During the first few years of running a salon, you need to generate a positive cash flow while facing high overhead costs and an inconsistent revenue stream. This is not an easy task!
Financing the ebb and flow of a salon traditionally required taking out bank loans. That is assuming that the bank approved your loan for an infusion of liquidity to keep your salon moving forward.
These days obtaining money from traditional lending sources, such as banks, is becoming increasingly difficult. Thus many salon owners, like you, are searching for alternative methods to finance their salon operations.
Here are the major overhead costs for operating a salon:
- Real Estate
Unfortunately, many banks consider beauty salons to be high-risk investments. Similar to a restaurant, a beauty salon is highly vulnerable to the state of the economy.
Decreases in consumer purchasing power lead to fewer visits to salons for not only nail and facial services, but also basic services such as haircuts. Salons typically require several years to build up a loyal base of customers. If a salon cannot receive approval for one of the best loans for beauty salons, how does a salon weather the inevitable financial storm?
The answer lies in seeking funding from alternative sources.
Table of contents:The Best New Ways to Finance Your Salon in 2018 Alternative Online Loans Merchant Cash Advance Rollover for Business Startup Accounts Receivable Financing Does Invoice Financing Work for Salons?
The Best New Ways to Finance Your Salon in 2018
From purchasing new equipment to making payroll during the slower months of the year, raising capital for operating a salon requires outside the box financial thinking.
Alternative Online Loans
Over the past decade, the online lending industry has grown enough to compete with traditional brick and mortar lenders. Online lender Kabbage approves loan amounts between $2,000 and $250,000, which offers your salon the liquidity it needs to pay taxes or expand the size of the building where you conduct business.
Repayment terms run between six and 12 months, with no origination or account maintenance fees. Funding takes up to two days, which makes the online lender ideal for salons that require emergency cash.
Fundbox operates a different type of online lender model. The user-friendly system, which you can run on a mobile phone app, processes cash advances that your salon pays back by transferring unpaid customer invoices.
Connected to your accounting software and business checking account, the automated system used by Fundbox increases the productivity of your salon. You spend less time crunching numbers and more time developing a regular customer base.
Merchant Cash Advance
When you need money to pay for unexpected expenses, a merchant cash advance provides the capital you need to keep the business door open.
Merchant cash advances work best for small businesses that generate most of its revenue from debit and credit card sales. Retail businesses like salons can go hours per day without ringing up a cash sale.
Merchant cash advance providers approve access to money in return for a percentage of future sales or weekly withdrawals from the salon bank account.
Rollover for Business Startup
You are aware that taking money out of a retirement account such as a 401K generates substantial penalties and tax charges. However, a rollover for business startup (ROBS) represents a creative option to tap into a 401K for a cash infusion to improve the financial health of your salon.
You do not have to pay an early withdrawal penalty or any taxes on the money withdrawn. Setting up a ROBS typically requires the expertise of a certified financial planner that specializes in helping small business owners acquire more liquidity.
Accounts Receivable Financing
For a salon, cash flow gaps occur for several reasons. Sales decline after holidays such as Christmas and Valentine’s Day. Summer can usher in a period of slow sales as well. If your salon experiences a deficit caused by declining sales and an increase in expenses, accounts receivable financing might be the alternative way to finance your salon in 2018.
Lenders analyze your salon’s financial metrics not only to decide whether to approve accounts receivable financing, but also to determine how much money to approve. kabbage is an excellent account receivable financing option for salon owners.
Does Invoice Financing Work for Salons?
Your salon has a short window between approving a credit card and receiving the cash derived from the credit card sale. Does this mean invoice financing is not for salon owners?
Also referred to as factoring, invoice financing involves lenders approving cash advances up to 80% of your outstanding invoices. Many salon owners have company accounts, which send several customers to the salon from the same company.
Payment for the entire account occurs during an established billing cycle, which usually lasts 30 days. If you have numerous company accounts and you have to wait up to a month to receive payment for the accounts, then invoice financing is a viable option to finance your salon in 2018.
So, what is the next thing for you should do after having a beauty salon registered under your name. Well, the best thing you can to do is to get a salon website designed or a salon mobile application developed by the Online Salon Design Development Team. This for sure will get you close with your customers, get new clients, over all the better and bigger saloon business.