and addendums you may need to protect your business.
If you have a commercial lease, you may be required to purchase general liability insurance. If you have employees on payroll, you must also pay workers’ compensation insurance and unemployment insurance.
Financing your barber shop business
Since your startup costs will be high, you may need to obtain upfront financing. A business bank loan or SBA-backed loan are common sources of small business financing. These funds can be used to procure equipment and other capital expenses.
Your business will also need funds to accommodate ongoing and unexpected expenses, such as equipment maintenance and repair. A business line of credit is a potential option to cover these costs. This form of financing allows you to draw on funds only when you need them.
Use your business plan to help increase your chances of securing funding. Include your budget, projected profit and losses, and financial projections. With these tools, you’ll have a good sense of how much funding you need and your plan to repay the loan.
Market your business like crazy
Think about how you will get the word out about your barber shop business. Here are some tips:
- Launch a website: Create a website that lists your services, experience, and is visually interesting. Make sure your site is optimized for search engines. This will ensure your business ranks high when someone searches for a local barber. Use key search words and phrases in your body copy, headers, and metadata. Finally, be sure your website is designed with desktop and mobile users in mind, and make it easy to book an appointment online. For more information, read Top 3 tips for building a company website.
- Create social media profiles: Set up business pages and accounts on Facebook, Yelp, Google My Business, and Instagram. Ask customers to tag you in their pictures and post reviews. And regularly post updates, news, and specials.
- Foster customer loyalty: Use email newsletters and offers to keep in touch with customers. Include incentives for repeat customers or create a reward program that offers clients a free hair cut or styling product after their tenth appointment, for example. And don’t forget the basics. Make sure your salon is a comfortable, clean, and pleasurable place to visit. Ask your stylists to ensure that your clients are happy after each haircut. Also, hand out business cards to encourage repeat visits.
Learn more from BizFilings
BizFilings is dedicated to making starting a business easier so you can focus on doing what you love. For more information, check out our state guides for LLCs and corporations.