Should I Start an LLC for My Day Spa?
Starting a limited liability company (LLC) for your day spa 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 day spa, lawsuits can arise from things like negligence or even malpractice allegations (e.g., as a result of performing a massage technique that injures a customer, etc.).
LLCs are also affordable, highly flexible (from a tax point-of-view), and can make your day spa seem more credible.
Recommended: Use Northwest to form an LLC for $29 (plus state fees).
Do I Need an LLC for a Day Spa?
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 Day Spa
By starting an LLC for your day spa, 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.
Day spas will benefit from liability protection because of the risk of personal injury lawsuits if customers are allegedly injured in the spa, especially while receiving treatment.
Example 1: One of your employees performs an unconventional massage technique on a client, causing a torn ligament and severe pain. If the client was to sue your day spa business, your limited liability would ensure that you could not be found personally liable for compensation.
Example 2: After swimming in your day spa’s hot tub, a customer claims that they got second-degree burns and files a lawsuit against your LLC for failing to take the proper precautions to ensure that the water temperature and chemicals were at a safe level. Assuming the water levels were not being maintained by you specifically, your personal assets will remain 100% protected regardless of how the claim progresses in court.
Example 3: After staph bacteria is found in your saltwater pool, you receive several lawsuits from previous customers claiming that they experienced health problems as a direct consequence. Regardless of the validity of the claims, your personal assets will remain safe as long as it wasn’t your personal negligence that caused the pool water to become contaminated.
Example 4: During a facial appointment, the customer suffers chemical burns from one of the products. She sues your business and asks you to pay for her medical expenses.
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 Day Spa
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 day spa 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
Day spas 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).
How to Form an LLC
Forming an LLC is easy. There are two options for forming your LLC:
- You can hire a trusted 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
- Alabama LLC
- Alaska LLC
- Arizona LLC
- Arkansas LLC
- California LLC
- Colorado LLC
- Connecticut LLC
- Delaware LLC
- Florida LLC
- Georgia LLC
- Hawaii LLC
- Idaho LLC
- Illinois LLC
- Indiana LLC
- Iowa LLC
- Kansas LLC
- Kentucky LLC
- Louisiana LLC
- Maine LLC
- Maryland LLC
- Massachusetts LLC
- Michigan LLC
- Minnesota LLC
- Mississippi LLC
- Missouri LLC
- Montana LLC
- Nebraska LLC
- Nevada LLC
- New Hampshire LLC
- New Jersey LLC
- New Mexico LLC
- New York LLC
- North Carolina LLC
- North Dakota LLC
- Ohio LLC
- Oklahoma LLC
- Oregon LLC
- Pennsylvania LLC
- Rhode Island LLC
- South Carolina LLC
- South Dakota LLC
- Tennessee LLC
- Texas LLC
- Utah LLC
- Vermont LLC
- Virginia LLC
- Washington LLC
- Washington D.C. LLC
- West Virginia LLC
- Wisconsin LLC
- Wyoming LLC
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?
Since limited liability protects the owners’ personal assets only, business insurance is still required in order to protect the business’s assets (e.g., furniture, pool, spa equipment, etc.)
Additionally, business insurance can protect the owners’ personal assets if they happen to commit negligent or wrongful acts, as these are not covered by the limited liability offered by an LLC structure.
Common Situations Business Insurance May Cover for a Day Spa
Example 1: A customer complains of abnormal irritation and splotching from sun exposure following a spa skin treatment. A general liability policy should cover any medical expenses or litigation.
Example 2: During a hair coloring appointment, the customer suffers chemical burns from one of the products. Your general liability insurance should provide coverage for medical bills and/or legal fees.
Example 3: A customer is threatening a lawsuit after complaining of intense pain and discomfort following a massage visit. General liability insurance will cover costs incurred by the suit and the customer’s medical expenses.
Other Types of Coverage Day Spas 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 day spas should obtain:
Professional Liability Insurance
Day spas offer a variety of services, requiring skilled technicians to treat customers based on their individual needs. Professional liability insurance, also known as errors & omissions (E&O) insurance, is designed to protect professionals against liability claims. If a customer doesn’t receive the desired outcome or promised results, this may trigger a covered professional liability claim.
Workers’ Compensation Insurance
Your state will likely require the business to carry workers’ compensation insurance for each employee. It covers work-related accidents and illnesses, along with resulting medical bills, lost wages, and any resulting settlements.
Workers’ compensation is purchased as a standalone policy.
Commercial Property Insurance
In addition to the extensive investment that day spas make in equipment, furnishings, and tools, most facilities require extensive build-outs to get them up to code. A commercial property insurance policy covers this investment in the event of a covered loss.
Commercial property insurance is generally purchased as part of a business owner’s policy (BOP).
Business Interruption Insurance
Many BOPs offer business interruption insurance as part of the insurance package. If the business suffers a major loss in an event such as a fire, business interruption insurance will help cover lost revenue while you rebuild. In addition to making up a percentage of lost profits, it can cover fixed costs and additional expenses incurred when/if the business operates at a temporary location.
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.
Read our Day Spa Business Insurance article for more info.
The total cost of starting a day spa will depend on the type of spa that you want to open. You may be required to get additional licenses and/or certifications.
You will also need to lease or purchase a property that you can transform into a day spa, as well as hire independent contractors and purchase spa equipment and furniture.
Visit our How to Start a Day Spa guide to learn more about the costs of starting and maintaining this business.
Operating a day spa involves the following costs:
- Insurance
- Maintaining equipment
- Salaries
- Leasing commercial space
- Renewing any applicable licenses
- Purchasing beauty supplies such as oils, lotions, facial masks, etc.
Learn more about running a day spa.
A day spa charges customers for a variety of personal care products, treatments, and services. Products are purchased wholesale and sold at retail. The hourly rate for services is more than that charged to the day spa by the provider.
Learn more about starting a day spa.
Day spas sell products and treatments aimed at refreshing and rejuvenating the body. These treatments can include facials, massages, waxing, and other services.
Day spas come in all sizes. The larger ones can offer more services, including body wraps, mud baths, and hydrotherapy treatments. The average profit margin for a well-run day spa is about 17%.
Learn more about starting a day spa.
