April 15, 2015

Ways to finance your salon or spa

Here are the most common ways to finance a new salon or spa business. Keep in mind that all methods have pros and cons. No matter what financing method you choose thoroughly investigate the ups and downs you actually may need more than one method to finance your new salon or spa. Since Advantage Salon and Spa Software has a built in full financial accounting system you will be able to keep track of all your investors contributions and disbursements.

Savings

The first source you should consider tapping is your own savings to finance your salon or spa business. This method doesn’t make you responsible to others should the business fail. The bad thing is that it if things do go under at your salon or spa, it will be your money that goes down with the ship. If you’re not willing to risk your own capital you certainly shouldn’t be willing to risk anyone else’s.

Take on a partner

When opening a salon or spa a great way to get the extra help and funds is to partner with another stylist or technician. Not only is your partner bringing in her funds into the business but you also have another person on staff that can perform services and or specialized services in your salon or spa.

Friends and Family

After tapping their own savings and investments, many entrepreneurs turn to friends and family for help. Nothing causes tension in a family like lending money that is never paid back. And notice I say "lending money" rather than investing money. Venture capitalists invest money. Your relatives lend you money. They will expect it back someday even if they say they won’t. Remember, when a loved one invests in your salon or spa they are emotionally investing in you. It would be tough to tell mom and dad that their favorite daughter lost their life savings because her salon or spa did not succeed. Limit the amount that you invest from family to keep liability quotients at a reasonable level for the people you love the most

Credit Cards

If you decide to finance your salon or spa on plastic keep in mind that you will be paying extremely high interest rates on the money you’ve borrowed and unless you hit it big you will be paying for that money for many years to come. Use your credit cards that have the lowest interest rate and shop around for additional credit cards that have low introductory rates as well.

2nd Mortgage

Bank loans are next to impossible to get for your salon or spa if you don’t have collateral and a track record of business success, which is why many entrepreneurs use the equity in their homes to finance their spa or salon business after being turned down for a bank loan. While this makes more sense than building a business on a deck of credit cards, the financial risks are no less abundant. You must pay this money back whether your business succeeds or not, but it is a good source of low interest money to get you started and the interest may be tax deductible.

Angel Investors

An angel investor is typically a wealthy individual who invests in start up ventures for a share of the ownership. Angel investors are usually the first formal investors in a business and provide the seed money to get the business up and running. Some angel investors will write you a check and leave you alone to run your business while others consider their investment a license to "help you" manage and make decisions. If you do accept angel money make sure the terms are clearly defined on both sides. Angel money always comes with strings. Make sure you know whether those strings come in the form of a bow or a noose before you accept an angel’s check.

Venture Capitalists

If you are already open with more than one location and have a proven business model where you think you can open multiple company owned locations or even trying a franchise operation. You may want to look for Venture Capitalists. If your business gets to the level that VC money becomes a viable option, don’t jump at the first bone a VC dangles before your eyes. If one VC likes your idea, others will, too. Present to multiple VC and carefully consider each offer before you accept the check. Have a very clear plan of how the money will be used and how it will be paid back. Most VC companies will also want a controlling interest in your salon and spa enterprises so you need to be ready to work with others and be more politically correct when dealing with these types of investors.

Since Advantage Salon and Spa Software has a built in full financial accounting system you will be able to keep track of all your investors contributions and disbursements.