How to Start a Barber School

Posted on March 23rd, 2012 in How To Start a Business by admin

How to Start a Barber School

 

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Introduction

 

First, when you are starting a barber school, it is imperative that you make sure that you have all applicable licensure and registrations in place so that you are able to provide an appropriate amount of tutelage as it relates to being able to provide your barber students with the ability to complete and accredited program so that they can apply for their license to act as a barber. Additionally, you are going to need to make sure that you have all of the capital in place in order to launch your barber school business operations. We are going to discuss your barber school capital structure below. After you have determined the answers to these matters you must examine your ability to immediately develop relationships with individuals and business clients in your area. In many instances, most people have had extensive experience in the barbering and/or esthetician field before they start their own barber school. Additionally, these individuals have extensive contacts among businesses that are in need of barbers. One of the things that you are going to want to remain focused on as you progress through your operations is that you are able to assist with the placement of barbers with barber shops once they complete your program.

 

Typically, a barber schools offer an eight week to ten week program that qualifies them to obtain their barbering license once they graduate from your school. One of the important things that you are going to want to do, and note, prior to starting your barber school operations is to make sure that your school is able to receive reimbursements from state based and federally based programs that provide for tuition from individuals that want to learn a new trade such as barbering. As they economy has been extremely difficult for the past five years, the demand among individuals to enter new professions such as barbering has remained very strong. If you are seeking capital in order to launch your barbering school operations then you are definitely going to want to focus on this fact as these schools have remained very profitable despite the difficulties in the economy.

 

 

 

Incorporation

Second, you are going to need to incorporate your business. Again, only your attorney can determine the appropriate corporate structure that may be applicable to you as it relates to your barber school business. In many instances, you will most likely register as a limited liability company, or LLC, in the state in which you intend to do business. If you own a business with a large number of people then it may be in your best interest to register the business as a limited liability company rather than a stock corporation as you will have a tremendous amount of flexibility as it relates to how the business is operated on a day to day basis. Additionally, your corporate entity will protect you from any liabilities that you may incur as a result of operating a barber school. It some cases, when acting as a barber school, you may be required to register your business as a professional corporation. Again, only your attorney can make the appropriate determination as to whether or not your business will be required to register as a specific type of entity as it relates to your barber school operations.

 

Once you have incorporated your business, you will need to receive a Federal taxpayer ID number (commonly known as your “FEIN”) that will identity your business to the Internal Revenue Service. Typically, your accountant or your attorney will include this as part of the incorporation service. However, you can always call the IRS or go onto their website in order to immediately receive your taxpayer ID number. This should be done within days of incorporating your business so that you can begin to apply for the necessary business licenses that are required of you coupled with the fact that you are going to need to open a corporate bank account.

 

Business Financing

After you have determined the corporate structure of your business and have acquired the necessary licensure to launch you operations, it is time to find capital. Typically, most barber school companies require a minimum investment of $100,000. In most instances, you may be able to obtain a loan for all of the tangible assets that you will own. Banks, lenders, and private investors love to place money with barber schools due to the high gross margins generated by these businesses from tuition as well as the sale of course materials. This should be one of the foremost facts that you highlight as it relates to raising capital from a private investor in regards to starting a barber school. On a side note, if you are raising capital from a private investor then it may be in your best interest to work with an attorney to determine which documents that you will need in regards to this matter. In many instances, especially if you are raising capital from a number of private individuals, then you will need to have a private placement memorandum.

A Private Placement Memorandum (often referred to as a PPM) is a legal document that is often used in the venture capital raising process. It is the legal and binding agreement between a business and a potential investor. When looking for venture capital, you may or may not be required to have a private placement memorandum. A PPM not only serves the contact between an investor and a business, but it also apprises a potential funding source of risks related to the business, the intention of how investment funds will be used, the governance of the business, and other legal issues that need to be addressed when raising or looking for venture capital or other forms of equity capital.

Usually packaged with the private placement memorandum is the subscription agreement. In situations where capital is being raised privately, this document serves as the signatory portion of the investment agreement. In some situations, the subscription agreement may have certain questions that need to be answered by the funding source participating in your capital raising. This is to ensure that the individual or organization participating in the financing meets the required standards set forth by the SEC to make the investment. Again, only a qualified attorney can assist you making these determinations and guiding you through the capital raising process.

Barber school (and related vocation school) angel investors are easy to come by due to the fact that there are very few risks associated with operating this type of business due to the fact that they are able to receive a substantial amount of income from student loans and tuition reimbursements provided by state governments as well as the federal government. The need for barbering services (as consequently barbering schools) remains strong in any economic climate. As such, when you are finding an angel investor for your barber school you should find minimal issues among individuals that want to provide capital for this type of business. As always, you should have appropriate legal counsel in place when you are finding angel investors. These advisers will be able to effectively assist you when it comes to remaining within the letter of the law regarding the sale of securities as well as helping you determine a fair valuation for your barber school. As such, you should thoroughly stress the economic stability of your barber school business through any documentation that you have developed that will be presented to a potential private investor. You should also thoroughly discuss the highly tangible assets that will be held by your company as you progress through your business operations.

A certified public accountant as well as an attorney can assist you substantially in determining the valuation of your business before it launches given the market in which you intend to launch your barber school coupled with how much equity you will need to give up as a result of raising capital from a private investor. As such, you should thoroughly stress the economic stability of your barber school business through any documentation that you have developed that will be presented to a potential private investor. You should also thoroughly discuss the highly tangible assets that will be held by your company as you progress through your business operations.

As such, you should thoroughly stress the economic stability of your barber school through any documentation that you have developed that will be presented to a potential private investor. You should also thoroughly discuss the highly tangible assets that will be held by your company (especially in the form of highly divestible furniture, fixtures, and equipment such as barber chair sand related equipment) as you progress through your business operations. The economic viability of your barber school business requires that you showcase a substantial amount of industry research that is focused specifically on this market.

Returning to the financial statements that you will need to produce in order to obtain capital from an investor or bank, you’re going to want to have an overview of your revenues as well as your cost of services sold. On a side note, if you are not familiar with any of the terminology that were going to discuss as it relates to barber school financial plans, you should purchase a very introductory book as it pertains to bookkeeping and accounting so that you can clearly understand each thing that we discussed as it relates to how to start a barber school. Also, you’re going to want to focus heavily on your anticipated operating expenses. These are expenses that are not directly tied to the ongoing to the actual students that you’re enrolling. For instance – rent, utilities, insurance costs, professional fees, licensure, and other related expenses are fixed costs. As such, no matter how much money you bring each month in revenue these costs are going to remain the same at all times. These expenses are commonly known as the fixed costs. As such, and returning briefly to the discussion pertaining the barber school cash flow analysis, you should have a very clear understanding of how much money you will need to break even and how much money we’d have on hand before your business becomes profitable. Again, when you are formulating your business plan for a barber school you are going to want to make sure that you have an appropriate line of credit in place to finance you month to month costs as you progress through your business operations.

Of course you have to have a cash flow analysis, you’re going to want the focus again, heavily on how you intend to support the business while it is on its way to becoming profitable. Cash analysis provides you the insight as to how much profit made during the course of a single year or single month, how much money you have put into business, how much money you have received through financing, and other important aspects of the cash inflows and cash outflows as relates to barber school operations. You are thinking about how to start a barber school, you may want to focus substantially again on the fixed costs are associated with the business so that you couldn’t care an appropriately developed cash flow analysis. Of course, and again, if you are a laymen as it pertains these matters than we strongly recommend that you review a number of pieces of literature as it pertains to accounting also hiring a very qualified certified public accountant that can actively assist you in making budgetary predictions for your barber school business.

Returning to our discussion relating to raising capital for your barber school – as it pertains to the type of investors that can invest in your new barber school business, an accredited investors are typically high net worth individuals that are seeking to make substantial capital investments into small and medium sized businesses within their respective markets. As such, you should always ensure that the individual or firms that you deal with fall under the definition as provided by the Securities and Exchange Commission. At this time, an accredited investor is an individual with an income of $200,000 per year or more (with the expectation that they will make a similar income in each of the next two years) or a married couple with an income of $300,000 per year with similar expectations. An exemption to the income rule is that these entities have a net worth of $1,000,000 or more. In the event that a business, bank, trust, or other business entity provides your business with capital then they need to have total assets exceeding $5,000,000.

Again, you should consult with your attorney in regards to the rules that regular the definition of an accredited investor coupled with ensuring that you comply with all blue sky (or state laws) that are related to the operations of raising capital specifically for a barber school. Since you will not be dealing in the sale or trading of securities, there may be a number of exceptions that you qualify for as it relates to working with an investor for your new company.

Additionally, these advisers (as it relates to the ongoing operations of your barber school business) will assist you as it relates to producing the necessary documentation, including a barber school business plan (as included in this package) that will be required of you. One of the other things that you should clearly focus on is your ability to generate extremely high gross margins that are related to the need for new vocation (especially barbering) tutelage given the current economic climate. Angel investors and private funding sources want to see that your barber school or related services is able to generate highly recurring streams of revenue from the services that are provided to the general public in regards to their demand to become a licensed barber or esthetician. In any documentation that you provide to these investors you should heavily focus on the tremendous amount of tangible assets that are held by the business so that an investor can be secured in their investment. Of course, you should always provide your potential business investors with an in-depth view of your profit and loss statement, cash flow analysis, and balance sheet that is associated with your barber school.

Often the private placement memorandum contains a copy of the business plan (as included in this package). If you attorney determines that a copy of the business plan should be included in the investment prospectus, then he or she should thoroughly review the plan to ensure that it contains the proper language and disclosures for potential venture capital or angel investment funding sources.

If you are applying for capital from a bank then you will not need a private placement memorandum. You will simply need a business plan. You should anticipate that you will need to put up at least 10% of the total amount of the capital related to launching your barber school. Within your business plan, you should heavily focus on the economically secure nature of barber school and their ability to generate revenues and profits in any economic climate. One of the things that you should most clearly focus on, again, is that fact that a substantial amount of your revenues can be derived from publicly funded educational systems that will allow your students to easily afford the services that you are offering to them. Additionally, one of the things that you are going to want to point out is that people are going to continue to need to have a haircut regardless of the state of the economy. As such, barber shops as well as barber schools are able to remain profitable and cash flow positive at all times given this fact.

 

 
 

 

Employee Issues

You’re going to want to focus significantly on the employee issues that you will have as it pertains to your business. Every barber school operation needs to have a number of employees including a location manager, teachers, and a number of career placement managers that assist in the ongoing operations of the business. As such, you’re going to need to develop a highly focused employee manual, procedures and protocols, sexual-harassment policies, as well as many other things that come along with operating a business that has 10 to 15 employees or more. As such, you may want to hire a specialized lawyer that can put together an appropriate employee handbook so that a substantial amount of the liability that is associated with the business is substantially reduced. Of course, you can never fully remove any bit of liability from a business, however, by having all these things in place prior to launching your business operations you will be able to know exactly what to do should an employee issue a rise.

Additionally, you can always work with an outsourced HR consultant that can advise you properly on how to not only develop the documentation discussed above, but how you can handle specific employee issues as they come about. From time to time you are going to need to fire an employee, they often employee, or have a specific issue as it pertains to someone stealing from you or related issues. As such, it is extremely important that you take a look at each of these matters on an ongoing basis and figure way that you’re going to deal with them as they come about.

Next, you’re going to want to focus significantly on your target market. Here, you’re going to want understand the number of people in your target market, as well as the household income, median family income, population density, as well as the competition in your face as you progress through your barber school business operations as this is extremely important when you are marketing your low cost haircutting services to the general public. As it relates to your target market, you want to make sure that you’re opening a barber school that will be in demand among consumers (in regards to haircutting services) and most importantly for the students that will enroll in your services. One of the things that is most important to note is that most barber schools operate in lower income areas due to the fact that they are able to generate money not only by providing low cost haircuts and esthetician services, but they are able to generate a large student base among this population. As such, it is extremely important that you focus on your target market so that you can appropriately determine a location for your business. If you are able to open your barber school in a location that has an extreme demand among people that are looking to change their vocations (while also providing low cost haircuts) then you will find that you are able to bring the operations of your business to profitability very quickly.

In further regards to marketing, as the Internet has become extremely popular over the past 10 years, it is imperative for you to maintain a large scale website that showcases your barber school, the depth of the barbering school services that you will provide, and how much you will charge as it relates to your barbering school. On a side note, you may want to hire a search engine optimization firm that will place a tremendous amount of links on your website so that your barber school can be very easily among the major search engines. For instance, if you are developing a barber school in any town, USA, then a search engine optimization firm can ensure that your site comes up first when someone does a search for barber school with any within a specific market. If you are able to do this successfully, you will find that not only a number of people will make appropriate inquires for your barber school, but it will also substantially boost the visibility and the amount of traffic that comes your barber school (for low cost hair cuts) on an ongoing basis. One of the most important things to showcase on your website, as it relates to your barber school, is that you make sure that you showcase the fact that you have the ability to bill state funded education systems as well as federally based education programs so that people will be able to afford your services on an ongoing basis. Additionally, and again, on your website – you are going to want to make sure that you focus substantially on the fact that you will offer career placement services as a value added benefit to your students.

Market Research

 

 

It is also extremely important to note that due to the high operating costs associated with a barber school that you are going to need to keep a very close watch on the cash flow associated with your business. As we mentioned above, a line of credit based on your receivables is almost required unless you have a substantial amount of capital on hand as it relates to day to day funding costs. If you are a startup business then you are most certainly going to need a working capital line of credit. This is especially true for specialized vocational schools, such as barber schools, as many state based agencies as well as the federal government can take up to 120 days to provide your business with the tuition reimbursements that you will receive as it relates to your operations. Once your business is operational, and has received agreements from the federal government or state government, then you should have very few issues receiving a working capital line of credit based on the government tuition receivables that you will receive on an ongoing basis.

 

One of the most important aspects of this business, or any business for that matter, is that you are able to provide unparalleled support to your students. You are going to need to make sure that you provide your clients with the highest level of support as it comes to providing a comprehensive amount of education as it relates to being a barber. Foremost, you are going to want to make sure that each and every one of your students receives an education that will last them a lifetime as it relates to being a barber. Second, you are going to need to make sure that you are able to provide career services including providing placement of students with barber shops that are located within fifty miles of your location. If you are able to do this effectively then you will find that you will have a number of students that will flock to your barber school on a regular basis for your eight week to ten week courses that you offer in relation to barbering.

Conclusion

Immediately, when you are developing your operations as a barber school then you are going to want to make sure that you have a number of connections among barber shops within your state or target market. One of the primary ways that you can effectively differentiate yourself from other barber schools within your target market is to make sure that you are able to place your graduated barber school students with barber shops that are in need of additional barbers. Of course, and most frequently, these businesses allow their barbers to operate as independent contractors. By offering, again, career placement services – you will be able to effectively provide a value added benefit to your barber school students. One of the other services that has become extremely popular over the past five years is to develop business development services so that your barber school students can start their own barber shops once they graduate from your school and obtain their licensure. As such, you may want to integrate classes pertaining to barber shop entrepreneurship as it relates to the ongoing operation of your business.

One of the nice things about operating a barber school is that you do not need to maintain a very expensive location. Many people are going to want to come to your barber school location so that they can receive a low cost haircut. As such, you are going to want to maintain a moderate visible location so that your students can have easy access to receiving the training that they need while concurrently being able to provide the general public with a low cost method of receiving haircuts and esthetician services.

Once you have become profitable and the demand for your services increase then you may want to begin to expand your business. Foremost, the expansion of your barber school empire should be relatively easy once you are profitable and cash flow positive. As per our discussion above, banks and financial institutions like to lend to barber schools that are profitable due to the highly recurring streams of revenue generated by these businesses. Additionally, the low cost of starting a barber school will allow you to potentially self finance your expansion via the accrued profits that are generated by your business. Typically, for a barber school, you will only need one round of private capital in order to launch your business operations to profitability.

 

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