Acquisitions are a key part of business. A small business can be acquired by a larger company and reap the benefits of a bigger and more established infrastructure. However, that same small business can also go through an acquisition where it is dissolved entirely.
There are multiple types of acquisitions and different reasons for each. Here are 4 common acquisition types and why they are used in business.
One of the most common types of acquisitions is the vertical model. In this case, a company buys another that falls in a different place on the supply chain. The acquisition will either be for a company higher or lower in the manufacturing process—hence the vertical reference.
For example, instead of an ice cream company buying milk from a dairy farm across town, it could acquire the farm itself. This turns an expense—milk buying—into a new revenue stream.
There are multiple reasons why companies opt for vertical acquisitions. First, it’s easier to acquire a company than to build a new one.
Using the ice cream example again, it’s faster to buy a fully functioning farm than to look for land, cows, equipment, and expertise. With the amount of time and planning it takes to start a business, it’s also likely cheaper to buy a company than to build one.
Buying firms along the supply chain also means companies will save money in the long run. Let’s say it costs a farmer $2 per gallon to produce milk and he sells the product to an ice cream company for $3 per gallon. By buying the farm, the ice cream company can receive their milk without the markup. They might also optimize the infrastructure to the point where it only costs $1.75 to produce a gallon of milk.
Companies don’t just buy down the supply chain—they might also look to buy higher in the manufacturing process so they can profit from selling products instead of just materials.
Vertical acquisitions make companies more independent of market trends and vendors because they don’t have to turn to outside suppliers to make their products.
A horizontal acquisition doesn’t have anything to do with the supply chain. Instead, it refers to companies acquiring other firms in their industry—companies that offer similar or the same products. When Facebook acquired Instagram, it was a horizontal acquisition. Both companies were social networks for people to connect, share, and promote themselves.
Horizontal acquisitions are often created to eliminate competition and quickly increase market share. If there’s another company that people are excited about that poses a threat to your business, you can eliminate the threat by buying them. If you can’t beat them, acquire them.
The main challenge of horizontal acquisitions is that they may pose antitrust threats to American citizens. When one company buys competitors, it can eventually lead to a monopoly. You can see examples of antitrust laws in the purchase of Sprint by T-Mobile last year or the desire for Staples to buy Office Depot.
The Federal Trade Commission (FTC) oversees antitrust laws to make sure the American people are protected. This way, consumers have options and a sense of free market exists. It prevents a single company from acquiring all of its competitors and controlling supply and prices.
A conglomerate acquisition occurs when one company buys another from a completely unrelated industry. For example, if our ice cream company decided to purchase a brewery.
There are multiple conglomerates in the United States, and you might not realize that some of your favorite brands are all part of the same umbrella.
For example, Procter & Gamble is the company behind the Oral-B line of dental hygiene products while also selling Tide laundry detergent. Mars, Inc. is known for candy bars like Snickers or Twix but also operates Pedigree dog food.
Typically, companies take steps to become conglomerates as a way to protect themselves from market fluctuations. If you own multiple businesses, then it’s unlikely that they would all lose money at the same time. If for some reason people stop buying Tide products, Procter & Gamble can still make money from the other arms of its business.
As far as the smaller companies are concerned, the acquisition gives them stability. They don’t have to operate as a small business anymore and can tap into the resources and expertise of their new parent company.
It’s hard for conglomerates to become monopolies because they would have to own almost every significant business within an industry rather than several businesses in a variety of industries.
This option is similar to a horizontal merger in that the 2 companies are in the same industry. However, they are not competitors because they are a part of different markets.
For example, a company that sells the dominant product in the United States might acquire a similar company that is dominant in Germany. The German company might continue to operate as it always did, except it will be owned by an American firm.
This acquisition is often meant to absorb the competition before it poses a real threat. Instead of competing with a brand that is trying to enter your market, you can keep them at bay with an acquisition.
From a proactive standpoint, market extension acquisitions can help companies enter new markets without having to compete with existing brands. They also won’t have to waste time and money on building up brand recognition.
Different acquisitions provide multiple levels of change for companies. When one company buys another, it may want to let the purchased organization continue to run on its own. However, some companies buy up competitors with the sole purpose of shutting them down.
Understanding the acquisition process, different acquisition types and the relationship options of business mergers is important for business owners being acquired and also for companies looking to acquire other businesses. In the process of acquiring a company? Learn more about business acquisition loans.
New year, new plan. If 2024 is the year of "increased sales" for your business, you can jump-start your goals with these 4 simple action-items.
Creating useful, memorable products or services that offer unique solutions to customer needs is no easy task—but it’s one of the most important principles for sales growth. What sets your business apart from the others in its category? Maybe you’re the first salon for curly haired clients in your neighborhood. Perhaps you’re the only landscaping company in town willing to work through all 4 seasons. Or, you’re the one bakery in the neighborhood serving my favorite Scandinavian pastries. Whatever the niche, once you can clearly visualize the answer to this question, find creative ways to communicate it to your customer.
Utilizing social media can be a powerful way to convey your small business’s niche to your customers, new and returning alike. Partner with like-minded small business owners to spread the word, as the company Omsom—makers of “loud, proud” and utterly delicious East and Southeast Asian sauces and recipe starters—does with their “tastemaker” program. These talented chefs serve as virtual brand ambassadors for Omsom’s offerings, spreading the word about their unique products and lending them credibility through their work as restauranteurs.
Ensuring that you have a unique product or service like Omsom’s—and knowing how to describe what makes your product or service remarkable—is a critical tool to increasing sales and improving your place in the market. Ultimately, if you can’t differentiate your product or service from everyone else who offers something similar, your business will struggle.
A sales professional once told me, “There are 2 ways to increase sales within your territory: find more customers, or get the customers you already have to buy more.” Once your customer is in the door—or on your e-commerce site—convincing them to combine or add items to their purchase should be a foundational part of your sales pitch to them.
What’s the best way to convince customers to buy more? Personally, I’m a sucker for the latte-upsell, but that may not work when my furnace is on the fritz, unless the repair van doubles as an espresso truck. An air-duct cleaning or annual maintenance plan that helps me prevent another emergency repair, however, might. Free-shipping thresholds and bundled product sets with discounts, like my favorite e-commerce skincare site Glossier offers, can be a great way to attract online shoppers to add more to their carts.
In person, it’s all about the impulse buy. Next time you go through the checkout line at your favorite local market, notice the candy bars, gum, news magazines, and other miscellaneous items designed to get your attention. Successful merchants in any business are always trying to use these last-minute add-ons, once you’re already in line to pay, to “add to the invoice.”
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Although I sometimes lose track of punch cards, I use them—what’s better than a free sandwich or pastry? Even better, virtual punch cards or app-based points systems motivate me to shop at my favorite retailers, knowing that I’ll earn some free treats or cash back with my customer loyalty without overflowing my wallet.
However, the best way to reward frequent customers is with what’s called a “surprise and delight”: an unexpected free treat or discounted item to reward them for their loyalty. When my neighborhood bakery threw in an extra croissant for my spouse—for absolutely no reason— I knew I’d be back for more. Perhaps for your company, this means waiving a consultation fee after a customer signs a contract for service or throwing in a travel-size hairspray at no cost after a cut and color.
How can you entice your returning customers to become regulars? Customer service, whether online or in person, is key to building lasting relationships with your customers—and increasing sales as a result.
Look around: you’ll find other businesses in your area that cater to the same type of customers you’re looking for. For example, a photography studio could partner with a flower shop or event venue to offer bundles to prospective newlyweds. A dog-boarding center could sell another area business’s homemade dog treats and toys. Returning to my beloved bakery, their commitment to fellow local businesses introduced me to other shops and services in the neighborhood. I even have a plant from the same shop as the one in their window, and I shop there any time I need a new one.
The beauty of building these symbiotic relationships with other local businesses: because you work in different parts of the same industry, your customer base probably overlaps. Look for opportunities to form strategic partnerships—or alliances—that are mutually beneficial. Best of all, these types of synergies are good for customers, too.
If you don’t have the best credit but need to buy equipment for your business, rest assured that there are options at your disposal. While you might have to do some research and take some extra steps to get approved, you can lock in an equipment loan with a less-than-perfect credit score. Here’s everything you need to know about securing equipment financing with bad credit.
Lenders will check your credit score as part of the process of securing equipment financing. But don't let this deter you! Remember, your credit score is just one piece of the puzzle. Lenders also consider other factors about your business. So, even if your score isn't perfect, it doesn't mean you're out of options.
Your credit tells lenders how likely you are to repay what you borrow. If you have bad credit, they’ll view you as a risky borrower and may be more hesitant to lend to you. The good news is that many lenders have lenient requirements and serve borrowers with bad credit.
These lenders often consider other factors like your annual revenue, profitability, cash flow, and outstanding debt when deciding whether to approve you for an equipment loan. Keep in mind, however, that if you have a bad credit history you might have to settle for a higher interest rate or make a larger down payment than a business owner with good or excellent credit.
The following lenders offer equipment financing with minimum credit score requirements of 600 or below.
Lender/Funder* | Loan/Financing Amount | Min. Time in Business | Loan/Financing Term | Min. Credit Score |
ClickLease | Up to $20,000 | Any | 2-5 years | 520 |
4 Hour Funding (Centra) | Up to $150,000 | 2 years | 2-5 years | 590 |
Global Financial | Up to $1 million | Any | 1-5 years | 500 |
Paradigm | Up to $5 million | 2 years | 2-4 years | 600 |
Time Payment | Up to $1.5 million | Any | 12-60 months | 550 |
If you have bad credit but need to borrow money to fund the cost of your business equipment, certain strategies will boost your likelihood of locking in construction and heavy equipment financing, restaurant equipment financing, and other types of business equipment financing. Here are some ideas to consider.
Compared to traditional lenders with brick-and-mortar locations, online lenders are usually more flexible. You’ll find that they are often open to lending to borrowers with less-than-perfect credit scores. Do your research and find several online lenders who specialize in bad credit equipment financing.
It’s important to understand equipment financing vs. equipment leasing. By doing so, you can decide whether equipment leasing makes more sense for your unique needs. With an equipment loan, you make a down payment and finance the rest of the equipment cost.
An equipment lease, on the other hand, lets you rent and use the equipment for a specific period. While most businesses return the equipment at the end of the lease, some decide to buy it at fair market value or explore other options outlined in their agreement.
In a typical equipment loan, the equipment itself serves as collateral. Since the lender can seize it if you default, they take on less risk. If you have bad credit, you might want to offer additional collateral, like your commercial vehicle or inventory, to help secure the loan and reduce risk for the lender. Just make sure you feel confident that you’ll be able to repay what you borrow or you might lose a valuable asset.
The larger your down payment, the smaller the loan you’ll need to cover the cost of your equipment. If possible, save up for a hefty down payment so that lenders are more open to lending to you with bad credit. Not only will a larger down payment position you as a more attractive borrower, but it can also save you hundreds or even thousands in interest fees and lower your overall cost of borrowing.
Your business plan is an important document that shows lenders who you are and what you plan to do with the funds. Take the time to look over and improve your business plan so that it accurately reflects your business acumen and clearly highlights how an equipment purchase will help your business.
A cosigner is someone with strong credit, a stable income, and significant assets. If you apply for an equipment loan with a cosigner, lenders will consider their financial situation in addition to yours. This can increase your chances of approval and potentially lead to lower rates and better terms. However, the downside of this strategy is that, if you don’t make your payments, the cosigner will be responsible for them.
Don’t let bad credit prevent you from locking in the equipment loans you need. With a bit of creativity and patience, you can qualify for equipment financing with bad credit. As long as you choose a lender who reports on-time payments, an equipment loan can also give you the chance to improve your credit. Best of luck in your search for bad credit equipment financing.
*The information contained in this page is Lendio’s opinion based on Lendio’s research, methodology, evaluation, and other factors. The information provided is accurate at the time of the initial publishing of the page (January 2, 2024). While Lendio strives to maintain this information to ensure that it is up to date, this information may be different than what you see in other contexts, including when visiting the financial information, a different service provider, or a specific product’s site. All information provided in this page is presented to you without warranty. When evaluating offers, please review the financial institution’s terms and conditions, relevant policies, contractual agreements and other applicable information. Please note that the ranges provided here are not pre-qualified offers and may be greater or less than the ranges provided based on information contained in your business financing application. Lendio may receive compensation from the financial institutions evaluated on this page in the event that you receive business financing through that financial institution.
The Employee Retention Credit (ERC) was launched by the federal government to provide financial relief to small businesses that kept employees on the payroll throughout the pandemic. The credit is available for the 2020 and 2021 tax years, and eligible businesses may retroactively apply using IRS Form 941-X.
The ERC is not available for tax years 2024 and beyond, but you can retroactively apply if you haven't yet taken advantage of this credit. Businesses could receive a credit of up to $5,000 per employee in 2020 and $7,000 per employee per quarter in 2021. So it's definitely worth paying close attention to the deadlines to make sure you don't miss out on this opportunity to significantly lower your tax bill.
Each tax year has its specific deadline. This gives you time to focus on one application at a time since each tax year requires its own form to support the different eligibility requirements.
The Employee Retention Credit deadline for the 2020 tax year is April 15, 2024. This applies to all three eligible quarters: Q2, Q3, and Q4. The first quarter doesn't count since COVID-19 mandates didn't begin in the U.S. until the end of the first quarter.
The ERC deadline for Q1, Q2 and Q3 for the 2021 tax year is April 15, 2025. This gives you time to gather documentation for a robust application. But it's still smart to apply as soon as possible, especially since the IRS is reporting a backlog in reviewing applications. In other words, the sooner you apply, the sooner you're likely to get approved and receive your credit funds (or have them applied to an outstanding tax bill).
Before applying for the Employee Retention Credit, make sure your business qualifies for 2020, 2021, or both. The basic eligibility criteria vary from year to year.
For the 2020 tax year:
For the 2021 tax year:
Newer businesses may also qualify for the ERC as a recovery startup business. In order to qualify, your business must meet the following requirements:
Lendio is here to assist small businesses with their ERC applications. We can help you quickly streamline your application with a step-by-step guided form that removes all the guesswork from the process. In fact, to date, our tax partners have helped Lendio clients collect over $300 million from the ERC program.
One luxury of being an employee is that you don’t have to worry much about tax planning.
You can sit back as your employer withholds money from your paycheck to cover your liabilities, then use the details from your W-2 to file your tax return come tax time.
As a self-employed individual, you don’t have that privilege, and your tax situation becomes a lot more complex. Fortunately, that complexity has a silver lining. You gain a wide range of tax deductions that can significantly reduce your personal income tax.
In fact, you can deduct all ordinary and necessary business expenses. If you’re not sure what those look like, here are some of the most popular tax write-offs for self-employed people.
Let’s start with a tax break you can take advantage of regardless of your business model: self-employment taxes.
The self-employment tax refers to the Social Security and Medicare taxes you have to pay on 92.35% of your net earnings from your business. These are separate from the federal and state taxes everyone has to pay on their income.
When you’re an employee, you get to split Social Security and Medicare taxes with your employer. For the year 2021, each party pays 7.65%.
Unfortunately, self-employed taxpayers are responsible for both the employer and employee portions. As a result, they owe a combined 15.3% tax, of which 12.4% is for the Social Security tax, and 2.9% goes to Medicare.
To lessen that blow, the Internal Revenue Service (IRS) lets you deduct the employer portion from your income when you calculate your federal and state income tax liabilities.
For example, imagine you generate $100,000 in net earnings as a sole proprietor. 92.35% of your net earnings multiplied by 15.3% equals $14,130 in self-employment taxes.
However, you’d get to deduct half of that expense, $7,065, for income tax purposes. In other words, you’d pay federal and state income taxes on $92,935 of net earnings rather than $100,000.
Whatever your employment status, contributing to retirement plans is one of the best ways to pay less in taxes. Not only does it directly reduce your adjusted gross income in the current tax year, but it also defers taxes on all your earnings within the account.
That said, self-employed people can access some uniquely powerful retirement accounts that employees can’t. For example, if you’re an independent contractor with no employees, you can open up and contribute to a Solo 401(k).
Solo 401(k)s are similar to their employer-sponsored counterparts, but the contribution limits are significantly higher. Here’s how they work:
Because retirement contributions are discretionary, you can dial them up and down as necessary to manipulate your taxable income. That’s a huge advantage, especially when your earnings fluctuate from year to year.
The qualified business income (QBI) deduction is one of the newer tax write-offs for self-employed people. If you think you might be eligible, it’s definitely a good idea to consult a CPA for guidance.
In simple terms, the QBI deduction lets you write off 20% of the income you generate from your business operations. To be eligible, you must meet the following requirements:
Legal entity structure: Only people with pass-through income are eligible for QBI. That refers to sole proprietorships, partnerships, limited liability companies, and S-Corporations. C-Corporations can’t claim the deduction.
Income limitations: For single filers, your taxable income must be less than $164,900 in 2021 and $170,050 in 2022.
Business model: If your income is above the threshold, the type of business you run determines how much you can deduct. If you’re a “specified service trade or business”, the deduction phases out the more you earn.
Once again, claiming the QBI deduction is a complex process. There are many nuanced rules and lengthy calculations involved, so don’t try to tackle it without the help of a tax expert.
If you do business out of your personal residence instead of a separate office, you may be eligible to deduct some of the expenses you incur to maintain your home. That includes costs like rent, mortgage interest, utilities, and maintenance.
In general, you can write off the portion of your housing expenses that corresponds with the part of your home that you use regularly and exclusively for your business. You don’t qualify for the deduction if you fail to meet either of those requirements.
In other words, you must have a dedicated home office space where you do most of your business. If you spend more time working at coffee shops than your home office, or if it doubles as a dining room table, you can’t take the write-off.
If you’re eligible, there are two ways to calculate your home office deduction:
Standard: This method involves tracking all of your home expenses and multiplying them by the percentage of your residence dedicated to your home office.
Simplified: If you don’t want to take the time to track all your housing expenses, you can multiply the square footage of your home office (up to 300 square feet) by $5 and deduct that.
Whenever there are two methods to determine the size of a deduction, it’s a good idea to calculate both and take the larger of the two. That said, the standard method often leads to higher tax deductions in this case.
Renting an office or storefront is one of the most significant business expenses you’re likely to incur. Fortunately, if it’s reasonable that someone in your line of work would need the space, you can write off the cost of the lease.
For example, if you work from a computer, it’s logical that you’d need office space. Likewise, if you own a fitness gym, it makes sense that you’d need a location for people to exercise. In both scenarios, your rent would be deductible.
You can also deduct any rent you pay for equipment that’s necessary for your business operations. For example, if you run a home repair business, you could write off any rent you pay for the tools you use to complete a job.
Office supplies are a relatively standard deduction for self-employed people. It includes the minor materials you need to keep your business going. For example, you can write off items like paper, staplers, pens, and printer ink if your company uses them.
When you buy property or equipment for your business, the IRS might not let you deduct the expense all at once. Instead, you often need to depreciate these assets over their useful lives, which can be anywhere from a few years to several decades.
Depreciation represents the steady decrease in the value of an asset over time. For example, say you’re a real estate investor. When you buy an apartment complex, you take depreciation as the paint erodes, the floors degrade, and the roof deteriorates.
In general, you’ll need to depreciate assets worth more than $2,500. An IRS safe harbor rule means they won’t call you out if you write off something immediately when you pay less than $2,500, assuming it’s a legitimate business expense.
The rules for deducting depreciation can get surprisingly complicated. There are multiple ways to calculate the amount. If you’re eligible, it’s a good idea to consult a CPA for assistance.
You can generally write off the portion of your internet and phone costs that correspond with your business use. If you have a separate business office with its own wifi and telephone, everything you pay for these services is deductible.
However, if you operate out of a home office, calculating the write-off becomes a lot more complicated. The concept is similar to the home office deduction. You’ll need to determine which portion of your usage is for business and personal purposes.
The cost of health insurance in the United States is staggering, so health insurance premiums are another hugely beneficial tax write-off for self-employed people. It can help make up for your lack of an employer to subsidize your medical expenses.
As long as you’re not eligible for coverage through a spouse’s employer, you can generally deduct all of the premiums you pay for your and your family’s health, dental, and long-term care insurance.
Depending on your business model, you may want or need to purchase some form of business insurance. Fortunately, the premiums you pay for these policies are tax-deductible, as long as there’s a need for them in your line of work.
For example, medical service providers must maintain malpractice insurance, a form of professional liability insurance that protects them against lawsuits over mistakes that harm their patients.
Some other popular forms of business insurance that may be tax-deductible include general liability insurance, commercial property insurance, business income insurance, and workers’ compensation insurance.
Though you have to tread a fine line, business meals can be tax-deductible in some circumstances. However, the rules are a bit tricky, and you can bet that the IRS watches these deductions closely. It may be worth consulting a CPA for help with this write-off.
In general, you can only deduct 50% of the cost of business-related food and drink from your taxes. For example, that includes:
Unfortunately, lunch at the office by yourself doesn’t qualify. You must actively pursue or discuss business matters with others during the meal. It’s a good idea to keep detailed records of these matters.
There are two ways to calculate a meals deduction. First, you can deduct half the actual cost, in which case a reasonableness test applies. Alternatively, you can take a standard allowance, which the General Services Administration sets.
For tax years 2021 and 2022, the 50% limitation has been temporarily lifted. You can deduct 100% of eligible business meals as long as they come from a restaurant. The change is an attempt to stimulate the restaurant industry after COVID-19.
If your business requires that you travel, you can deduct the costs you incur to get you to your destination and for lodging while you’re away from home. Maybe you need to tour a potential rental property or meet with a client out of state.
Unfortunately, taking a deduction for business travel can be tricky. As you might expect, there’s a lot of opportunity for abuse with travel write-offs. The IRS won’t be happy if you try to deduct the cost of your family vacation to Orlando.
Even if you go to Orlando for legitimate business reasons, they’re also savvy enough to know that you might stick around for a few extra days for personal reasons.
However, like every other expense, travel is only deductible when it’s ordinary and necessary for your business. That means the extra night you spent in a hotel to see the Magic Kingdom is not tax-deductible.
If a vehicle is necessary for some aspect of your operation, you can write off the expenses associated with your business usage. For example, a real estate agent could deduct the use of their vehicle to meet clients at potential properties.
Unfortunately, you can’t take a deduction for commuting to your primary place of work. For example, you can’t consider the trip from your house to your office space a business expense.
If you’re going to take this deduction, there are two ways to calculate the amount:
Actual expense method: Keep detailed records of all your car expenses, including auto insurance, gas, and maintenance, then multiply that amount by the percentage of your driving that was business-related.
Standard mileage method: Keep track of the total number of miles you drove for business purposes, then multiply it by the IRS standard mileage rate. It’s $0.56 in 2021 and $0.585 per mile in 2022.
Unfortunately, you can’t bounce back and forth between the two. If you start with the standard method, you can decide to switch to the actual expense method, but you won’t be able to go back until you get a new business vehicle.
The interest you pay for your business debts can be another significant deduction for self-employed people. Whether you take out installment or revolving debt accounts, you can write off any interest that accrues on the balances for business expenses.
For example, if you finance the purchase of business equipment, the interest portion of your monthly payments is tax-deductible. Similarly, if you use a business credit card to buy supplies and carry a balance over, you can deduct the interest when you pay it off.
In theory, it’s possible to split funds from a credit account between business and personal use. In that case, only the interest on the business portion is tax-deductible.
When you’re self-employed, you have to get your business in front of potential clients. Fortunately, you can take a tax deduction for the various expenses you incur to promote yourself. That means you can write off the cost of things like the following:
In addition, while not strictly an advertising expense, you can deduct the cost of maintaining a website for your business. For example, that might include the price of the domain and the fees you pay to a copywriter or web designer.
As a small business owner, you often have to wear many hats. In your early years, you may find yourself handling administrative, bookkeeping, marketing, tax planning, and customer service duties on top of your day-to-day business operations.
However, once you have more traction, you can afford to outsource those functions. Fortunately, you can take a tax write-off for the fees you pay to the various professional service providers who handle them for you.
For example, if you’re tired of doing your own accounting, you can hire an independent specialist to maintain your books, build your financial statements, and file your taxes. Whatever they charge for their services will be a tax write-off.
Continuing education costs are an often underutilized tax write-off for the self-employed. In general, you can take a deduction whenever you pay to improve the skills necessary for your current business. That might include the cost of:
It’s important to emphasize that you can’t take a tax deduction for educational costs that don’t relate to the business you’re already operating. For instance, a freelance writer couldn’t take a deduction for a seminar on wedding photography.
Last but not least, you can take a tax deduction for the dues you pay to maintain a professional license or membership in a professional organization. This is a popular write-off for technical service providers, such as accountants, lawyers, and doctors.
However, you can’t deduct any old organizational or licensing fees. They have to be relevant to your profession. For example, a lawyer could deduct their annual membership dues paid to their State Bar.
Unfortunately, the deduction doesn’t let you claim dues to any club with a social purpose, even if you do business there. For example, you can never write off country club dues, even if you consider it a place to network.
You've invested years of training, built a solid book of loyal clients, and created a foolproof business plan. Now, you’re ready to start your independent beauty salon. But just like any savvy business owner, you must understand your overhead costs to run a beauty salon if you want to ensure business success.
There's no one-size-fits-all answer to this question as the cost to start a salon can vary greatly, depending on a variety of factors. These include the size and location of the salon, the types of services offered, the quality of fixtures and equipment, and the cost of initial inventory. Nonetheless, a rough estimate for a small-to-medium sized salon might range from $60,000 to $90,000. This estimate includes leasehold improvements, furniture, and salon equipment, initial inventory, licenses and permits, initial marketing, and operating capital for the first few months. However, keep in mind that your actual costs might be higher or lower. Therefore, it's essential to conduct a thorough analysis of your specific situation and develop a detailed budget before you start.
As you navigate through the process of opening your beauty salon, certain costs will surface that need your immediate attention. From the rental costs of your physical salon space to the ongoing expenses for utilities, supplies, and staff salaries, we'll break down each element so that you can strategically plan your budget and avoid any unexpected financial surprises.
Here are some of the most common beauty salon costs to consider.
Paying for a space to run your beauty salon will be one of your most significant monthly expenses. Additionally, you’ll need to consider that your space will probably undergo renovations. For example, it may need new flooring or proper plumbing. Rent ranges widely depending on the space you’re seeking. Renting a salon booth costs an average of $400 per month, but can range from $250 to $1,200. Normal salon spaces will cost you anywhere from $1,500 to $4,000 a month.
With the right equipment, your salon should operate without a hitch. You can choose to either purchase your equipment up front or lease it. You may be able to lower equipment costs by purchasing used equipment from other beauty salon owners. However, most find leasing new equipment to be a better option.
Before opening your salon, do your due diligence. Each state requires different licensing and permits. If you fail to get proper licensing, you’ll potentially pay a hefty fee. At the minimum, you should have a business and cosmetology license. But if you plan on adding services such as facials or nail care, you’ll also need the respective health permits. You may also want to consider obtaining a resale permit if you plan on selling products in your salon. Licenses charge annual or bi-annual fees to renew. On average, business licenses and permits can cost anywhere from $50 to $1500 per year.
When it comes to beauty, keeping up with the latest trends is a must. Having a variety of color dyes, stylizing products, and miscellaneous items in stock will allow you to accommodate last-minute client changes. Unfortunately, beauty supplies aren’t cheap—they can add up quickly and cost up to $20,000 to start.
What happens if a fire breaks out? Or what if a client injures themself on your premises? In these situations, you can’t forgo renters insurance. Renters insurance will help mitigate the costs of any unexpected events, like property loss from a natural disaster or medical bills from an accident. The price of insurance depends on the number of policies and coverage you select. When thinking about how much insurance you need, consider the total value of your property and any potential lawsuits that may occur at your salon. Insurance for beauty salons costs from $500 to $2,200 annually.
If you plan on having a few stylists, payroll will be a substantial expense on your operating budget. On top of paying their salaries, taxes, and benefits, the real cost of an employee is typically 1.25 times their base salaries. According to a study by JP Morgan, 62% of business owners struggle to consistently make payroll on time. So if you can’t make payroll consistently, you risk losing your best stylists. Almost half of Americans say that if they experience payroll delays twice, they’ll start looking for a new job.
Electric, water, gas—running a beauty salon means plenty of utility bills. Larger salons tend to incur more expenses because of how much energy they consume. Your bills will also increase if your salon comes with extravagant lighting or televisions to keep clients entertained. Salon utility costs range from a few hundred to a couple thousand dollars.
Most people use their debit or credit card to pay for services, which can eat up a sizable portion of your profits. Each time a client decides to pay with their credit card, you’re responsible for paying processing and transaction fees. Payment processing fees alone can cost you anywhere from 1.5% to 3.5% per transaction. For example, if you charge $50 for a haircut and your credit card processor charges you 2.7%, you’ll pay $1.35 in processing fees. While this may not seem like a lot of money initially, over time, it does add up.
As a salon owner, it’s up to you to bring in new clients. Even if you have loyal customers, you’ll need more than word of mouth to make people come through the door. That’s why creating marketing campaigns is an effective way to pick up new customers. However, marketing your business frequently can be expensive. Although social media and
In today's digital age, implementing salon software can streamline your administrative tasks and enhance the overall customer experience. This software aids in appointment scheduling, inventory management, payroll, and even marketing efforts. Many platforms also offer features like online booking and automated reminders, contributing to client convenience and retention. Although the cost of salon software varies depending on the features and number of users, it's seen as a valuable investment for efficient salon management. Expect to pay anywhere from $25 to $50 a month per software, with premium features coming at an additional cost.
Payroll is more than just the basic salaries you pay your staff. It involves managing commissions, bonuses, and possible overtime. Salon employees might be paid an hourly wage, a fixed salary, or commission-based earnings, depending on their job role and responsibilities. Hair stylists, for instance, can earn between $20,000 to $50,000 a year on average, while salon managers may earn an average salary in the range of $30,000 to $70,000. To attract and retain talented staff, you might also need to factor in the costs of additional benefits such as health insurance, paid vacation, and professional development opportunities. These added expenses should be carefully considered when calculating your overall payroll costs. Remember that a well-compensated, satisfied team can be one of the most valuable assets to your salon business.
Continuous learning is essential in the beauty industry to stay updated with the latest styles, trends, and techniques. As a salon owner, it's your responsibility to ensure that your stylists are well-versed in the latest methodologies and possess advanced skills. This might mean investing in masterclasses, seminars, certification programs, or online courses for your employees. You may also need to participate in business management or customer service courses to enhance your managerial skills. The cost of training and education varies widely, so it's important to include this in your budget planning.
Starting a salon involves several upfront costs which may require considerable investment. While personal savings and loans from family and friends can serve as a financial base, there are various other financing options available that can help you fund your salon business.
Many banks and financial institutions offer business loans designed to help entrepreneurs start or expand their business. These loans often come with reasonable interest rates and repayment terms, but be prepared to present a solid business plan to demonstrate your salon's potential profitability.
The SBA provides loans to small businesses that may not qualify for traditional bank loans. The SBA guarantees a portion of the loan, reducing the risk for lenders and making it easier for businesses to secure financing.
This involves getting a loan specifically for purchasing salon equipment. The equipment serves as collateral for the loan, which can make it easier to qualify even if you don't have an extensive credit history.
If you have a strong personal credit score, you may consider securing a personal loan to finance your salon. However, keep in mind that a personal loan ties your personal finances to your business, so ensure you have a solid repayment plan in place.
Securing investment from venture capitalists or angel investors is another viable option. This option typically involves selling a portion of your business equity in exchange for capital.
Platforms such as Kickstarter and GoFundMe allow you to raise small amounts of money from a large number of people, usually in exchange for some kind of reward. This can be a creative way to raise funds, particularly if you can create compelling rewards related to your salon business.
Remember, every financing option comes with its own set of advantages and disadvantages. It's crucial to thoroughly research each option, and consider seeking advice from a financial advisor or experienced mentor to determine the best course of action for your salon business.
The financial journey of starting and operating a salon can be complex, filled with various costs and financial decisions at every turn. From initial setup expenses to ongoing operational costs, it's essential to have a clear understanding of where your money is going and how you can manage your finances effectively. Additionally, exploring various financing options can provide the necessary funds to kickstart or grow your salon business. While the financial challenges can be significant, with careful planning, budgeting, and a keen eye on industry trends, your salon business can thrive and grow. As a salon owner, your commitment to financial health is as important as your commitment to beauty and style.
The cost to lease gym equipment will depend on how much equipment you plan to lease, the brand of equipment, and the type of machines. It might also be impacted by personal factors, such as your credit score and borrowing history.
Depending on the size of your gym, you likely need to acquire at least $30,000 worth of new equipment. And while the final numbers will depend on your credit score, you could be able to lease $30,000 worth of equipment for roughly $1,000 to $2,000 per month—perhaps even less.
According to gym equipment manufacturer Primo Fitness, the average commercial gym ranges from about 3,000 to 4,000 square feet. As noted above, filling this space with gym equipment will cost a budding gym owner roughly $30,000 to $50,000.
More modestly, Primo Fitness estimates that it would cost about $10,000 to fill a small 1,500-square-foot personal training studio—this includes about four treadmills, a pair of ellipticals, several strength machines, and dumbbells.
Here’s a breakdown of potential lease prices based on current equipment prices and a 6% lease rate. Note that other fees may increase the monthly cost depending on the lease’s structure.
Price | 12 months | 24 months | 36 months | |
Strength rack | $400 | $57 | $41 | $35 |
Treadmill | $3,500 | $502 | $356 | $307 |
Elliptical machine | $1,000 | $143 | $102 | $88 |
Stairmaster | $2,000 | $287 | $203 | $176 |
Free weights | $500 | $72 | $51 | $44 |
Bench press | $200 | $29 | $20 | $18 |
Leasing gym equipment can be a smart play for your small business because it doesn't require nearly as much upfront capital as it does to buy equipment—and lease terms are typically less restrictive than financing terms. Also, when a lease is done, you can often choose to lease brand-new equipment, so you can keep your gym up-to-date from year to year.
While the obvious benefit to buying gym equipment at the outset is owning the equipment, leasing doesn't require a large infusion of startup capital—a key advantage. Additionally, gym equipment can become obsolete fairly quickly, but when you finish repaying a lease, you often get the option to lease new equipment.
Leasing | Buying | |
Pros | Lower upfront costs Obsolete equipment replaced with each new lease | Equipment owned outright by owner Potentially lower total cost |
Cons | Locked in monthly payment with no prepayment option | Capital required up front Equipment outdated after a few years |
Financing and leasing of equipment share many similarities, but there are some key differences to be aware of. In both cases, you will be required to make a monthly payment over a set period of time. However, equipment financing takes the form of a loan with interest and includes the option to prepay the loan.
By financing, you will gain ownership of the equipment. On the other hand, equipment leasing often means that the lessor (i.e. the person or company providing the equipment) retains the title of the equipment, event though you are using it.
Learn more about your options for gym equipment financing.
Are you a small business owner looking for financing options? A business loan broker might be able to help. In this article, we'll explain what a business loan broker is, the types of brokers available, and how they can help you find the financing you need to grow your business.
A business loan broker—sometimes called a commercial loan broker—is an individual, company, or service that helps small businesses apply for small business loans or other financing.
Importantly, the broker does not approve or deny loan applications or service loans themselves: instead, the broker connects businesses with financing. A quality broker will help you research which business financing options make sense for your needs and help you set up your application for approval. In return, the broker receives a fee based on the size of the loan, either paid by the borrower or financier.
Because many different types of small business financing exist, some business loan brokers specialize in various niches. However, some brokers have experience with connecting small businesses with a wider range of funding options.
SBA loan brokers help businesses navigate the application process for SBA loans.
Commercial loan brokers specialize in commercial real estate loans and mortgages.
Franchise loan brokers understand the franchising process and can help find loan options for opening a franchise.
Equipment financing brokers help businesses find equipment financing.
Small business loan brokers help businesses understand the variety of small business financing options available.
Some brokers and broker services, like Lendio, specialize in all or most of the above categories at once. By working with a wide range of financiers, these comprehensive brokers can help you compare options ranging from term loans to alternatives like accounts receivable financing. With some, you can even look at options like business credit cards.
Understanding the cost of using a business loan broker is an important aspect of your financial planning. Generally, brokers charge a fee that is a percentage of the loan amount. However, this can vary based on the complexity of your loan application and the loan amount.
Remember, brokers bring expertise, experience, and potentially better loan options to the table, thus saving your time and potentially getting you better terms. However, before you engage a broker, ensure you understand the fee structure clearly. Some brokers' fees are paid by the lenders, while in other cases, the borrower is responsible. It's crucial to weigh the cost of a broker against the potential benefits to determine if it's the right path for your small business financing needs.
There are several key scenarios when utilizing the services of a business loan broker can be highly beneficial:
When you are unsure of the right financing option: If you're confused by the plethora of financing options available or unsure which one is the right fit for your business needs, a business loan broker can offer invaluable guidance. They bring their expertise to the table, helping you navigate through various loan types, and aligning them with your unique requirements.
When you lack the time or resources: Applying for business loans can be a time-consuming process. If you're already juggling multiple tasks and can't afford to devote extensive time to research and application processes, a business loan broker can be a lifesaver. They handle the legwork, letting you focus on your core business activities.
When you want to compare multiple loan offers: A business loan broker has access to a wide network of lenders, allowing you to easily compare various loan offers and terms. This access can optimize your chances of securing the best possible loan terms.
When you've been denied a business loan in the past: If you've faced loan application rejections before, a business loan broker might be able to help. They can assist you in improving your application, identifying potential issues that led to previous rejections, and connecting you with lenders that may be more likely to approve your application.
Remember, engaging a business loan broker is an investment, and the value they bring should outweigh their cost. Making this decision requires a careful assessment of your business's specific needs, your financial situation, and the broker's capabilities. Lendio's team of dedicated professionals is always ready to assist, ensuring you find the right financial solution for your business.
Choosing the right business loan broker can significantly influence your financing outcome. Start by conducting thorough research. Look for brokers with extensive experience, a strong network of lenders, and a good understanding of small business needs and challenges. It's important to check their track record, client testimonials, and their reputation within the industry.
You might want to engage in a consultation to gauge their expertise and understand their process. A good broker will be transparent about their fees, the lenders they work with, and how they can support your loan application. Be wary of brokers who promise guaranteed loan approval or who pressure you into making quick decisions.
Remember, the right broker will prioritize your best interests, provide valuable guidance, and work diligently to help you secure the right loan for your business. At Lendio, we are committed to these principles, ensuring that our clients benefit from a seamless and successful financing process.
As with anything involving small business lending, you need to do your due diligence with finding a small business broker. Here are some potential red flags that should raise suspicions:
Lendio is a leading online lending platform that helps businesses secure the financing they need. Our platform simplifies the lending process by connecting small business owners with a curated network of lenders. We are committed to providing a seamless experience, guiding businesses through the complex world of financing with clarity and confidence.
Key facts about Lendio's platform include:
Wide range of financing options: Lendio's platform provides access to a variety of loan types, including SBA loans, lines of credit, equipment financing, and more. This ensures businesses can find the right financing solution tailored to their specific needs.
An extensive network of lenders: Lendio works with a broad network of over 75 lenders, which increases the likelihood of securing a loan and allows businesses to compare multiple loan offers efficiently.
Simplified application process: Lendio's user-friendly platform offers a simplified loan application process. With a single application, businesses can apply to multiple lenders, saving time and reducing hassle.
Expert guidance and support: Lendio's team of loan specialists provides expert guidance throughout the loan application process. They help businesses understand their options, navigate the process, and improve their chances of approval.
Positive customer reviews: Lendio has consistently high ratings on review platforms like Trustpilot, demonstrating our commitment to excellent customer service and satisfaction.
At Lendio, we are dedicated to making business financing easier, so you can focus on what truly matters - growing your business.
In conclusion, utilizing a business loan broker can be highly beneficial in finding the right financing solution for your small business. A broker brings expertise, experience, and access to a wide network of lenders, making it easier to compare and secure business loan offers.