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As a hair salon or barber shop owner, you aim to run your business in a way that maximises revenue, reduces costs, and ensures a good working relationship with your staff and customers. It is important to choose the right model that suits your business needs from the outset. We discuss below three different models of business:
Full operation is the most involved and therefore carries the capacity for highest profits. This model also incurs the highest administrative costs, both in terms of money and time, including:
As senior manager, you could continue operating the business, whilst moving some of your staff to a self-employed basis. The benefit of transitioning could save money in the following ways:
Should you pursue this model, it would be worthwhile implementing a service contract with the freelancers, to ensure that both parties’ expectations are understood. Of course, the risk of a barber turning up late, taking a day off or poaching clients for their own business remains. You should take on full advice, including with respect to legislation around self-employment.
If you are not present at the salons throughout the day, it would be worthwhile implementing Internal Controls. These should be considered especially if you will continue to operate the salons, or even if you plan to sub-let at a variable rate dependent on performance. Internal Controls for cash sales and collections include:
Internal Controls to accurately track employee time should be considered if you are paying your staff per hour, either as employees or subcontractors. To help you accurately monitor and control employee timesheets, we have helped our clients implement an app-based time management software which you or your management could use to organise rotas.
There are three models to renting out chairs:
With option 1, if there is a high volume of customers for a particular chair you will lose out on sales as the freelancer will take all of the earnings. Option 2 avoids this problem, however if the freelancer doesn’t turn up for work then you lose out on rental income compared to the first model. A combination of the two methods is arguably the best way forward, however it would require monitoring of sales figures. The incentive agreement should be set at a level where the freelancers have the potential to make more money than they currently do.
You would need to charge VAT on rental income should your turnover exceed £85,000. A non-VAT registered freelancer would then suffer the VAT. Of course, the barber may also seek VAT registration, depending on his or her particular circumstances.
Compared to the full operation model with staff there will be no wages, national insurance and pensions costs however sales will be limited as per your agreement with the freelancers. Should you pursue this model, it would be worthwhile:
An additional risk compared to an employee-based model is that freelance workers may come and go, thereby requiring more management time to maintain occupancy.
This option is the least involved. If you do not foresee a pick-up in footfall in your salon, you may consider subletting your salon and collecting the passive income. You should bear the following points in mind:
Whether you’re an existing client or don’t yet use our services, we would be pleased to help you. Contact Mouktaris & Co Chartered Accountants for expert advice or click here to subscribe to our Newsletter.