This is the #1 Reason Hair Salons Go Out of Business

Salon success is not a guarantee – it takes more than the right talent and location to turn a profit year after year. Salons go out of business for many reasons, but the most common error also seems to be the most frequently occurring. Because we hate seeing our fave salons shuttered, we tapped Kerry E. Yates, Founder of the Colour Collective, for her insight into why salons fail — and how to avoid this.   

The number one reason salons go out of business is the same reason any other business fails – challenges with finances. As long as you’re in the red, it doesn’t matter what else you’ve got going on, your biz just isn’t sustainable.

Money challenges

“Money challenges are the number one reason salons will fail,” says Kerry. Mostly, this comes down to a lack of planning for all costs and budgeting for the little things – including a rainy day fund. “Unfortunately, new salon owners will plan for the build-out and lease costs but forget they also need to have funds for marketing, product inventory and operating expenses, in addition to a rainy day fund. Challenges will definitely arise, whether they be building issues, stylist walk out or equipment failures,” she continues. To escape this common pitfall, think ahead – and then even further. “Be sure to create a cash-flow projection worksheet for at least 2 years (if not 3) to truly understand what you will need to maintain your salon and ensure future success,” adds Kerry.

Failure to plan

Goals with no plan are just hopes – you need to “plan, plan, plan, plan” to make it happen, she stresses. “Define your business objectives – like the total salon revenue that’s needed, and then determine what it will cost to achieve that revenue. From there, break it down by month so you can understand exactly what you need to make it happen — this is your blueprint for achieving your salon dreams,” she continues.

Another common mistake is thinking that all it takes to have a successful salon is being a great hairdresser – owning a salon requires a completely different skill set.  “You have to be a business manager, employer, and financial wizard, while maintaining your creativity. There are a lot of hats to wear, and can be quite trying if you go from behind the chair to building a 10+ chair salon,” says Kerry. To avoid this common pitfall, she advises starting small to test out what this new role will be like. “Take advantage of salon suites that offer you the chance to create a salon brand without the headache of a build-out and operating expenses, etc. If you have a team of 3- 5 that are ready to work under your name, salon suites have larger rooms that accommodate your needs and allow you to immediately be operational vs. waiting for your build-out to be completed. Once you get the hang of things, then go big!”

Again, everything comes back to your plan. “Do not start your business without a plan,” emphasizes Kerry, who says that cash is another crucial element of avoiding failure – you need enough extra funds to support your business when challenges arise – because they will! “If you have a group of stylists walk out, you better be prepared for the revenue impact,” she explains, of one common challenge.

Overlooking costs that add up

When creating your master plan, factor in every detailed cost possible, including the essentials. “Remember to include the cost of product inventory. Many new owners overlook that backbar costs money and is a necessity for running your business – you can never be without it. Many owners will forget to buy things like toilet paper, paper towels,” Kerry says, noting that if you can, hire a part-time manager to keep track of the small things.

Forgetting your staff

Another mistake salon owners make is not connecting with and inspiring their staff. “Your revenue is directly related to your service offering. Create incentive programs, offer education and create a fund to help stylists that experience personal challenges. Support your team and they will support you back,” says Kerry. However, while you want to have a good repertoire with your staff, “ultimately, you are their boss and not a friend,” she explains.

Foregoing insurance

If you do one thing to ensure you are protected, it should be buying liability insurance. “Mistakes happen and unfortunately we live in a very litigious society.  Insurance will protect you should you experience a lawsuit for any reason,” says Kerry.

Forgetting your plan

Try to stay as on track with your budget as possible and review it monthly. “If you have to spend more, then be sure to create ways to save in the coming months – you don’t want to be forced to close your doors due to poor planning,” she continues. Otherwise, marketing is crucial – just because a salon exists, doesn’t mean that clients are a guarantee. “Find a local digital expert in your area to help push your salon online, so as people search for beauty services your name comes up.  Also, remember to share your stylist art with the world and try to post a minimum of 3 times per week.”

Ultimately, if you plan ahead and remember the details, you should be on the path to sustained salon success!

Want tips for success? HERE’s how the Captain Blankenship founder built her empire.

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