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Plan Your Retirement while Rewarding Loyal Stylists

Source: Square One Salon
Source: Square One Salon

With all that goes into owning a salon, it’s easy to get stuck in the daily responsibilities and ignore the future, but sooner or later, even the most successful salon owner needs an exit strategy.

Retiring from a business you own is very different than leaving a job at a major corporation. People depend on you for their livelihood, so walking away simply isn’t an option. Selling the business can also be a tricky endeavor that can end badly if sold to the wrong person.

For many small salon owners, family is the answer. The reigns of the salon are often smoothly handed off to the next generation. But what happens when you own multiple locations? Or you don’t have any family members interested in taking over the business?

Brent Johnson, Doug Henderson and Josh Stucky, owners of four Square One salons in Dayton and Columbus, Ohio, recently addressed these questions and came up with a unique solution for a successful salon succession plan.

Below are their tips that salon owners can use to plan a smooth transition.

1. Know Your Plan, Know Your Timeline

When Johnson, Henderson and Stucky opened their original salon in 1999, they had seven employees. Now they have a staff of 180 people, and just recently opened two new locations, bringing them to a total of six salons.

“We were thinking about retirement someday, which looks different for each of us,” Johnson says. “It’s probably 10-15 years away, but I envisioned a gradual takeover of roles and relinquishing of daily duties.”

The three owners asked themselves a series of questions: “Who do we want to run this? How do we give long-term employees a bigger piece of the pie? How do we keep them from leaving us? How do we ensure our culture goes on and doesn’t get disrupted by these situations? Do we give parts of the salon away?”

Brent Johnson, Doug Henderson and Josh Stucky, owners of four Square One salons in Dayton and Columbus, Ohio. Source: Facebook
Brent Johnson, Doug Henderson and Josh Stucky, owners of four Square One salons in Dayton and Columbus, Ohio. Source: Facebook

Johnson says they knew they wanted to make their long-term employees part of the strategy, but quickly realized they would have to create the right opportunity.

To get in the right mindset, they asked their employees what was important to them. Their employees said their priorities were being an owner, maintaining financial stability and having creative control.

“But we knew if we gave them part of our existing business there would be problems,” Johnson says. “People who worked with them wouldn’t see them as owners—the relationship would be the same.”

Another reason bringing them into the existing business didn’t make sense was financial: The four original salons do about 130,000 transactions in a year.

“For someone to be able to afford to buy that someday is a bit of a lofty goal,” Johnson says. “And then how do we sell it?”

Nothing felt right to the owners, until they tapped into an idea they had been mulling over for a while: opening a fifth location.

“We talked to our attorneys and thought maybe we could just create a whole new business with a separate tax ID for these employees to run,” he says.

The owners ended up opening two new locations with five employees becoming owners in the new salons.

“Each of the new locations has it’s own tax ID, and with our employees’ buy-in, we financed the renovation and build out,” Johnson says.

2. Choose Your Successors Wisely

Once the owners knew they were going to open two more locations, it was time to choose the employees who would be offered shares in the new salons.

“We set up criteria,” Johnson explains. “The employees we offered the partnership to had to have been with us for more than 10 years, be full-time and have a leadership role in the salon.”

Seven people qualified and were offered shares based on the amount of time they had been at the salon. For voting reasons, the three original owners kept 51 percent of the business and signed a separate contract, stating they would always vote as a unit.

Five of the employees accepted the offer: Canaan Good, Angie Mehaffie, Misty Wells, Alan Leonard and Lori Davis. The two who chose not to buy in were appreciative, and asked to be considered again in the future.

“It meant a lot to all of them and solidified our relationships,” Johnson says. “Angie is our director of education and has been here for 14 years—she was offered and bought 25 shares at each location. She comes from a family of business owners. What was stopping her from leaving? She’s an amazing business partner and needed something more.”

Source: Square One Salon
Source: Square One Salon

For the five stylists who bought shares in the new locations, Johnson and his original co-owners wanted to create what they requested: ownership, creative control and financial stability.

“We had to create the new locations so they could compartmentalize. When they are cutting hair in one of the original four locations, that’s their job. But they don’t cut hair in the locations they own—they can only make money on the salon’s profit. They can’t move their clients from one business to the other, either. We want them to keep their original income and get additional income.”

“We truly care about our employees’ future. We want to give to them not just today, but forever.”

One of the new owners, Canaan Good, says she wasn’t surprised when she received the offer. “The owners are super giving and always wanting to share whatever they have as much as they can,” she says. “It was very ‘them’ to come up with this idea.”

After almost three years of research, vetting, and working with attorneys to figure it all out, the Square One owners’ plan is now a reality.

Each of the new owners is assigned a day at one of the new salons where they are in charge. Anything that happens that day, they are responsible for: a burst pipe, a stylist who doesn’t show up for a shift, an alarm going off—anything.

“We wanted to see who would step up to the plate,” Johnson says. “Some did amazingly well, others did good. It’s allowing us to teach them the business side of the salon.”

Good says, “The work varies from week to week. Some days there can be a whole day’s worth of stuff to take care of. Others it’s super quiet and I’m just popping in and being a cheerleader.”

Canaan Good | Source: Square One Salon
Canaan Good | Source: Square One Salon

Little tasks that pop up like going over orders can take anywhere from a couple hours to a few days.

In addition to their weekly “owner day,” the five new owners have also been assigned one major role to learn.

“One of them is in charge of the checking account, one’s in charge of inventory, one’s in charge of hiring and training, etc.,” Johnson says.

Annually, the five new owners will trade off these major responsibilities so everyone has the opportunity to really learn every aspect of the business.

“I’m doing inventory now, which is something I really like,” Good says. “But we’re still trying to figure out what that means, and Doug has to give that up a little bit as he teaches me, which is challenging.”

It hasn’t been quite a year yet since the new salons and owners started, but the impact is already huge.

Good says, “It has kept me really busy because I still work behind the chair full time in order to keep my salary.

“There’s been no financial payoff yet, but we’re keeping our eye on the prize and focusing on the future.”

3. Get it in Writing

Johnson says they had three outside people helping them execute their plan to bring in new owners: the financial planner who handles the salon’s 401k plan, their accountant and their attorney.

“We worked with all three of them because they really understand our business and us as people,” Johnson says. “They know what’s important to us—we trust them because they understand our values.”

Johnson says the contracts and documents created were important because the owners wanted to feel good about what they were doing, but not give away the farm.

“The contracts are there not so much to lock people in, but more so everyone understands the rules.”

For the new owners, coming up with the money to buy shares was the main challenge.

“I would’ve been a fool not to jump on this opportunity,” Good says. “What the owners have done with Square One has been so successful and the brand is recognized as standing for something great.

Source: Square One Salon
Source: Square One Salon

“I have a family member who has done well for himself, so I was able to get a private loan with him,” she adds. “It didn’t take much convincing on his part because he knew it was no-fail.”

The other new owners also managed to find ways to finance buying their shares whether it was through family, savings or a bank.

4. Understand Your Future

Johnson says they aren’t finished opening new locations. “We tell our employees we will find opportunity for everyone when the time is right,” he says.

“It has inspired them to look beyond today into what their future can be and how they can influence that outcome.”

If a stylist dreams to own their own business someday, Johnson would much rather they achieve that dream through Square One than go be an independent contractor.

“Keeping a stylist happy long-term is good for business and good for their personal lives,” he says. “It’s also a win for our clients, and as we expand locations, our circle gets bigger.”

Johnson says the concern of successful stylists renting space in a larger facility and transferring clients over is not the concern it was two or three years ago.

“We once lost seven people to booth renting from one location and got really freaked out,” he says. “But three have already come back, and the situation made us think about how to give people a sense of creative control and ownership.”

None of the three original owners work behind the chair, and while they work every day, they don’t need to be in the business for it to operate on a daily basis.

Good aspires to do the same some day. “Getting out from behind the chair has always been in the back of my mind,” she says.

But for now, she’s enjoying working with the other four new owners, growing and learning together.

“I can’t imagine doing this without them,” she says. “We’ve already collectively decided to expand one of our salons even though we aren’t making any money yet.”

Good says they want to make it the best it can be before they start dipping into the profits.

“We want to give these five the opportunity to grow and lead,” Johnson says. “They can then teach the person below them to step up to the plate. We’re always raising people to the next level to give them a career path.”

Source: Square One Salon
Source: Square One Salon

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