Salon Owners

[SmillieShellac]

Are you a sole trader or a limited company?
I'm getting conflicting advice from landlords, accountants and friends. It's stopping me signing a lease, opening a business account and generally moving forward as I'm struggling making a decision.
I'm confused and frustrated, I'd be interested in how others salon owners have done it and your experience from it.
Thank you SS

 

[BannerPenguin]

I know we aren't a salon but I ALWAYS suggest Limited. It's easier I feel. Depends on how you are going to run your salon though. IE employ people, self employed people etc.

At the end of the day with a limited company if all goes wrong you simply walk away. Well not simply but you do walk away.

 

[virtues2011]

I'll change direction here. "Limited" lessons your liability if it all goes wrong, it doesn't allow you to walk away scott free! You will have to instruct insolvency administrators to proportion payments to creditors. The filing deadlines for accounts and the like are strict and penalty driven. I could go on. There are not many stand alone salons that have companies that are registered, purely to cut down on the expense and there is generally no necessity to do so. The VAT theshold is one to look out for, registered or not - If you start as a sole trader you can always register your company at a later date should you deem it necessary. I have companies are both registered as Limited and those that aren't and as for hair and beauty salons it's not worth the hassle or cost for me personally.

 

[BannerPenguin]

I'll change direction here. "Limited" lessons your liability if it all goes wrong, it doesn't allow you to walk away scott free! You will have to instruct insolvency administrators to proportion payments to creditors. The filing deadlines for accounts and the like are strict and penalty driven. I could go on. There are not many stand alone salons that have companies that are registered, purely to cut down on the expense and there is generally no necessity to do so. The VAT theshold is one to look out for, registered or not - If you start as a sole trader you can always register your company at a later date should you deem it necessary. I have companies are both registered as Limited and those that aren't and as for hair and beauty salons it's not worth the hassle or cost for me personally.

You are right. I skimmed over it as I was on the way out of the office. It does have slightly more paperwork but I find it more tax efficient and any personal assets (like you say) are 100% protected and can't be touched.

 

[virtues2011]

You are right. I skimmed over it as I was on the way out of the office. It does have slightly more paperwork but I find it more tax efficient and any personal assets (like you say) are 100% protected and can't be touched.

I personally wouldn't see the need for a limited company on stand alone salon I must admit, our bigger companies absolutely, and for all the reasons you stated! I understand that tax efficient does not mean tax evasion....ha ha. I believe they are changing/have changed some legalities towards the liabilities of Limited companies. I'll have to ask the question as I'm not sure if assets are still 100% protected and the "can't be touched" I'm not sure still applies. I may be wrong but I now need to satisfy my own curiosity. Good to talk to you.

 

[WilsonBarberCo]

I would say for your first business (I assume it is), go sole trader, at least until you get a handle on things. This is especially so if you don't have any assets (property etc), it just makes the process easier to understand.

You can always limit the company at a later date. Also, if you choose to expand the business, there would be twice as much money being passed around, so twice as much reason to be limited.

Hope this helps!

 

[squidgernetball]

Sole trader is easy. I am a sole trader with my own salon, and I employ staff. I have considered going ltd, but so far it hasn't really been worth it. Some of the advantages of sole trader are that all the money is yours. You can do what you like with it. Disadvantages of sole trader are that all the money is yours and you can do what you like with it, because then you have to pay tax on everything that isn't to do with the business. You have to be sensible and have a business head on.

With ltd, you can pay yourself a salary which you can restrict, minimizing your tax, and then pay yourself bonuses that you pay a lower tax on, assuming your business is doing well. I also think you have to employ an accountant to get your accounts signed off,whereas I can do my own.

Please feel free to correct me fellow geeks, if I'm wrong.
None of this has had a bearing on renting my business property!

Vicki x

 

[Cholo]

Another vote for being a sole trader here.
Rather than reiterating what has been said, I totally agree with the above comments from Squidger & Virtues.

Oooops, and WilsonBarber (sorry)

 

[lynn amber]

Yes sole trader too, I also don't see the benefit in being limited as a small hair and beauty business I don't think you should really be owing money or waiting for money coming in other then your start up costs, I would says it's alot more work begin limited

Sent from my LT30p using SalonGeek mobile app

 

[SmillieShellac]

Hi ladies, I've been our doing a nail party since I put the post up and honestly I feel instantly relived to hear from geeks that have been there as I am soo confused!
My gut is telling me to go sole trader as the costs for my accountant will soar, and my landlord isn't that happy about me going Ltd, but my accountant, people that are currently in business (not beauty though) have frightened me with their views on they couldn't believe I would consider being a sole trader on leasing a property!
I appreciate all your feedback geeks, I NEED to make a decision within the next couple of days as I can't move on until the decision is made. another sleepless night ahead SS

 

[BannerPenguin]

Hi ladies, I've been our doing a nail party since I put the post up and honestly I feel instantly relived to hear from geeks that have been there as I am soo confused!
My gut is telling me to go sole trader as the costs for my accountant will soar, and my landlord isn't that happy about me going Ltd, but my accountant, people that are currently in business (not beauty though) have frightened me with their views on they couldn't believe I would consider being a sole trader on leasing a property!
I appreciate all your feedback geeks, I NEED to make a decision within the next couple of days as I can't move on until the decision is made. another sleepless night ahead SS

For most salons I recommend sole trader however if your signing a long term lease as a sole trader I would personally worry. That's just me. If it's a 10 year lease and things go well (god forbid) and you close. You are personally liable for the rent for the rest of the lease.

 

[SmillieShellac]

Yeah this is what is keeping me awake PenguinBanner. It's a 10 year lease but I have a break point at 3years, but here's the thing IF I go Ltd they want a personal guarantee of 3 years rent anyway! 

 

[BannerPenguin]

Yeah this is what is keeping me awake PenguinBanner. It's a 10 year lease but I have a break point at 3years, but here's the thing IF I go Ltd they want a personal guarantee of 3 years rent anyway! 

In that case it doesn't matter and I'd say go sole trader IF you are set on this premises. Most businesses on the high street are limited and there premises are leased under such.

I always think you need 3 years to just get established with a new business however you need to make sure 100% you can financially keep it afloat in this time. I always think of worst case scenario of income and half it That's just what I do because otherwise my mrs slaps my wrist for jumping into things too quick ha.

 

[virtues2011]

Surely you wouldn't just close the business down though, even as a sole trader with employed staff if things became too much you would sell it even at a nominal loss, the lease would be taken over by the new owners.

 

[Nail nation]

Hi, I've been a sole trader for 8 years and my accountant says for me ltd is no benefit xx

 

[SmillieShellac]

Thanks NailNation, can I ask do you lease your premises? SS

 

[purenique]

Thanks NailNation, can I ask do you lease your premises? SS

I'm limited and if I did it over again I'd go sole trader to start with and limited after a few years.
Being limited your accountant costs shoot through the roof so going sole trader is definitely worth while and if you start as a sole trader you can change to limited after a year but if you go ltd first you can't go back. Hope that helps a bit

 

[SmillieShellac]

Thanks purenique I thought I could do that too, start off as a sole trader then if/when things are going well I could change, but apparently if I sign the lease as a sole trader I cannot change it for the lease term (10yrs), so I'm back to square one!! SS

 

[virtues2011]

Thanks purenique I thought I could do that too, start off as a sole trader then if/when things are going well I could change, but apparently if I sign the lease as a sole trader I cannot change it for the lease term (10yrs), so I'm back to square one!! SS

You're not back to square one at all. If you were to find yourself in difficulty (I hope you don't) and decided enough was enough you would sell your business, along with the lease to the new owners. Because you sign a 10 year lease it doesn't mean you will always have it and have to pay for it. It is not a bad thing, potential buyers will not be interested in buying your business with a two year lease (as an example) a ten year lease is much more attractive. It is difficult to just close a business as a sole trader who employes staff and has a premise. It would cost thousands, you would sell it in the first instance even at a very reduced price if necessary just to rid yourself of it.

 

[purenique]

Thanks purenique I thought I could do that too, start off as a sole trader then if/when things are going well I could change, but apparently if I sign the lease as a sole trader I cannot change it for the lease term (10yrs), so I'm back to square one!! SS

Aww I see that does make it tricky :/
I went ltd as that was what advise i was given at the time and it's a bit of a self protection especially when taking on a long lease.. The accountancy costs are expensive though :/ but I hear sole traders have to pay up front for their tax (not sure if this is 100%)