In our fourth blog of the month we continue with, Why do businesses that operate with booth renters in a salon or spas create so many problems for themselves? Booth rental is still gaining in popularity but sadly there are so many mistakes being done that it creates a multitude of problems for the owners and the renters alike.
First off it is a business and must be treated as one to be successful. Most owners have no idea of how to go about this legal matter correctly to protect their financial investment, letalone understand the management of their business choice. The first item the IRS, ones own State or a Judge will ask for is a copy of the contract when audited.This contract will be used to determine ultimately who has all the tax responsibilities. In other words just calling someone by a title does not make them a booth renter or I/C.
Over 90 % of salon and spa owner landlords operating with B/R today could not pass an audit for the simple reason they have nothing in writing in the way of a valid contract.3 or 4 pages or less will not cut it, if one really wants to be protected. Meaning, the business owner landlord, and the booth renter themselves.
Next most owners have no structure for profitability other then collecting rent, which can only be charged on a flat rate only. Few owners realize how to be more profitable in 6 to 7 ways above the base rent legally. If one has a valid lease, which most claim to have something in writing would not hold up with all 3 agencies mentioned above. Then there is the management of your booth rental business that most owners lack to support their business structure.
In Our Fourth Blog, we have covered the key elements of having a legal business structure. Understanding the real value, of having a profitable business structure. And why it cost dearly when owners don’t have an adequate legal structure that will support and protect the business
Lastly, 99.5 % of the beauty industry does not qualify as being or having Independent Contractors (I/C) according to the IRS and most States. They have publicly declared more audits on 1099’s, starting in 2010. Think you’re safe? For the I/C themselves at 60 % commission you are actually losing money and would be better off working for 40 % as an employee profits wise.
Kassidy’s Management Consultant
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