You fulfilled your dreams and went from being a stylist to owning your own hair salon. You know you and your team have the skills to pay the bills – but do you have the financial knowledge to back that up? Finances are often a weakness for salon owners, as the skills that made them successful as a cosmetologist are quite different from the skills and financial knowledge needed to run a business. With finances being the #1 reason salons fail, financial intelligence and understanding your salon expenses are essential for running a successful salon long-term. Luckily, understanding the finances of your business is not as hard as it seems!
1. Use Technology to Your Advantage
Keeping track of and understanding your finances can be a daunting task – but luckily in this day and age there is plenty of technology to do the work for you! There are several salon accounting software programs you can choose from that will make running a successful salon easy by managing payments, bookkeeping, tracking expenses, and paying bills. Make sure whatever program you choose can be integrated with your other programs, such as your scheduling software. Once you have an easy way to keep track of your finances, then you can move on to understanding them.
2. Track Productivity
When considering your salon financial plan, paying your employees will be your largest overhead. Often, it can be up to 50% of your turnover. Because of this, it is essential to track the productivity of each stylist. The easiest way to do this is take the total revenue per stylist and divide it by the number of hours they work. If the result shows there is high revenue for a stylist, that means they are maximizing productivity and you’re running an efficient operation. When the results show low revenue, consider coaching or educating the stylist to assist them in being more productive.
3. Understand Your Financial Statements
Seeing your cash flow is one thing – but what about assessing the hair salon financial statements? Accurately estimating cash flow is crucial when running a successful salon so you don’t end up between a rock and a hard place without the funds you need to operate. Use a cash flow spreadsheet and check up on it monthly so you can spot problems before they become a disaster. So what information do you need to assess your cash flow?
First, get an estimate of your monthly income, which you can do with your accounting program of choice. Don’t forget to keep in mind that your salon has busier months than others. Next, list your salon monthly expenses, such as utility bills, product purchases, rent, insurance, and loan payments. Finally, list your periodic expenses, such as equipment and education. Compare your income with your salon expenses. If you have more expenses than income, it is time to take a good look at making some major changes. If your income is more than your expenses, but not where you want to be, add to your efforts at running a successful salon and take a look at where you can cut or save.
4. Analyze the Numbers
Of course, it’s important to know if you’re bringing in more money than is going out for salon success, but what about breaking down the numbers to get a better insight into your salon business? To maximize productivity and profits, ask yourself a few questions:
Which products are your best/worst sellers?
What are your busiest/slowest days?
What are your busiest/slowest hours?
Which stylists are bringing in the most revenue?
Knowing the answers to these questions can allow you to adjust your services, retail products, hours, and employee schedules to put more money in your and your stylists’ pockets, and better cater to your clientele.
5. Set Goals
Always make sure you set financial goals for your salon to help grow your business. In order to do this based on the numbers, it can be very helpful to benchmark. Benchmarking is comparing your current finances versus previous finances, which allows you to make fact-based decisions to reach your financial goals. In order to keep progressing in your hair salon finances, consider the questions you asked yourself from section 4 (Analyze the Numbers). Don’t be afraid to involve your team in helping you think of creative ideas to reach your goals!
6. Be Ready for Slow Seasons
Salons are bound to be busier around the holidays and back to school time, but what about your quiet months? If you plan ahead with a salon budget plan, you won’t feel the strain on your pockets. Hold on to your extra profits during the holidays and busy seasons and do more marketing and promos during your slow seasons.
7. Use Credit Wisely
Business credit cards can be a blessing or a curse. To keep yourself out of the red, be sure to commit to paying off your salon expenses every month. Putting yourself into debt on the assumption that business will pick up later is a slippery slope and can be detrimental to running a successful salon. You can use your credit card to level out the salon monthly expenses and income, but it is always a great lifeline to have in case you run into any unexpected financial emergencies.
Running a successful salon is easy if you use the right tools and take the time to assess your finances. And don’t forget: save, save, save – even just 5% of your daily sales can make a huge difference in your rainy-day fund – or get you ready for expanding your business! Letting your finances intimidate you is an easy way for your business to fail – but you’ve gotten yourself this far! Use your smarts and educate yourself when necessary so you and your business can thrive!
Contact: Pual Mai, Thomas, Doris Liu
Wechat: wechat: 21214141
Add: XiaWei Industrial Zone, Jiujiang Town, Shunde, Foshan, Guangdong, China