To know if you are making a profit, you must know how much money your salon is bringing in and needs to pay out explains Richard Wallace from Winning Ways Education.
Most salons don’t know whether they have made a profit until 12 months after the year has ended, when the accounts from the accountants land on the mat.
So some salons are gauging their success or failure on the flow of clients into the salon and also what is in the bank.
The problem with this is we get paid straight away and a small trickle of money can convince us that we are doing ok and if we have been quiet, then hopefully next week will be busy - fingers crossed.
A recent review by NHF discovered that the top issues for salons today are:
- Making a profit
- V.A.T and tax
- Rent and rates
This demonstrates that some salons are not making a profit and for those who are, it’s not enough.
The increased pressure with the National Minimum Wage, holiday pay etc. have all affected the bottom line.
So… what to do?
- You need to know on a weekly basis if you breakeven or not. Look at what needs to go out, wages, utilities and stock costs.
- You need to look at your pricing to see whether you have set yourself up to fail from the start. Don’t price yourself out of the competition, but remember you are running a business and you need to bring enough money in to continue doing so.
- You need to ensure your biggest expenses, wages, is under control, legal and set up in a way that motivates the team. Fair pay and incentives all support wages turning into profits.
Unfortunately, so often salon owners get confused by “accountant’s language” and make decisions based on the advice of these financial gurus. Remember often these people have no knowledge of the hair and beauty industry and you need to trust your instinct as well as following advice.
With all the extra cost of running a business such as the increase in the National Minimum Wage or pensions auto-enrolment, the need for industry specific education has never been greater. You need to spend some time learning about these and predicting how these will affect your business. To survive in the future we have to be as passionate about business as we are about hair and beauty.
What is great is that we are an industry full of creative people, so once we do understand the numbers, we can transform our businesses and the industry as a whole.
Richard Wallace from Winning Ways Education