Hair Salon Financial Plan

Planning to open your own hair salon?

Well, it can be an exciting venture into the world of stunning hairstyles and beauty services!

But as you start planning for your hair salon business, you might be wondering how to create a solid financial plan without any trouble.

Moreover, you’ll need to manage your finances carefully and understand the fundamental aspect of your salon’s financial performance and long-term success. So, you can’t neglect this key element of your business plan.

If you feel like you need help crafting a financial plan for your hair salon, don’t worry; you’ve come to the right place!

This comprehensive guide and sample hair salon financial plan will help you get started.

Hair Salon Financial Outlook

Before diving right into financial planning, let’s first understand the financial state of the hair salon industry.

The hair care industry continues to grow with the evolving consumer preferences and lifestyle trends. Here are some recent industry highlights:

• The global hair care market is expected to make around $93.74 billion in revenue, resulting in an annual growth rate of 2.80% (CAGR 2024-2028).
• The hair, skin, and nail salon market size reached a whopping value of $69 billion in the United States, showing there’s a lot of money flowing into the beauty & personal care sector.
• In 2024, the revenue of the US hair care market is predicted to reach $13.60 billion, with an anticipated CAGR of 1.16% (2024-2028).
• With the decent amount of money and consumer demand, the average per-person spending will amount to $39.79 for hair care services.
• Almost 1 million hair salons are operating in the United States, and this figure is anticipated to increase a little bit every year.

This outlook demonstrates that the hair salon industry offers a lot of opportunities for people who want to start and grow their own hair salon business.

Now, without further ado; let’s move ahead and check out how to prepare a hair salon financial plan.

1. Calculate Business Startup Costs

Once you’ve decided to open your own hair salon, it’s very crucial to have a better understanding of your finances, right? So, you’ll need to calculate the startup costs very first!

You may start by identifying all the initial expenses associated with your hair salon venture. It includes lease or rent of salon space, renovation costs, licensing and permits, initial inventory, marketing, salon equipment purchases, and working capital.

You can also research local market conditions and industry benchmarks to evaluate the typical costs of starting a hair salon. This will help you get accurate estimates.

Try to be clear and comprise every potential cost, no matter how small it is. You can make a specific list of all the expenses, as shown in the below table:

So, having a clear idea of startup costs will help you create a proper budget and determine the necessary capital to launch your business successfully.

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2. Determine Financing Requirements & Strategy

Sometimes, people don’t have enough money to start their own business. So, they might need to ask for help from others to get the initial investment.

For running a hair salon, you’ll need to evaluate the current monetary position and determine how much startup capital you’ll require to fund your business. Also, assess various financing options and develop a clear strategy to secure funding.

Here are a few funding options you may consider:

• Traditional bank loans
• Investors
• SBA-guaranteed loans
• Partnerships
• Crowdfunding

For each option, you have to evaluate the terms, interest rates, and repayment methods. This will let you devise a financing strategy that aligns with your investment goals and risk tolerance.

Then, you can decide which funding option is the most appropriate for your hair salon.

Furthermore, while seeking credit from banks or investors, you’ll need a professional document that projects how your hair salon’s financial modeling works. It will assist potential lenders to have a better idea of your business.

3. Understand Your Business Model

Developing a scalable business model is a crucial aspect of a financial plan. This is something you have to decide before you start running your business.

It is a strategic framework that defines how you generate income, manage expenses, and reach your financial objectives.

Here is a list of different types of business models specifically for hair salons:

• Traditional salon
• Mobile salon
• Franchise model
• Salon and spa

While deciding on any of the above models, you have to understand their financial considerations, including revenue potential, capital investment needed, ongoing expenses, profitability, and risk mitigation strategies.

This will help you make well-informed decisions and achieve your financial goals in the long run.

4. Identify Revenue Streams

Identifying your business revenue streams is an essential part of maximizing profitability. So, try to diversify your income sources within the hair salon market and create a robust portfolio.

It will help potential investors or lenders determine how much revenue your business intends to generate over the next few years.

For instance, you may include the following revenue streams in your hair salon financial projections:

• Haircut services
• Specialized treatments ( styling, coloring, or hair extensions)
• Retail sales of hair care products
• Makeup services
• Spa treatments

Well, using Upmetrics could be a great help here. It will not just calculate financial projections but also help you identify relevant revenue streams.

For better understanding, you may consider the following example prepared using Upmetrics:

Furthermore, it allows you to make informed decisions about your revenue by using different ways to forecast income streams, such as unit sales, the charge per service, recurring/hourly charges, or fixed amounts.

So, this can be an effective and accurate way of estimating your income potential.

5. Market Analysis and Pre-Assumptions

A successful business requires a comprehensive market analysis to gain valuable insights into the local business landscape.

While writing a hair salon business plan, you’ve already conducted thorough market research and received a good knowledge of the target market, consumer preferences, industry trends, and competitors.

So, it’s time to use that knowledge to prepare a financial forecast and make realistic assumptions about service charges, client retention rates, revenue growth, and operating expenses.

Here are a few key components that you should include in your plan:

Pricing Strategy

When it comes to devising a pricing strategy, there’s no bound law. Yet, you’ll need to analyze a few factors, such as your salon location, target market demographics, perceived value, expenses, and local competition, to develop optimal pricing.

You may conduct a competitive market analysis to comprehend the prevalent market prices and set competitive yet profitable prices for your salon services.

Remember, your prices should reflect the value of your salon services and still help you generate sufficient returns on your investment.

Sales Forecast

A sales forecast is a primary element of any business, serving as the cornerstone for its profitability and growth.

It helps you estimate the future sales volume or revenue of your hair salon based on market demand, pricing strategy, seasonal fluctuations, and customer retention/acquisition rates.

You can analyze historical sales data and industry trends to predict future demand for your target market. Also, utilize your marketing efforts and pricing strategy to forecast the sales volumes you expect within a specific timeframe.

Business Expenses

Generally, business expenses are operating costs or day-to-day expenses that will keep your business running smoothly.

Here, you may conduct a detailed analysis of your hair salon’s anticipated expenses, which can be divided into two categories: Fixed (rent, utilities, equipment purchases) and variable (salaries, cost of goods sold, maintenance) expenses.

In addition to that, you may consider a few factors, like latest trends, techniques, market demand, and industry standards, while estimating your business expenses.

Here, you should note one thing—you must account for probable cost overruns or unexpected expenses during business operations. So, be conservative in your financial projections.

6. Make Financial Projections

If you want to attract investors, let the numbers do the talking. This is so because potential investors or stakeholders will look at the financial reports once and decide whether or not to invest in your business.

So, ensure that the key financial reports give a clear picture of your hair salon’s financial health and viability.

Here’s a list of several financial statements and analyzes you should incorporate into your projections:

Cash flow statement

A cash flow statement offers a detailed explanation of how much cash your business brings in, pays out, and ends with the cash balance. Typically, it’s an illustration of how well your business is generating cash.

It helps you track the cash flow in and out of your hair salon over a specific timeframe, generally monthly, quarterly, or annually.

You may take into account the cash flows related to client payments for services rendered, retail product sales, rent, utilities, payroll, inventory purchases, equipment maintenance, marketing expenses, loan repayments, and taxes.

Be realistic about your financial assumptions and measure your business’s liquidity, capability to meet financial obligations, and sufficiency of cash flow to fund future investments and expense outlays.

Balance sheet

A balance sheet provides a quick overview of your business’s financial position at a specific time.

It clearly demonstrates what you own, what you owe to vendors or other debtors, and what’s left over for you. After all, it has three main elements:

• Assets: Cash, equipment, furniture, inventory, and accounts receivable
• Liabilities: Debts, loan repayments, and accounts payable
• Equity: Owners’ equity & other investments, stock proceeds, and retained earnings

Ideally, it is formulated as, assets = liabilities + equity

By looking at your balance sheet, anyone can get the exact idea of how financially stable your business is, how much cash you hold, and where your money is tied up.

Income statement

The income statement is also known as a profit and loss statement(P&L), explaining how your business made a profit or incurred a loss over a specific period, typically monthly, quarterly, or annually.

Depending on the structure and type of your business, consider adding these factors—revenue or sales, operating expenses, and gross margin to your profit and loss statement.

You may calculate the gross margin by subtracting the cost of sales or COGS from revenue. It enables you to determine your business’s efficiency in utilizing resources.

Further, the P&L statement should also include operating income, which is equivalent to EBITDA. And the net income is the ultimate goal of any business, found at the end by deducting the operational expenses from EBITDA.

Overall, the income statement helps you gauge your business’s profitability, financial performance, and feasibility in the long run.

Break-even Analysis

The break-even analysis allows you to determine the point at which your business’s total revenue matches its total expenses, causing no profit or loss.

It helps you evaluate the number of services or products your hair salon needs to sell to cover its fixed and variable costs.

This analysis provides valuable insights into your financial sustainability and helps you set sales targets, pricing strategies, and cost-control criteria.

7. Test Assumptions and Scenario Analysis

As your entire plan is prepared based on assumptions, you’ll need to regularly review and stress-test your financial projections to check their relevance with market realities and business performance.

In this stage, you may consider various “what-if” situations and think about scenarios where things go well or don’t.

For instance, you’ll need to consider the changes in consumer behavior, economic conditions, and operating expenses to measure the stability of your hair salon financial plan.

By performing test assumptions and sensitivity analysis, you can adjust your strategies accordingly to mitigate risks, optimize returns, and make well-informed business decisions.

8. Monitor and Update Your Plan

Once your plan is ready, continuously evaluate and monitor your hair salon’s financial performance closely against the financial projections and key performance indicators(KPIs).

You can compare the actual financial results with the projected income streams, expenses, and ROI to take note of any variances or deviations from the plan.

If some factors are remarkably different from projections, recognize the causes behind them. This will help you understand which areas need improvement and which works as anticipated.

Also, review and update your strategies accordingly to optimize financial results and achieve long-term success.

Now that you know how to create a solid hair salon financial plan, it’s time to explore an example for easy understanding.

Hair Salon Financial Plan Example

Creating a hair salon financial plan from scratch can be overwhelming, right? But not to worry; we’re here to help you with a realistic financial plan example prepared using Upmetrics.

It includes all the key elements of a hair salon’s financial projection, including the income statement, balance sheet, cash flow statement, and break-even point. This will streamline the entire planning process and help you get started.

Start Preparing Your Hair Salon Financial Plan

And that’s a wrap—we’ve discussed all the fundamental aspects of financial planning. So, it’s time to put that knowledge into action.

But if you still feel swamped by the thought of creating a startup financial plan, don’t worry.

Upmetrics’ financial forecasting software can be your go-to-solution here!

It will help you make accurate financial projections with its robust AI Assistance feature. Just enter the financial assumptions and let it figure out the rest!

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