A little over a year ago, we were given the option in opening our own salon. Andrea, my beautiful wife, is a cosmetologist. She has been doing hair for a while, and in 2017 she went back to school to get her license.
The day she graduated, she was provided the opportunity to take over a salon. Starting a business right after graduation is scary since we weren’t sure how much we could fill her schedule, and how hard it would be to find booth renters. Luckily, things have gone well and the business is succeeding.
I help manage the business finances, website and help with planning. I want to share what I’ve learned in this process, as it should apply to anyone starting a business.
Some Risks are Worth Taking
Starting a new business can be crazy, and costs can vary significantly depending on the type of business. You want to educate yourself as much as possible before making decisions. How could things go right or wrong? What difficulties will we have the first year? Is it likely that we will bring in enough money to cover our base costs in the beginning? How much money will we need to get started, and will we have to go into debt?
For us, we knew it was going to take a significant amount of money to get things going. We had to purchase booths and equipment before we opened. We also knew that we weren’t going to have any booth renters in the salon for a while, which meant Andrea’s services would have to cover the costs in running the salon at first. What made this decision hard for us was it required going into more debt, while we were trying to get debt free. But we saw the potential and decided the risk was worth it.
We realized that Andrea already had some clients and did excellent work. We also noticed opportunities in education, that would open her up to offer additional services. It would have been easy for us to decide not to go into credit card debt further to start a new business. But by taking this risk and seeing the company take off, we were able to reduce our debt faster. Being debt free and having savings would have made this decision much more comfortable. But we are glad we took the risk.
Managing a Business Budget is Similar to Managing Your Personal Budget
A successful business brings in more money than it spends. You have to know what are the base expenses for the company and make sure you can cover the bills. In a lot of ways, it is similar to managing your own personal budget. If you are not good at managing your own money, it will be difficult to manage the business finances.
In the beginning, since we had no idea what kind of income we would bring in at first, we set up a line of credit that gave us quick access to cash as needed. Luckily, we had excellent credit that allowed us to do this. You can work with a line of credit just like a checking account and have easy access to the funds any time you want.
To streamline the business budget, I created multiple google spreadsheets. I tracked all the monthly bills, and at any point, I could see if we hit these three goals for the month: base expenses, take-home pay and extra debt payments. As time went on, we were able to get an idea in what we could realistically shoot for every month, and know how we were doing at any point.
Having an emergency fund is even more critical for a business, as you need to pay bills during slow months. So we added a cushion amount to our numbers every month to build the business emergency fund as time went on. Having an emergency fund also provides flexibility when opportunities come up that would be beneficial to the company (like training, advertising, etc.).
Your Business Name and Logo are Important
When starting a new business, you want to cut costs as much as possible. But your business name and logo are things not worth cutting. Having a name or logo that you end up regretting is hard to change later on.
Spending extra time and resources on your company name and logo early have these benefits:
- If you change your company name later, this could lead to confusion among customers. Imagine if someone recommends your old business name!
- When changing your name, you will probably have to change domain names, which could have SEO consequences as the age of your domain is a key factor.
- Changing out signage can be expensive.
- Starting a new business, where you end up changing the business name, can put your business in a negative light with your customers.
It is not the end of the world if you do have to change your name or logo. But, it will save a lot of time and resources if you can get these ironed out early. We ended up paying a company to help us create a company name and logo, and it was worth the extra cost. We have a name we love, and the logo is excellent. And getting professional feedback on the benefits/cons of specific names is valuable.
By having a name you love, you can feel confident advertising the business early on. It allows you to focus on the things that matter most to your business, and it helps solidify your brand.
Iron Out Your Business Software Early
In the case of our salon, we needed a way to charge for Andrea’s services and provide a method for clients to schedule appointments with anyone at the salon. We ended up switching companies a few times, mainly with encountering issues once we started actively using the software.
It was worth the switch, but it took a lot of time and planning with each transition. As the salon grew, it became even more difficult to change. If we had spent more time researching the different options earlier, this could have been avoided. Especially when you are talking about switching scheduling software, this can be hard ensuring everyone makes the switch at the right time, and making sure appointments are not missed.
When charging credit cards, you want to make sure you are using something that will work for the long term. Things such as credit card processing fees, swiping options, etc. should be considered. Saving even a small percentage on credit card processing fees can save a lot of money.
We ended up switching to Vagaro that had credit card processing and scheduling in one integrated system, which helped streamline the process and gave us access to more data (what clients were charged for each service, etc.).
Spend Extra Time Vetting Possible Employees
Growing pains are bound to happen. But having someone at your business that is not a good fit can make things difficult.
Someone may appear nice during initial interviews, but if you do not have a reliable vetting process to dig deeper, you may end up bringing on someone that you don’t want, which could lead to huge problems.
Here are a few things that could improve your vetting process:
- Verify references. If they are only referring close friends, this might be a red flag.
- View photos of their work, if possible, which can give you an idea in how good of a candidate they are.
- How professional are they on social media?
- Do you know anyone who has worked with them?
- Do they communicate well? Since we run a booth rental salon, they need to have excellent communication skills to do well.
- Will their temperament fit well in your business? If they can’t get along with the people at your company, this can cause problems.
Vetting candidates can be time consuming. But outlining the full process and being thorough can reduce the possibility of bringing on someone you regret.
Know What You Do Well
Each of us has weaknesses and things we don’t handle particularly well. Identifying these early on can help you realize where seeking extra help might be worth it. For example, if you aren’t good at managing money, or budgeting, you might want to pay an accountant for support.
Early on it became clear to us that Andrea did exceedingly well at handling clients and managing her schedule. But she had difficulties handling the business finances (partly because she didn’t have time). Since I loved working with budgets and money, it became clear that me taking on this part of the business made sense.
Depending on who is involved with your business, this might take some creativity. If you know you don’t do something well, an option is to implement processes to counterbalance your weaknesses without getting someone else involved. You can also see how others in your field solve that particular problem.
Find a Great Accountant
Being hit with a hefty tax bill can be disheartening. You will want to make sure you have an accountant to review your books regularly to make sure things are correctly recorded. They will also pinpoint areas where you could save money on your taxes.
Especially if you aren’t familiar with accounting software like Quickbooks Online, getting things set up at first can be frustrating. I wasn’t familiar with accounting software before starting the business, but I learned how to do this by reading articles online. But even if that is what you decide to do, having an accountant double check things can save time later.
Finding a great accountant can be hard. An excellent place to start is to ask for recommendations and find someone who is highly recommended. If someone is exceedingly cheaper than most accountants, that could be a
I found our accountant by looking at who other people were recommending and taking notes on names that came up frequently. Most cities have general groups that post these kinds of things.
Focus on Customer Satisfaction
When you have happy clients, they will want to give you good reviews and recommend your company to their friends. The value of this cannot be understated. When you start to see clients recommending your services through social media, you know you are doing a good job.
It is worth staying in contact with clients to see how they like what you’ve done. This also has the benefit in preventing negative reviews, because if a client is not happy, you have the option of making it right before it gets to that point. If a client loves what you did, you can ask for a review. In most cases, people will gladly share their positive experiences.
Making sure client expectations are accurate before the service is essential. If they have a haircut scheduled but are expecting a full makeover, they probably will not receive what they want (which increases the possibility of a negative review). Also making sure they understand how your services are priced is essential.
If you do get a negative review, make sure you are as professional as possible. Within reason, see if there is a way you can make things right. But also know that there are difficult people out there that will never be satisfied.
Learn from Your Mistakes
No one starts a business without making mistakes. The important thing is making sure you are aware of these mistakes and taking steps to prevent them in the future. Doing this ensures that you will continually grow, and become better prepared to push your business towards success.
We made some mistakes, but in every case, we recognize where we messed up. Some issues might be difficult to prevent, and they might be unique situations that don’t happen regularly. But in either case, creating a mindset of learning is vital for growth.
Start Thinking About Expansion
You may have landed on a location based on what would work during the early stages of your business. But you may start to think how changing locations or getting a larger space could benefit your company, as time goes on. Or you may just be running out of space.
Expansion can be tricky because it could increase expenses and eat at your profit if expanding doesn’t pay off. You also want to consider if expanding is the direction you want to take your company. It may add additional time and commitments that are not worth it for you.
An expansion could end up making a profitable business go into the red. Spend time thinking about whether or not this is a good time to expand. Do you have a large enough business emergency fund if things don’t take off like you are hoping? Dive deep into what direction you want to take your business, and what risks exist if you do expand.
Starting a new business can be daunting and scary. But preparation can reduce risk and set you up to be successful. As long as you learn from your mistakes, and educate yourself, you can limit that risk. Understanding what has worked for others in your industry can be extremely helpful.
Having a successful business can provide substantial financial benefits. It can help you reach financial independence. There are few things as rewarding as starting a business and seeing it take off.
Have you started your own business? What are some things you’ve learned?
Chris Roane is a financial blogger who loves to be transparent about money-related issues. He’s paid off massive amounts of credit card debt and is the blog author of Money Stir. His main focus on Money Stir is talking about how money relates to our relationships, personal development, and how to plan for the future we want. He’s been quoted on Market Watch, The Ladders, and other publications.