CHS Business Management 3 — Questions and Answers
Question 1: A client requests a full refund after a color service they dislike. What is the most professionally appropriate first response?
- Immediately issue a full cash refund without discussion
- Listen to the client's concerns and offer to correct the service at no charge (Correct answer)
- Refuse any form of compensation and explain the policy
- Ask the client to leave and contact them later
Correct answer: Listen to the client's concerns and offer to correct the service at no charge
Offering a complimentary correction addresses the client's dissatisfaction while giving the salon the opportunity to resolve the issue and retain the client.
Question 2: Which type of business structure provides the owner personal liability protection while avoiding double taxation?
- Sole proprietorship
- C-Corporation
- Limited Liability Company (LLC) (Correct answer)
- General partnership
Correct answer: Limited Liability Company (LLC)
An LLC protects owners' personal assets from business debts while allowing profits to pass through to personal tax returns, avoiding corporate double taxation.
Question 3: What does 'accounts receivable' represent for a salon?
- Money the salon owes to product suppliers
- Money owed to the salon by clients or insurance companies for services already rendered (Correct answer)
- The total value of retail inventory on hand
- Monthly lease payments owed to the landlord
Correct answer: Money owed to the salon by clients or insurance companies for services already rendered
Accounts receivable represents money clients owe the salon for services already provided but not yet paid for, such as corporate billing arrangements.
Question 4: A salon owner notices a top stylist is generating 40% of total revenue. What business risk does this create?
- The stylist may expect a raise, increasing payroll costs
- Over-reliance on one employee makes the salon vulnerable if that stylist leaves (Correct answer)
- The salon may face tax penalties for uneven revenue distribution
- Other stylists may reduce their service quality out of jealousy
Correct answer: Over-reliance on one employee makes the salon vulnerable if that stylist leaves
When one employee drives a disproportionate share of revenue, the salon is at high risk of significant income loss if that person resigns or leaves.
Question 5: What is the purpose of tracking 'client retention rate' in a salon?
- To measure how many new clients were referred by existing clients
- To determine how many clients return for repeat services over time (Correct answer)
- To count total client visits per month
- To evaluate how many clients purchase retail products
Correct answer: To determine how many clients return for repeat services over time
Client retention rate measures the percentage of clients who return for services, indicating satisfaction, loyalty, and the salon's long-term revenue stability.
Question 6: Under US labor law, which factor most clearly distinguishes an employee from an independent contractor in a salon?
- Whether the worker has a cosmetology license
- The degree of behavioral and financial control the salon exerts over the worker (Correct answer)
- Whether the worker is full-time or part-time
- How many years the worker has been in the industry
Correct answer: The degree of behavioral and financial control the salon exerts over the worker
The IRS and Department of Labor assess behavioral control (how work is done) and financial control (business aspects) to determine worker classification.
Question 7: Which action best helps a salon manage cash flow during slow seasonal periods?
- Reducing the prices of all services significantly
- Offering prepaid service packages or gift cards to bring in revenue in advance (Correct answer)
- Closing the salon temporarily until business picks up
- Hiring additional staff to increase capacity
Correct answer: Offering prepaid service packages or gift cards to bring in revenue in advance
Prepaid packages and gift cards generate immediate cash inflow that can offset slower revenue periods while building client commitment.
CHS Business Management 3
A client requests a full refund after a color service they dislike.
What is the most professionally appropriate first response?