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As a New Zealand hairdresser, no one business structure will suit all businesses in the industry. Several different business structures exist, and one that is best for you will depend on what you are looking to achieve in your business. For example, a high growth plan with ideas to get outside investment may suit a company structure. Alternatively, more casual hairdressers looking to get started may prefer to start as sole traders. If you are a hairdresser, this article sets out some considerations when planning the business structure for your salon. This includes:

  • thinking about your long-term goals; 
  • the benefits and trade-offs of operating as a sole trader; and 
  • the benefits and trade-offs of operating as a company. 

Planning Your Hairdressing Business

It can be intimidating to start planning a new business and picking a business structure for your new venture. But do not worry. Having a loose plan for what you want from your hairdressing business is more than enough to get going. You can always change your business’ structure later, giving you additional flexibility and less pressure to pick the perfect structure right at the start.

That said, it is worth dwelling on what business structure best aligns with your needs as a hairdresser. For instance, you may be interested in getting going as soon as possible. In that case, note that forming a company structure is reasonably complicated. It involves additional costs and administrative requirements. However, it might be the right choice if you want fast growth. Alternatively, sole trader and partnership structures are perfect for an easier and more flexible start to your business. 

Operating as a Sole Trader

There are a range of benefits associated with operating as a sole trader. By forming a business as a sole trader, you are essentially beginning a business with a straightforward and flexible arrangement. In this way, you can develop your services and take full responsibility for the business. This includes both profits and any debt. A sole trader is a common structure for hairdressers wanting to go out on their own. Likewise, this structure maximises the control you can have over your business. 

However, there are also some trade-offs when operating as a sole trader. Firstly, as the name suggests, you are on your own. As a sole trader, there is no one else who is also responsible for the business. Likewise, you do not have outside investors with a financial stake in your business. 

You are also at risk if the business fails because you do not have limited liability as a sole trader. This means that your personal assets may be at risk as you are held responsible for covering your business’ debts and any liabilities it incurs.

Forming A Hairdressing Company

A company is a different kind of business structure from a sole trader structure. It offers different benefits and trade-offs. In New Zealand, most medium or large hairdressing businesses will structure their businesses as a company. One of the key benefits of the company structure is that it is a separate legal entity. As their own legal entity, companies have their own separate identity and hold their own assets and debts. However, they are more complicated to set up and maintain on an ongoing basis. 

Some benefits to think about with a hairdressing company include the limited liability they offer. This differs from the sole trader structure. Limited liability companies can stop you from personally needing to assume responsibility for the company’s debts. Many companies also enjoy tax efficiencies, though this is worth checking with a tax lawyer to see what the impact would be on your business. Additionally, it is usually easier to grow a hairdressing business faster through the company, which is another point to consider.

Key Takeaways

Multiple business structures can appeal to hairdressers. Operating as a sole trader maximises flexibility and ease and appeals to hairdressers looking to tentatively go out on their own. However, a company structure will limit your liability and increase your scope for fast growth. Doing a bit of planning to think about your business’ long-term aims and goals can make it easier to decide what business structure is best. 

For more information about choosing a business structure for your hairdresser business, contact LegalVision’s business lawyers on 0800 005 570 or complete the form on this page.

Frequently Asked Questions

What is the advantage of a sole trader structure for hairdressers?

Sole trader structures are simple, flexible and fast to set up. As a result, you can get going with your business with minimum administrative labour and transition to another structure later on if you so choose.

What is the advantage of a company structure for hairdressers?

A company structure gives a new hairdressing business immediate credibility and the capacity to take on outside investment and finance more easily. It is also better for protecting your personal assets in the event the business does not succeed.

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