Money and cash flow are the biggest causes of stress, frustration and lost sleep for salon and spa owners.
Given how essential cash is, both for the business and personally for the owner, it’s critical to get a handle on it.
Here are three of my high-level tips for getting a handle on the money situation for your business. You can read them below or you can hear me talk about them on the Beauty Think Tank podcast (or you can do both to really drive the message home).
Follow these steps and I guarantee you’ll swap stress for comfort, frustration for control, and sleepless nights for sweet dreams. And who wouldn’t want more of that?
1 – Know Your Numbers
Knowing your numbers is about more than just knowing how much you need to cover the next payroll or rent payment. It’s about knowing how the numbers fit together and how to ‘read’ them so they make sense (and give you the comfort you are looking for).
Make the Profit and Loss your new best friend
Start by getting to know your Profit and Loss Statement (P&L). The P&L does exactly what it says on the box. It tells you if you are making a profit or a loss.
Don’t just wait for the year end when you get your accountant to do a P&L for the tax department. Get it done by a bookkeeper every month so you’ve got a handle on just how well the business is performing.
It may feel icky at first but once you get into the swing of it, you will see how powerful and important your P&L is, especially when you start plugging the leaks in the business and seeing more cash in your pocket.
Here are the three things to focus on with the P&L:
- Cost of Goods Sold (COGS). This is basically what it costs you directly to make your revenue. This includes products costs for treatments and retail products that sit on your shelf for sale. It is really important to measure this because if it is high it might mean your treatment pricing needs tweaking or a good stocktake procedure needs to be implemented to better manage your purchasing cycle.
- Payroll. This cost can make or break your business. If it’s more than 50% of your turnover you have a problem. It either means you are not charging enough, you are paying therapists too much, you have too many staff on payroll or not enough clients. You need to do what it takes to get that number down around the 35% mark.
- Expenses. Rent, laundry, insurance, equipment leases, cleaning… basically any other cost that the business incurs. Your P&L helps you bring all these costs into focus so you are better able to manage them. It’s super important to do that otherwise profits that could be yours end up being someone else’s – like the Tax Man!
Make the Business or Trading Summary your second best friend
The next report to look at is your trading summary or business summary. That’s the report you pull from your point of sale system to show client activity and daily performance of the business.
How many clients are coming through the door each week? How much are they spending with you on average? How often are they coming back? These represent the ‘volume’, ‘average spend’ and ‘frequency’ for the business – the 3 most important growth levers for any salon business.
Tweaking any of these numbers can make a big difference to your bottom line but unless you know what they are, you will probably go for the default position of trying to get more clients to get more cash in the door. In reality, that ranks about third in terms of where your efforts should go. It’s much more expensive to get new clients than generating more business with existing clients.
With your trading summary you can play around to see what the impact might be of having clients spend an additional 20% per visit, or to come back every 4 weeks instead of every 6 weeks for example. Knowing the impact and your preferred outcome you can get creative and work out a smart promotion to make those things happen.
It takes a bit of work to find and track these numbers but I can promise you it will be the best investment of your time in the business. In fact don’t just know your numbers, learn to love them and they’ll love you right back!
2 – Make Your Cash Count
Are all of your treatment options profitable?
Here’s the thing. I see a lot of clients work hard to get more clients through the door. They make more sales, increase turnover and are generally pleased with themselves until they see there’s nothing left in the bank at the end of the month.
That’s a red flag telling you that you are selling services that aren’t profitable. And if you are offering discounts or bundles on these services to get more clients, you’re going backwards fast.
Knowing the numbers that you looked at in step one above gives you an indicator of the overall business position but you need to drill it down and look at the business on a service level basis. You may be making a profit on one service but a loss on another service will cancel that out and leave you scratching your head at the end of the month.
In this situation, you may actually be better to offer fewer services and reduce your turnover, in order to make a bigger profit. How about that huh?
Go through every service and be ruthless about what it’s really costing you.
And make sure you factor in the overall business costs that you’ve identified in the P&L. Each service you provide has to make a fair contribution to those costs, otherwise they will come out of your pocket.
Make. Your. Cash. Count.
3 – Take Time Out For Critical Thinking
No, I don’t mean take time out to pass judgement on the Kardashian’s choice of wardrobe.
I mean take time out to review your business critically.
One hour. Each week. No distractions.
Ask yourself questions that spur your thinking around the business.
Where is the cash coming from in the business? How are we talking to our clients? How can we make them want to come back more often? How can we make them talk about us to their friends? What can we do to add more value to their experience?
How can I develop my team so they are less reliant on me? How can I support my team to increase their sales confidence and conversion rates?
Don’t use this time to ‘worry’ about the business or to criticise yourself for what you ‘should’ or ‘shouldn’t’ be doing and definitely don’t use it to create a “TO DO” list that ends up being pages long and really overwhelming. This is a creative exercise so approach it with an open mind, no judgement and no expectations. Use it to explore the operational changes you could make to move the business forward. It might be as simple as just improving a system or process that is already in place but not working that great. I watch business owners give so much of their time to their clients, to the team, training on services and products but never much time on really looking at their business – I guarantee if you do this consistently every week, you will be amazed at the results that show up in the bottom line of your business.
It’s Good For Business
There you have it. My three high level tips to get you talking about and thinking about money in ways that make you feel good rather than feeling stressed and overwhelmed. It’s time for you to take control of the money situation rather than have the money situation control you.
PS – If you’re really serious about your business you might like to come along to one of our upcoming Beauty Think Tank Business Accelerator Workshops. One day of total focus on what you can do to really move the wheels in your business. We’d love to see you there.