Should I Start an LLC for My Hair Salon?

Starting a limited liability company (LLC) for your hair salon 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 hair salon, lawsuits can arise from things like a barber slipping and injuring themselves in your hair salon or from a hairdresser accidentally damaging a customer’s hair.

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

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

Do I Need an LLC for a Hair Salon?

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

You should start 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 Hair Salon

By starting an LLC for your hair salon, 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.

Hair salons will benefit from liability protection because of the risk of causing injury and hair loss to customers as well as general business losses.

Example 1: A customer complains of an allergic reaction after using a hair product from the salon and decides to sue the business. If found liable, only the business’s assets will be affected by the lawsuit and not the owner’s personal assets.

Example 2: A hairdresser at the salon accidentally cuts a customer's hair too short, causing them to be unhappy with their new style. Following this, the customer decides to sue the business. As long as the business operates as an LLC, the owner’s personal assets will not be affected by the lawsuit.

Example 3: A hair stylist at the salon applies a chemical treatment to a customer's hair but doesn't properly follow the instructions. The treatment damages the customer's hair, and they decide to sue the salon. With limited liability protection, the damages from the lawsuit will only affect the business's assets and not the owner's personal assets.

Example 4: One of your hairstylists uses a new product on a customer and damages their hair. The customer is extremely upset by the result and decides to file a lawsuit against your salon for compensation.

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 Hair Salon

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 hair salon 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

Hair salons 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 dependable 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?

All businesses need insurance to protect their business assets — even LLCs. This is because the limited liability protection from an LLC protects your personal assets, not your business assets.

Hair salons work with potentially dangerous equipment and products if used incorrectly, which could lead to damage or client injury. Purchasing the right business insurance will help cover the salon’s assets (e.g., property).

Common Situations Business Insurance May Cover for a Hair Salon

Example 1: One of your hair stylists trips over a cord and cuts a customer with her shears. The customer is extremely upset by the accident and decides to file a lawsuit against your salon. Your general liability insurance would pay for your legal fees while defending your business. It would also pay for a settlement if the case is settled out of court.

Example 2: A salon customer walks into your business from the parking lot when she steps on a patch of ice outside your door. She falls and breaks her hip. She asks that your business pays for her medical treatment since the accident happened on your property. The general liability insurance policy you carry would likely cover her medical expenses.

Example 3: A competing salon sues you, claiming that your new logo is too similar to theirs. The general liability insurance you have will pay for your legal fees, as well as for any payouts or settlements that are required to resolve the case.

Other Types of Coverage Hair Salon 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 hair salons should obtain:

Professional Liability Insurance

As the provider of salon services, you would benefit from professional liability insurance designed specifically for your circumstances. Your policy would protect your business if one of your customers claimed that your services caused them harm and filed a lawsuit against your business. You should talk to your insurer about whether your policy protects your employees and/or independent contractors working for you. Those working for you will need to decide if they need additional protection beyond your policy.

Commercial Property Insurance

The various salon equipment and supplies you own, as well as your inventory of salon products, would be expensive to replace if you were to lose it in an unexpected event like a fire. A commercial property insurance policy will help cover the cost of replacing property lost in covered events. That way, you can get new equipment and supplies and get back to doing business.

Workers’ Compensation Insurance

If you employ the workers at your salon, then you are most likely required to carry workers’ comp insurance by the laws of your state. With a workers’ comp policy, your employees will have protection if they are injured performing work-related duties. The policy will pay for medical treatment and will help pay for lost wages while injured employees recover.

Commercial Umbrella Insurance

The general liability insurance policy you carry is a good foundation for protecting your business, but it is possible to exceed your general liability policy limits in certain circumstances—like if you lose a major lawsuit and are required to pay extensive damages. With just a general liability insurance policy, you would need to find a way to pay the damages that were left after the policy ran out. But if you have an umbrella policy in such a situation, once the limits of your general liability policy are exceeded your umbrella policy will kick in and pay until its limits are reached.

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 article for more info.

Starting a salon requires an initial investment in training and certification, as well as the cost of selecting a location and purchasing essential items such as software, chairs, furniture, decorations, and salon supplies. The total cost can vary greatly depending on the size, location, and services offered, but many salon owners report an initial investment of $95,000–$200,000.

Visit our How to Open a Hair Salon guide to learn more about the costs of starting and maintaining this business.

The ongoing expenses of running a hair salon business include rent, hair products and supplies, marketing, and administrative costs.

Learn more about running a hair salon.

Hair salon businesses make money by providing services to their customers. They also make money by selling hair products. Some hair salon businesses also make money from online courses by teaching people how to take care of their hair at home.

Learn more about opening a hair salon.

Hair salons cut, color, and style people’s hair and occasionally sell their own products. Some salons even offer teaching opportunities to beauty school students.

A hair salon can conservatively expect profits in the range of 11% to 15%. This could be even higher depending on the size and location of the salon.

Learn more about opening a hair salon.