You Don't Own a Salon. You Own A Business.
In his latest blog, Leon Alexander Ph.D., challenges industry conventional thinking to help owners add more to their bottom lines.
Do You Know Your Salon/Spa's Current Net Profit?
When you earn net profit, you know you're winning the game, and your Profit and Loss statement is your scorecard. Strategies' Neil Ducoff walks you through analyzing your net profit.
March 29, 2022
3 min to read
In business, you play to win. But winning has nothing to do with how busy your salon/spa is. Winning in business is about creating Net Profit — what’s left after all expenses are paid.
To know if you’re winning, you must keep score. That means reading and understanding your Profit & Loss Statement — and doing it no less than every month.
So … if your Profit & Loss Statement can tell you if you’re winning or losing the business game … why is it that so many salon/spa owners ignore or avoid this massively critical financial report?
Some owners think it’s complicated and the numbers don’t make sense.
Well, there’s nothing complicated about a Profit & Loss Statement. Even in its most basic format, it lists dollars in, dollars out, and dollars left for a specific period of time (a month, quarter, or year).
Here’s the simple math: If your salon/spa generated $1 million in service and retail sales for one year, and had $900,000 in total expenses, you earned a $100,000, or 10%, Net Profit.
Okay, nothing complicated about a Profit & Loss Statement so far.
Some owners are horrible at keeping organized expense records. Yup, got it. It’s a pain tracking and documenting expenses.
Consider the above example of $1 million in service/retail sales, $900,000 in expenses, and $100,000 in Net Profit. Getting that $100,000 Net Profit takes work, budgeting … and sticking to that budget.
What would happen if payroll was up 5% and product cost was up 3%? That $100,000 would be sliced down $20,000. Add in a few other unexpected expenses and you go from winning the game to losing.
The above $1 million example was for one year. What if your Net Profit went negative at the end of the first quarter? If another three or six months go by with no corrective measures, and little or no profit, you find yourself in a financial crisis. Why? Because you didn’t pay attention to your Profit & Loss Statement.
There are more factors to consider like gift card deferred revenue and managing Gift Card funds so it’s available at the time of redemption when the real expenses kick in.
And what about that loan payment where the principal is paid out of Net Profit? Only loan interest appears on a Profit & Loss Statement. That means, even though you may show a profit — that profit isn’t cash in the bank.
Here’s my challenge to you: Profit doesn’t happen by accident. Profit is planned. All owners must be relentlessly driving profit and that means monitoring, planning, budgeting, and practicing financial discipline.
With programs like QuickBooks, there’s no reason why any business can’t have accurate and timely financial reports. It’s so easy to enter expenses as they occur and allocate them to the proper account.
Yes, you can hire a bookkeeping service to maintain QuickBooks for you … but your bookkeeping service still needs timely and accurate revenue and expense entries to “maintain” and keep QuickBooks current. The “Garbage in/garbage out” rule applies to keeping accurate financials.
So, if you can’t rattle off exactly what your Net Profit percent is for the month and year-to-date — you’re flying financially blind. You’re “hoping” for profit and NOT playing the business game.
Interested in learning how to REALLY understand your numbers and how to drive them? The best place to start is by attending Strategies’ Incubator Training. Click here to see upcoming dates.
Want some one-on-one help? Click here to schedule a free strategy session, and let a Certified Strategies Coach take the weight off your shoulders, and help you put together a plan together to move your company faster.
This article was provided by Strategies, a coaching and training company that’s been helping salon/ spa owners grow amazing companies, cultures, and bottom lines since 1993. Visit strategies.com to discover how they can help you create a better future for you, your company, and your team.
Subscribe to Our Newsletter
More Salon Management
Are Your Stylists Doing Free Hair on Your Time? Introducing the 'Win-Win' Staff Services Playbook
In her latest blog, Amy Pal helps you develop your own clear guidelines around complimentary free employee services.
Caring for Your Caregivers at the Front Desk
From managing air traffic on busy days to handling frustrated guests' complaints, your front desk team often serves as the salon's emotional shock absorber. From a customer service lesson from the DMV to a list of strategies for caring for your front line, our experts offer ideas for alleviating stress, celebrating wins, and setting goals.
by Stacey Soble
What's Really Happening with Salon Retail and How to Reclaim Your Revenue
According to the KIM Report, top-line salon revenue appears steady or slightly up, but that growth is driven primarily by service price increases. Beneath the surface, retail performance and client visit frequency (appointment drift) are under real pressure. In his latest blog, Alain Audet offers strategies for keeping your salon's retail sales strong.
Trimming Your Tax Bill by Putting Family on the Payroll
Putting your family to work in the salon offers some real tax benefits, but you have you have to play by the rules of the tax code to claim them. Azarvand Tax Law's Leticia Skrabut, Esq., shows you how.
The Art of the WOW Experience
Discover how to create a true “WOW experience” for every client by first building a culture where your team feels engaged, empowered, and inspired. Drawing on Calvin Stovall’s Iconic Framework, this blog explores how salon, spa, and clinic leaders can strengthen culture, elevate customer experience, and build a business that stands out for the long term.
Sponsored by Phorest Salon Software
Why Wellness Belongs on Your Salon's Growth Plan
The wellness industry is growing fast, and salons and barbershops already are an important part of it. In her first blog, Tracy Rado shares where the wellness dollars are heading, and how salons can grow with this movement.
Why Your Revenue Looks Good But Your Business Feels Stressed and What to Do About It
While salon sales are increasing, owners often feel they're working harder for the same or less profit. Leverage Q2 data from The KIM Report, Alain Audet reveals some of the structural changes that are dampening your growth and why your region and your salon size matters.
Why Your Holiday Season is Won in September
Weaknesses in your business are amplified during the Holiday Season. Spark Pro Global's Lucy Randall shows you five things to do now to have the strongest holiday season yet.
Appearance Standards are the New Dress Code
In Kati Whitledge's latest blog, she shares how salons have moved away from dress codes and embraced appearance standards. But by removing strict dress codes, some businesses may have unintentionally lowered their appearance standards. Whitledge helps you explain to your team why an appearance standard is important and how to smoothly implement a new appearance policy.
Working Through the Gray Areas of the Small Business Health Care Tax Credit
The Small Business Health Care Tax Credit is a non-refundable tax credit for for-profit businesses that provides a financial incentive for eligible employers who offer health insurance coverage to their employees. Leticia Skrabut, Esq., walks you through how to claim that credit.
5 Things Every New Stylist Should Learn Early
Developing strong work habits early in one's career supports long-term success in the salon industry. Jesse Linares offers new stylists his top five tips.
The Four Numbers Every Salon Owner Should Know
Most salon owners have no idea what these numbers are. You can hit record sales and still have a profit problem. The difference comes down to four numbers almost nobody was taught to track.
Sponsored by Strata Salon Systems™
Your Salon Can't Survive Without You. That's the Problem.
A five-area audit every owner-dependent salon needs to run. You built something that looks successful. Now find out if it can survive without you.
Sponsored by Strata Salon Systems™
Waiting for the Right Time Is a Decision. Here's What It's Costing You.
Every month you put off fixing the problem, it gets bigger, more expensive, and harder to solve.
Sponsored by Strata Salon Systems™
A Partner in Business and in Life
At Janet St. Paul Studio for Hair and Beauty, Director of Operations Natasha McMillen helps bring her wife Janet St. Paul's vision to life, elevating every system from education to operations.
by Stacey Soble
Back to Business with the Pinstripe Trend
Expand your color service menu with the Pinstripe technique. Brooks and Brooks' Marlon Hawkins walks you through the technique.
by Stacey Soble