Many salons don’t plan for a reserve for income taxes, then April 15 comes along and they are behind the eight ball. “By then, it’s too late to get out of the cash-crunch hole,” says Kopsa. “The prior year taxes are due and you should already be making estimated tax payment for the current year. By not planning in advance, your taxes can double up on you, leaving you in a difficult situation.”
Walkouts, pregnancies, accidents, unexpected renovations—as anyone in the salon business will tell you, there will always be things that come up. “Salons with good cash flow management understand that setbacks are inevitable and they prepare by setting some money aside for the unexpected.”
Beyond Your Means
“Let’s face it, there are just some people who live beyond the income of the salon,” says Kopsa. “In the end, it’s the business that will pay the price.”
Kopsa has seen many salons run into cash flow problems by overestimating the payback on an expenditure. “An example would be advertising. I’ve seen salons spend enormous amounts on advertising thinking that new business will be beating down the door. Another example is expansions—they think those extra chairs will magically fill up.” Overestimating what an expenditure will pay you back can seriously burn through cash.
These are just a few of the cash culprits, all of which require a different solution. But if you examine the problems listed above, you can see they all could have been avoided by having a solid budget.
“Salons with an operating budget know at the beginning of the year exactly what the year will bring as long as they hit their numbers,” says Kopsa. “A budget will tell the owner what they can and can’t do—it’s a goal sheet, a roadmap to success.”
Comparing the results of the operation to the budget each month helps an owner keep an eye on his or her cash availability. If you are ahead of budget, you have the opportunity to spend more. If you are behind, you know you have to make changes.