Running a beauty salon is a dream for many stylists and technicians. It offers the chance to build your own brand, mentor your own staff members and take your career in the direction you want.
However, this is only possible if you have the right financial backing behind you. When you own your salon, the concern over how much money you will actually be able to make as a salary is very real – after all, paying bills and your staff often ends up coming first.
So, to help out aspiring salon owners, in this week’s blog we are trying to answer the question; “just how much money can a salon owner make?”
“How Much Money Can You Make as a Salon Owner?”
A salon owner’s salary depends on a number of things; how much revenue do you make? How high are your costs? How much money do you want to invest back into your business? How much work are you willing to do yourself? How much do you want to pay your staff?
The best advice you could follow is to keep a strict eye on all of your outgoings and income. Setting yourself a budget and sticking to it can help you estimate how much money you have the potential to make.
It also depends on how the business is set up, which we will go into below.
We often hear of salon owners who have struggled to make ends meet, and it’s not a nice position to be in. On the other hand, we hear of salons who are doing extremely well, and owners not sure exactly how much to take as a salary for themselves.
So, how much money should you be paying yourself as a salon owner?
There is no set in stone amount of salary you have to take as a salon owner. You also should try not to compare yourself to other salon owners – if you are new to the salon scene, you will likely have much smaller annual profits than a well-established salon.
However, there are a few different options for exactly how you should pay yourself as a salon business owner.
Register as a Sole Trader
If you earned more than £1,000 from self employment in the 2018-2019 tax year, you will need to register as a sole trader.
If you are registered as a sole trader, this means you are self-employed and run your business as an individual. This means there isn’t any legal separation between you and your business.
In this case, after paying taxes, you can keep all of your businesses profits, if you want to. However, you are also personally responsible for your losses and for paying any staff you hire to help you out . You will also have to carry out a self assessment tax return every year.
This is a common choice for new salon owners.
Find out more on the government website about setting up as a sole trader.
Register as a Limited Company
Another option for salon owners is to set up as a limited company. This legally separates you from your business, so you have more protection for your personal finances if something goes wrong. You’re seen as both an owner and an employee of your salon.
Usually, businesses that are already making a profit set themselves up as a limited company. So, this is a next step to take once you have established yourself well as a sole trader.
The benefit of this is that you can pay yourself dividends as well as a salary. This gives you an additional tax-free source of income.
There is more information on the government website about setting up a limited company.
Paying Yourself a Salary…
A salon owner’s salary is a tricky number to pin down, due to the many different factors that can affect it.
One option for salon owners is to pay themselves a salary as they would any other employer. This gives a tax free allowance for the first £12,500 (2019) earnt, plus incurs your National Contribution charge. Sole traders then pay regular income tax on any other profits.
If you later register yourself as a limited company, you can also pay yourself through dividends.
Paying yourself as a salon owner can become complex, especially when you are first starting up and are unsure of how much profit you will make. When loans are also involved, it is always best to make sure you get professional financial advice.
Similarly, getting into trouble with the tax office is a serious issue! Hiring an accountant can really help out if you are unsure of the best way to pay yourself a salary as a salon owner.
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