Why is a business plan an important first step in salon or spa development?

Overview

An entrepreneur by definition is “a person who organizes and operates a business or businesses, taking on greater than normal financial risks in order to do so.” The raw definition does not describe the desire to be successful in their chosen market, nor does it touch on the amount of work and research needed to be successful in any industry. According to Entrepreneur Magazine, September 9, 2014, there are a number of reasons for businesses within the beauty industry to fail. Here is an excerpt from the article: There are many reasons for these failures: outside market conditions (such as new competition or unexpected increases in the cost of doing business), financing problems, tax-related issues, poor planning, mismanagement, and a host of other problems.The SBA Online Women’s Business Center offers these additional common causes of failure:

Inadequate cash reserves.You need at least a six-month cash reserve as a cushion to carry you through until you start making money.
Failure to clearly define and understandyour market, your customers, and your customers’ buying habits.
Failure to price your products or services correctly.The SBA says you can be the cheapest or the best, but if you try to be both, you will fail.
Failure to anticipate cash flow adequately.Some suppliers require immediate payment when dealing with new businesses, which can quickly deplete your cash reserves. Add in the months-long wait for reimbursement for anything sold on credit, and you could be seriously cash-strapped.
Failure to anticipate or react to competition, technology or other changes in the marketplace.When you are busy, it is easy to look the other way while things around you are changing. However, just imagine trying to cater to a young, trendy crowd in a community where the population is aging. It will not be long before you find yourself in trouble.
Believing you can do everything yourself.The SBA says one of the biggest challenges entrepreneurs face is being able to loosen their hands on the reins and start delegating to trusted employees. You cannot do it all yourself—you must rely on those who have proven they can handle responsibility and make things happen, and then trust their judgment.

Many individuals deciding to open a salon or spa have worked within the industry. Many who decide to open a salon or spa have not worked in the industry, and may only have an understanding from a customer’s point of view. Others come with tremendous acumen but little understanding of the business, how it works, employee remuneration, service development, operational and technical issues, just to name a few. Many technicians come with an in depth understanding of their trade and guest service standards but little knowledge relating to what it takes to operate a business, all of the accounting and reporting issues, and often, an unclear picture of what the venture will cost or, whether they have the ability to be profitable. A Spa Business Plan, Medical Spa Business Plan, or Salon Business Plan is such an important first step in the process on your quest to open your own facility. Streamlining your ideas into one document serves dual purposes. First, it forces one to streamline and organize their thoughts. Second, it is a working document for the bank, in the event you need financing. If you have not done this before, we highly recommend hiring someone who can help you with aspect. There are hundreds of tasks to compete before you open your doors and many expenses and needs you likely have not thought of or, need to determine their importance in the bigger picture. If done property, this document should do the following:

Identify the type of facility, types of services to be offered, square footage and space allocation
Research available space in the area and determine cost per square foot for lease along with common area maintenance, taxes, and insurance for the space
Research businesses for sale
Thorough understanding of the lease
Cost of tenant improvements for the space along with allowances
Architectural, Design and Engineering fees
Planning and Permitting fees
Realistic opening dates
What must be included in the space plan to assure the facility is workable, comfortable and efficient
Thorough competitive analysis for the area including pricing, services, products used, look of competitors facilities and more
Overview of the Beauty Industry in the United States and in your State
List of services to be offered and pricing
Thorough demographic study of the area
Revenue assumptions for at least three years
Detailed budgets by year
Cost of financing factored into cash flow
Cash flow analysis for years one and two
Detailed equipment list by room
Identify specialty equipment
Weigh lease versus equipment purchase
Detailed operating supplies allocations and listing
Detailed budget allocation for retail items to be sold
Detailed budget allocation for supplies to be used in services including disposables, tools and products
Compensation for employees
Renters versus employees-which works best
Recruiting
Estimates for renovation of the space selected
Marketing budgets
Beginning work on branding
Breakeven point

Business Plan Templates

Business Plan templates usually are not specific to this industry, nor do they provide an effective way to project revenues. We use our own specially designed template, customized for the beauty industry. We have an in depth understanding of revenues within a facility, how they are generated and more. The business plans we develop serve as your operating budget, estimate every conceivable expense item, and allocate funds accordingly.

Research, Demographics and Competitors

No matter where you look, you will find hair salons, nail salons, day spas, and at times, resort or destination spas in or around the area of choice. Can you compete? Is the market over-saturated? Is your concept unique, marketable, and enticing enough to move a client from their current salon or spa to yours? How will you get the word out about your facility? How will you get technicians to want to work for you? How will you make your employees understand the importance of guest service? What should you look for in lease negotiations? How much cash will you need for your first year or two? So many questions are in need of answers during this process. Let us simplify the process and develop the working tool you need. Although there are no guarantees for success, fewer surprises and more information make the process a bit less daunting. Knowing your customer and being able to identify them is important. Also, are there enough of them to keep your revenue streams where they need to be. Are you in a seasonal area? How much do tourists affect your business?

Equipment and Services

If you “Google” Spa Treatment Tables”, hundreds of pages are revealed. They can range in price from $100 to well over $7500. What ones do you need? Who are the best equipment manufacturers? What functionality do you need based on the services you will provide and the types of technicians? Warranties? What does your architect need to know about your choice? This is just one minute set of questions to be poised for each area within your facility. Understanding how to first budget for the expense, and select the items later, works best. Let us help you outline and detail every space within your facility. Developing a service menu can be overwhelming. There are number of ways to do it, but how can assure you have thought of everything? Did you do the math? Do you understand how Pareto’s Principle works and how it will affect your menu planning? What services will drive your business and entice clients? What product lines should I select? Why? Look at our article titled “Writing an Effective Spa Menu” for additional information.

Facility Design, Décor, Layout

During the budgeting and business plan phase, you likely do not have a floor plan, nor do you have a detailed list of finishes, flooring, lighting, electrical, HVAC, plumbing, millwork expenses and so on. Estimating costs is likely the only way to begin. So much depends on the condition of the space along with the vision of the architect and designer. Designing a new space is likely the most enjoyable part of process for the business owner as it is their place to imprint their tastes and likes. Make sure your architect, designer and spa consultants are clear on your vision and, that you have budgeted adequate funds to bring your vision to fruition. It is easy to underestimate expenses here and, finishes are often the areas cut when a project goes over budget.

Marketing

One of the most important pieces of new facility development relates to marketing. What should you do? How much should you spend? When should you begin? It initial phase of this is outlined in your business plan. Print versus electronic media versus social media-which is best? There are many questions to ask and answer. A one-year pan from two months before opening out to your one-year anniversary must be prepared and evaluated as each week progresses. How do I touch my community? What organizations are important here, should I join and what can I do through them to get the word out? Community mailing lists-are they beneficial. What charitable events can we become part of in the community? There is no substitution for good planning and tracking. Was the event successful? How much revenue did it generate in relation to what it cost?

Total Project Costs-Be Realistic

A good business plan paints a realistic picture of what a project will cost. Can you do it cheaper? Maybe. Should you? That is up to you. Do not be delusional thinking you are going to open a 5000 square foot facility with locker rooms, and exquisitely designed for $50 per square foot. Many getting into this business do not realize how much it costs just for the buildout and finishes. A project will likely cost between $125 PSF to well over $300 PSF depending on the condition of the space, finishes, equipment, pre-opening expenses, training and more. Having a good idea of what it will cost and how long it will take to recoup your investment should be one of the goals of your business plan. Having someone else assist with your business plan could be one of the best investments you will make.

Summary

This step is so important. Let someone with experience in the industry assist with this process. What would take you months to do can be done in a short time and, answer most of your questions. This important step is the precursor to your success. Do not leave it to chance or guess.