Aww c’mon now, I can hear the groans already, not finance… BUT keep reading; the information below just may help you make more money this year and in the years to come!
Many salons, spas and clinics fail due to the lack of funds available during their life – there is a reason that cash flow is known as the “lifeblood” of a business. US Small Business Administration has identified “insufficient capital” as the crucial factor for small business failure in USA, and so we can assume that this would be the case globally.
Therefore, it is essential for you, as a business owner, to master your finances. This is especially important in the early years of your business, when you need to have money readily available to meet all those important business needs that come along.
The costs of running a salon
Most salons, spas or clinics invest a large amount of money in the purchase of fixed assets, like specialist equipment, or refurbishment. Additionally stock, wages and utilities are significant expenses for any business in the hair and beauty industry.
Due to these large costs, it’s important a salon owner or manager understands what the controllable and uncontrollable cost factors of running the business are, and see if they are able to manage the controllable and minimise the uncontrollable.
Accordingly, you may need some alternative sources of finance to meet your business needs in the future!
Day-to-day running finance may be required for business activities – to cover this, salons, spas and clinics typically operate with an overdraft facility. Although, this should only be used in an emergency situation given the high interest cost these accounts attract.
Ongoing maintenance and replacement of equipment will be necessary from time to time, along with inventory in order to maintain the standard of the business. This requires a continuous stream of finances. As a business owner, it should be a matter of policy for you to allocate a portion of your finances for this area.
Salons, spas and clinics also need proper marketing and promotional offers to attract new clients and retain existing ones. All such activities need financing out of cash flow.
Keeping track of your finances
To truly master your finances, use a simple accounting system (like Xero, MYOB or Quickbooks) to help you to better understand this area of your business. Prepare your accounts on a regular basis (easy to do when using accounting software) which will help you maintain your assets and cash flows so that you can see the day-to-day cash movement. The use of appropriate accounting software is also recommended so you can fully understand what is happening with your cash flow and accounts.
With proper recording of business activities, you will be able to see the inflows and outflows of money, and do a simple comparative analysis of the data. This will help in forecasting future financing needs, and also to determine the gaps between the business receivables and payables – enabling you to better manage cash flow.
Kitomba’s integration with Xero gives you the ability to quickly and accurately send your cash drawer reconciliation straight from Kitomba into Xero! Learn all about Kitomba’s integration with Xero: Kitomba’s Xero integration.
Make sure the price is right
Budgeting is a very important tool for knowing and managing your financial needs. You should budget for marketing, maintenance and replacements, inventory and other important resources.
Be aware of what it’s costing you to open your doors, and price your services appropriately to cover these costs and make a healthy profit. If you are not sure how to calculate your break-even and work out a healthy margin then ask someone who knows, don’t leave it to chance – as the chances are you’re not making the margin you need to be as successful as you could be – and that’s a sin in itself isn’t it!?
Learn more about calculating the right salon pricing for your business: Are you being paid what you’re worth? Knowing when to increase your salon pricing.
Have a back-up plan
In a salon, spa or clinic you must have a backup plan for your finances. In the event of a sudden increase in competition or new promotional activity in the market, you may witness a temporary shift in consumer buying behaviour, resulting in lower sales.
On the other hand, you may need to come up with some extra money to purchase new products or equipment based on consumer demands. Depending on the requirement of the industry and consumer behaviour, you should have a back-up arrangement.
What alternate plans do you have?
Besides your personal capacity to inject funds into the business, what other alternate plans do you have at hand?
This is a very important question and you really should know the answer. You probably have an overdraft, however other alternative resources may include loans from institutions (including banks or investment companies) or investment from family, friends or other investors.
Build important relationships
As a salon business owner, you need to know the institutions that are willing to invest. After researching their requirements and criteria, put efforts in to bring your business up to meet the financer’s standards. Available financers may include the following:
Banks are generally more conservative and risk averse. They primarily invest in more established and financially strong businesses. You need to check and understand where you stand in terms of establishing a relationship with relevant banks.
Identify agencies and other investment companies that are willing to take a risk in the hair and beauty industry. Also check what their eligibility criteria are for issuing a credit line. After doing your homework, you may incorporate changes to your business to meet the general requirements of the financers.
Personal relations and new investors
Look around and see which of your family, friends or club members may be interested in investing in your business. Shortlist them and continue to build a relationship with them. You should also always keep your eyes and ears open to identify potential investors that may become interested in financing your business when required. Build a relationship of trust between these people too.
Trouble meeting your financial needs?/span>
If you have trouble meeting your business financing needs, check your costs and your profit levels. Typically a business struggling to pay the bills either does not have enough business, or they are not making enough margin on the business they do have to stay afloat easily.
Either way, if you are not sure what to do, the answer is to contact an expert in this field to help create a solution with you. A salon business coach is a good start!
Use your salon and spa software reporting features to help you master your business! Learn more about how Kitomba can help you manage your salon finances: Best reporting software for salons, spas and clinics.
Editor’s note: This article was originally published on 7 May 2019 and has been updated for relevancy and comprehensiveness.