Bookkeeping for Hair Salons & Beauty: Chair Rental & Tips

The Business Models of Hair and Beauty

Before diving into bookkeeping, it is worth understanding the two main business models in the hair and beauty industry because they create fundamentally different bookkeeping requirements.

The Employer Model

You employ stylists or beauty therapists, pay them wages, and keep the revenue from their services. Bookkeeping is relatively straightforward - service revenue comes in, wages and expenses go out, and the difference is your profit.

The Chair Rental Model

Stylists rent a chair (or room) from you and operate as independent contractors. They charge their own clients, keep their revenue, and pay you a fixed weekly or monthly rent. Some salons use a hybrid model where the stylist pays rent plus a percentage of their revenue.

The chair rental model creates specific bookkeeping challenges:

• Your revenue is primarily rent, not service fees
• Each chair renter is responsible for their own tax obligations
• You need to clearly separate your salon's transactions from the renters' transactions
• GST treatment differs depending on the arrangement

Setting Up Your Chart of Accounts

A well-structured chart of accounts is essential for salon bookkeeping. Here is what you need:

Revenue Accounts

• Service revenue - Cuts, colours, treatments (employer model)
• Chair rental income - Fixed rent from chair renters
• Product sales - Retail sales of hair care and beauty products
• Gift voucher sales - Record as a liability when sold, revenue when redeemed
• Tips received - If collected through your POS and distributed to staff

Expense Accounts

• Wages and salaries - For employed staff
• Superannuation - Employer super contributions
• Product cost (COGS) - Wholesale cost of retail products and colour/treatment supplies
• Rent - Your premises lease
• Insurance - Public liability, professional indemnity
• Equipment - Hair dryers, straighteners, basins, chairs
• Utilities - Electricity and water (salons use a lot of both)
• Marketing - Social media, Google ads, loyalty programs
• Software - Booking systems, POS, accounting tools

Handling Tips

Tips are a common and sometimes confusing aspect of salon bookkeeping. The treatment depends on how they are collected and distributed.

Cash tips given directly to the stylist - These are the stylist's personal income. They do not flow through your business books at all. The stylist is responsible for declaring this income on their own tax return.

Tips collected through your POS system - When a client adds a tip to their card payment, the money flows into your bank account. You then need to distribute it to the relevant stylist. In your books:

1. Record the tip amount as a liability when received (you owe it to the stylist)
2. Record the payment to the stylist as clearing that liability
3. Do not record tips as your business revenue

Pooled tips - Some salons pool all tips and distribute them evenly among staff. The same principle applies - tips are not your revenue, they are held in trust for staff.

Product Sales and Inventory

Retail product sales can be a significant revenue stream for salons. To manage this effectively:

Track cost of goods sold - When you sell a $40 bottle of shampoo that cost you $18 wholesale, you need to record both the $40 revenue and the $18 COGS. This gives you your true gross margin on products.

Manage inventory - Do regular stock counts (monthly is ideal) and reconcile against your purchase records. Shrinkage (theft, damage, personal use) is common in salons and needs to be accounted for.

Separate retail products from salon supplies - The shampoo you sell to clients is different from the colour you use in services. Track purchases of retail inventory and salon supplies in separate accounts.

Gift Vouchers

Gift vouchers are popular in salons, especially around Christmas and Mother's Day. The correct bookkeeping treatment is:

1. When sold, record the voucher value as a liability (unearned revenue), not as income
2. When redeemed, transfer the amount from the liability to service revenue
3. If vouchers expire unredeemed, transfer the liability to income at expiry

This approach ensures your revenue is recognised when the service is actually delivered, not when the voucher is purchased.

Appointment No-Shows

No-shows and late cancellations cost salons money. If you charge cancellation fees:

• Record cancellation fee income separately from service revenue
• This helps you track how much revenue no-shows are costing you
• It also shows whether your cancellation policy is effective

GST for Salons

Most salon services and retail products are subject to GST. Key points:

• All service fees are GST-inclusive if you are registered for GST
• Retail product sales include GST
• Chair rental charges include GST
• Tips are not subject to GST

If your turnover is below $75,000, GST registration is optional. However, many salons register voluntarily to claim GST credits on their expenses.

The Chair Rental Tax Trap

A critical compliance issue: if you receive chair rental income, you are running a commercial rental operation. The rental income is subject to GST (if you are registered). You must issue tax invoices to your chair renters and report the rental income on your BAS.

Make sure your chair renters have valid ABNs and are aware of their own tax obligations. You should issue them a written rental agreement that clearly outlines the arrangement.

Payroll Considerations

If you employ stylists, apprentices, or support staff:

• Award wages - The Hair and Beauty Industry Award sets minimum pay rates. Ensure you are compliant.
• Superannuation - Currently 11.5% of ordinary time earnings. Due quarterly.
• Workers compensation - Mandatory insurance for all employees.
• Single Touch Payroll - Report payroll information to the ATO each pay cycle.

Practical Tips for Salon Bookkeeping

1. Reconcile your POS system to your bank account daily - Salons process many small transactions. Daily reconciliation catches errors quickly.

1. Use separate bank accounts - One for your business operations and one for your savings or tax.

1. Track products by category - Hair care, skin care, tools, and accessories should be tracked separately so you can see what sells and what sits on the shelf.

1. Automate where possible - Tools like SortBooks can categorise your bank transactions automatically, matching them to the correct revenue or expense accounts. This is especially valuable for salons with high transaction volumes.

1. Review your numbers monthly - Look at revenue per stylist, product margins, chair utilisation, and overall profitability. These numbers tell you where to focus your attention.

Salon bookkeeping does not need to be complicated, but it does need to be structured. Set up the right systems and your financial records will be as polished as your clients.