Should I Start an LLC for My Barber Shop?

Starting a limited liability company (LLC) for your barber shop can provide several benefits.

Most importantly, an LLC structure offers limited liability to its owners, which can protect their personal assets from lawsuits and creditors.

For a barber shop, lawsuits can arise from things like accidentally injuring a customer while giving them a haircut (e.g., damaging or burning a customer’s hair, accidentally causing a cut while shaving a beard, etc.).

LLCs are also affordable, highly flexible (from a tax point-of-view), and can make your barber shop seem more credible.

Recommended: Use Northwest to form an LLC for $29 (plus state fees).

Do I Need an LLC for a Barber Shop?

LLCs are a simple and inexpensive way to protect your personal assets and save money on taxes.

You should form an LLC when there's any risk involved in your business and/or when your business could benefit from tax options and increased credibility.

LLC Benefits for a Barber Shop

By starting an LLC for your barber shop, you can:

Protect your savings, car, and house with limited liability protection
Have more tax benefits and options
Increase your business’s credibility

Limited Liability Protection

LLCs provide limited liability protection. This means your personal assets (e.g., car, house, bank account) are protected in the event your business is sued or if it defaults on a debt.

Barber shops will benefit from liability protection because of the risk of customer injury, workplace accidents, and financial data breaches.

Example 1: While cutting a customer’s hair, one of your employees severely injures the scalp of a customer while not paying attention to his actions. As a result, the customer filed a lawsuit against your business for the bodily harm they suffered. In cases such as this, limited liability would protect your personal assets from the compensation your business might now owe.

Example 2: While washing a customer’s hair, an employee of your barber shop accidentally spills a large amount of water on the customer’s bag, completely ruining an expensive laptop contained inside. This induces the customer to sue your business for the property damage she had suffered. Any liability of the business to pay this compensation can only be imposed on the business’s assets.

Example 3: Recent marketing material released by your barber shop contained a disparaging comment about a local competitor. The owner of this competitor felt the comments had negatively affected the reputation of his business, and thus sued your barber shop for libel. If the competitor was awarded damages, these would only be payable with the business’s assets.

Example 4: A customer stumbles while getting out of their chair and strikes their chin on the counter. General liability insurance would likely cover medical care associated with the incident.

An LLC will also protect your personal assets in the event of commercial bankruptcy or loan default.

To maintain your LLC's limited liability protection, you must maintain your LLC's corporate veil.

LLC Tax Benefits and Options for a Barber Shop

LLCs, by default, are taxed as a pass-through entity, just like a sole proprietorship or partnership. This means that the business's net income passes through to the owner's individual tax return.

The business’s net income is then subject to income taxes (based on the owner's tax bracket) and self-employment taxes.

Sole proprietorships and partnerships are taxed in a similar way to LLCs, but they do not offer limited liability protection or other tax options.

S Corp Option for LLCs

An S corporation (S corp) is an IRS tax status that an LLC can elect. S corp status allows business owners to be treated as employees of the business (for tax purposes).

S corp tax status can reduce self-employment taxes and will allow business owners to contribute pre-tax dollars to 401k or health insurance premiums.

The S corp status requires that the business pay the employee-owner(s) a reasonable salary for the work they perform.

In addition, the business might need to spend more on accounting, bookkeeping, and payroll services. To offset these costs, you'd need to be saving about $2,000 a year on taxes.

We estimate that if a barber shop owner can pay themselves a reasonable salary and at least $10,000 in distributions each year, they could benefit from S corp status.

You can start an S corp when you form your LLC. Our How to Start an S Corp guide will lead you through the process.

Credibility and Consumer Trust

Barber shops rely on consumer trust. Credibility plays a key role in creating and maintaining any business.

Businesses gain consumer trust simply by forming an LLC.

A growing business can also benefit from the credibility of an LLC when applying for small business loans, grants, and credit.

Northwest will start an LLC for you for just $29 (plus state fees).

Get Started

How to Form an LLC

Forming an LLC is easy. There are two options for forming your LLC:

You can hire a professional LLC formation service to set up your LLC for a small fee
Or, you can choose your state from the list below to start an LLC yourself

Select Your State

For most new business owners, the best state to form an LLC in is the state where you live and where you plan to conduct your business.

Do LLCs Need Insurance?

Your LLC, alongside all others, needs to buy insurance. Business insurance is what provides protection to the assets you personally own from the liabilities it faces every day.

This is distinct from the limited liability protection of the LLC structure, which prevents business liabilities from extending to your personal assets.

Common Situations Business Insurance May Cover for a Barber Shop

Example 1: A customer stumbles while getting out of their chair and strikes their chin on the counter. General liability insurance would likely cover medical care associated with the incident.

Example 2: A contracted hairdresser trips over supplies that are left on a stairway, sustaining multiple injuries as they fall down the steps. General liability insurance would probably cover the injuries as long as the hairdresser was an independent contractor. (The injuries would fall under workers’ compensation if the hairdresser was an employee.)

Example 3: When talking with a new customer, an employed hairdresser makes disparaging remarks about the haircut they received elsewhere. The remarks get back to the other hairdresser, who believes that the comments are unwarranted and negatively impact their competing business’s reputation. They file a slander lawsuit seeking compensation. General liability insurance would probably cover the lawsuit.

Other Types of Coverage Barber Shops Need

While general liability is the most important type of insurance to have, there are several other forms of coverage you should be aware of. Below are some other types of insurance all barber shops should obtain.

Professional Liability Insurance

As a business that employs skilled workers, your barber shop may need professional liability insurance. This coverage protects against errors in work, and it’s available for a variety of different professionals.

When purchasing this coverage, make sure you understand and communicate to all hairdressers who is covered by your chosen policy. Coverage might extend to employees only, or it may also cover people working as independent contractors. Whichever option you ultimately get, you’ll want to let everyone know so that they can make their own informed decisions about whether they need additional protection.

Commercial Property Insurance

If your barber shop owns its building, you probably want to insure the building with commercial property insurance. Coverage often also covers items located inside an insured building, such as chairs, mirrors, and other fixtures.

Communicate to hairdressers what your property insurance does and doesn't cover. It may not cover equipment and supplies that hairdressers themselves own, and they’ll want to know if they need to purchase insurance for their personal equipment.

Commercial property insurance can be bought as part of a business owner’s policy (BOP).

Home-Based Business Insurance

If you run a one-person barber shop from your home, home-based business insurance is more appropriate than commercial property insurance. Home-based business insurance normally covers business-related risks that are excluded from traditional homeowner’s insurance policies.

Home-based business insurance may be bought through a BOP, or it’s sometimes possible to acquire as a rider that’s added to your homeowner’s insurance.

Should I Start an LLC FAQ

Choosing the right business structure depends on your business’s unique circumstances and needs. However, unless your business is very low risk (like a hobby), an LLC is likely the better option.

Visit our LLC vs. Sole Proprietorship guide to learn more.

At a minimum, you’ll need general liability insurance, commercial property insurance, and workers’ compensation insurance (if you have employees).

Read our Business Insurance for a Barber Shop article for more info.

The projected startup cost of an experienced barbershop is normally around a minimum of $150,000. This includes the costs of attending barber school, permits, equipment, insurance, furniture, and a business website.

If you intend to invest in franchising, expect to add another $25,000 to this figure.

Visit our How to Start a Barber Shop guide to learn more about the costs of starting and maintaining this business.

Some of the operating expenses for a barber shop include payroll, rent, and insurance.

Learn more about running a barber shop.

Barber shops make money by charging customers for haircuts and shaves.

Learn more about starting a barber shop.

No matter the location, there are always potential customers looking for a haircut or shave.

While profits may start small, there is potential to grow. A barber shop can start small with only a few chairs and barbers and then add more chairs or even open an additional location if the business is successful. The average barber shop owner makes about $35,000 to $70,000.

Learn more about starting a barber shop.