14.4 Developing a Business Plan: Ownership, Regulation, Finance & Salon Set-Up
Key Takeaways
- The RSOS lists five business ownership models: sole proprietorship, partnership, corporation, franchise, and booth or chair rental — they differ mainly in liability, tax treatment and control.
- A sole proprietor has unlimited personal liability for the business's debts; incorporation creates a separate legal entity that limits personal liability but costs more to set up and file.
- An employer must register a payroll account with the CRA and withhold and remit CPP contributions, EI premiums and income tax; a booth renter is self-employed and remits their own.
- Floor plan design must satisfy utilities, equipment layout and accessibility requirements as well as maximizing usable space and traffic flow.
- Insurance needs the standard names are building, liability, theft and personal — professional liability is what covers a claim arising from a service you performed.
Why a Journeyperson Is Tested on This
Task H-19 Establishes business fundamentals is 35% of MWA H, and H-19.01 Develops business plan is the larger of its sub-tasks, with eleven performance criteria. Section 14.2 covered the day-to-day numbers — costs, pricing, inventory, compensation. This section covers the questions you answer before the salon opens, and they are the ones most Red Seal candidates have never had to think about.
Business Ownership Models
| Model | Who owns it | Liability | Tax treatment | Control |
|---|---|---|---|---|
| Sole proprietorship | One individual | Unlimited personal liability — business debts are your debts | Business income reported on your personal return | Total |
| Partnership | Two or more partners | Generally unlimited and often joint — you can be liable for a partner's business debts | Each partner reports their share personally | Shared; needs a written agreement |
| Corporation | Shareholders; a separate legal entity | Limited to what you invested (subject to personal guarantees and director liabilities) | Corporate return; owner paid by salary or dividend | Shared with shareholders/directors |
| Franchise | You own the outlet, the franchisor owns the brand | Depends on the legal form you use to hold it | As per the underlying form | Lowest — brand, products, pricing and standards are set by the franchisor |
| Booth or chair rental | You rent a station; you are self-employed | Your own, for your own business | Self-employed income; you remit your own taxes | High over your own work, none over the premises |
The two exam-critical facts: a sole proprietor carries unlimited personal liability, meaning personal assets are exposed if the business cannot pay, and a corporation is a separate legal person, which is the whole reason people incorporate. A franchise buys you a proven brand, training and marketing in exchange for fees and a loss of independence — it is not a "safer" ownership form, it is a different trade-off.
Market Research
Conduct market research means answering four questions about a specific location before you sign a lease: population (how many people are within a realistic travel distance), competition (how many salons, at what price point, with what specialities), average income (can the neighbourhood support your price list), and demographics (age, family composition, cultural communities — which drive service mix, for example textured-hair services, men's grooming, or bridal work). A salon that offers a premium colour price list in a neighbourhood that supports a value price list fails on arithmetic, not on skill.
Business Identity and Brand
The standard's range of variables is concrete: decor, signage, website, business cards, branding, business logo, marketing plan. The point is consistency — the name, logo, colours, signage, website, booking page, cards and social presence should read as one business. Identity is also a promise about price and positioning: a client reads your decor and signage before they read your price list.
Jurisdictional and Government Regulation
You must determine jurisdictional regulations and comply with government business regulations. In Canada that means at least:
- Provincial/territorial cosmetology or trade regulation — certification requirements for you and your staff (Section 14.3).
- Municipal business licence and zoning — a salon is a commercial use; a home-based salon in particular may need zoning approval.
- Public health / personal service settings — provincial or regional health inspection of sterilization, disinfection, plumbing, waste and record-keeping (Chapter 2).
- Occupational health and safety and WHMIS — training, labels, SDS access (Section 2.2).
- Business name registration, and GST/HST registration with the Canada Revenue Agency once you are above the registration threshold (Section 14.3).
- Employment standards — hours, breaks, overtime, vacation pay, termination notice — which are provincial.
- Workers' compensation coverage where you have employees.
Financial Planning and Accounting
Financial planning in the standard covers budgets, revenue projections, goal setting and salaries. A workable start-up plan needs a start-up budget (leaseholds, equipment, opening inventory, deposits, licences, insurance, working capital), a monthly operating budget separating fixed from variable costs (Section 14.2), a revenue projection built from chairs × hours × average ticket × realistic utilisation, and a break-even point. Securing financing typically means personal savings, a bank or credit-union term loan or line of credit, a government-backed small-business loan program, family investment, or equipment leasing — and every external lender will want the plan above before they lend.
Business accounting brings in payroll. If you have employees, you must register a payroll account with the Canada Revenue Agency and withhold and remit:
| Deduction | Who pays |
|---|---|
| Canada Pension Plan (CPP) contributions (QPP in Quebec) | Employee contribution withheld, plus a matching employer contribution |
| Employment Insurance (EI) premiums | Employee premium withheld, plus a larger employer share |
| Federal and provincial income tax | Withheld from the employee |
A booth renter or salon-suite operator is self-employed, not an employee: no source deductions are taken for them, and they are responsible for their own CPP, income tax and GST/HST obligations. Misclassifying an employee as a contractor to avoid remittances is a compliance risk the CRA actively reviews. The standard also asks you to describe the importance of obtaining professional services — an accountant and a lawyer at set-up cost far less than fixing a bad lease, a bad partnership agreement or two years of wrong remittances.
Floor Plan Design
Design floor plan is a listed criterion, and its range of variables is utilities, equipment, accessibility requirements.
- Utilities — hot water capacity and drainage at the shampoo bowls, dedicated circuits for dryers and hot tools, and mechanical ventilation at the chemical station (Section 2.3).
- Equipment and flow — reception, retail, waiting, styling stations, shampoo area, colour/dispensary, laundry, staff and storage, arranged so a stylist is not carrying a colour bowl across the client waiting area.
- Accessibility — step-free entry, door widths, turning space, an accessible washroom, and reception counter height, per provincial accessibility legislation and the applicable building code.
- Spacing — enough clearance around each chair for the stylist to move around the client without colliding with the next station.
Insurance, Staffing, Equipment and Policies
Insurance needs the standard names are building, liability, theft and personal. In practice: property insurance on the premises, fixtures and contents; commercial general liability for slips and falls; professional liability (malpractice) for a claim arising from a service — the one most stylists forget and the one most likely to be needed; theft and business-interruption cover; and personal coverage such as disability insurance for an owner whose income stops if they cannot work.
Staffing requirements means how many stylists, apprentices and support staff the projected bookings justify, and which pay structure each is on — hourly, commission, hourly-plus-commission, or rental (Section 14.2).
Equipment and supplies for start-up: chairs, shampoo sinks and units, dryers, trolleys, mirrors, stations, laundry, dispensary and colour bar, retail shelving, POS and booking software, and every stylist's tool kit.
Salon policies and procedures should be written down before you need them. A usable manual covers health and safety and WHMIS, infection control, chemical service consent and testing, client records and privacy, cancellation and no-show policy, service redo and refund policy, dress code, scheduling and breaks, complaint handling (Section 14.1), and social-media and client-image consent (Section 14.3). Its purpose is that every staff member gives the same answer to the same situation.
A stylist opens a salon as a sole proprietorship. Two years later the business cannot pay its supplier debts. What is the exposure?
Which deductions must a salon owner withhold and remit to the Canada Revenue Agency for an employee stylist?
A client slips on a wet floor at the shampoo area, and separately another client claims a chemical burn from a relaxer service. Which two insurance types respond?