Mastering Your Salon Finances

Aww C’mon now, I can hear the groans already… BUT have a read; the information below just may help you make more money this year and in the years to come…

Many salons fail due to the lack of funds available during their life – there is a reason that cash flow is known as the “lifeblood” of the business. US Small Business Administration has identified “insufficient capital” as the crucial factor for small business failure in USA, and so it transpires that this would be the case globally. Therefore, it is very important for you, as a salon owner, to master your finances, especially in the initial years of your business, when you need to have money readily available to meet all those important business needs that come along. 

There is a large amount of capital invested in the purchase of fixed assets in a salon; additionally stock and wages are a significant expense too. As a result, Salons are left with reducing cash flow to meet day to day business needs. Every salon needs working capital to run the business smoothly and as such it is very important for a salon owner to understand what the controllable and uncontrollable cost factors are, and see if they are able to manage the controllable and minimise the uncontrollable. Accordingly, you may need some alternatives to meet your business finance needs in the future.

Day to day running finance may be required for business activities, to cover this; typically salons operate with an overdraft facility, although this should only be used in an emergency situation, given the high interest cost these accounts attract. Salons also need proper marketing and promotional offers to attract new clients and retain your existing ones. All such activities need financing out of cash-flow.

Moreover, salons need ongoing maintenance and replacement of appliances from time to time and inventory in order to maintain the standard of the business. This requires continuous stream of finances. As a salon owner, it should be a matter of policy for you to allocate a portion of finance for this area.

To master your finances you could be using a simple accounting system to help you understand this area of business. You should prepare accounts on a regular basis (easy to do when computerised) which will help you maintain your assets and cash flows in which you will then be able to see the day-to-day cash movement. The implementation of such appropriate accounting software (like Xero, MYOB etc) is also recommended to enable you to fully understand what is happening with your cash-flow and accounts.

With the proper recording of business activities, you will be able to see the inflows and outflows of money and can do simple comparative analysis of the data. This will help in forecasting future financing needs. It also helps in determining the gaps between the business receivables and payables enabling you to better manage cash flow.

Simple Budgeting:

Budgeting is a very important tool of knowing and managing your financing needs. You can budget for marketing, maintenance and replacements, inventory and other important resources. Be aware of what it is costing you to be open 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 are not making the margin you need to be as successful as you could be, and that’s a sin in itself isn’t it!?

Always keep a backup plan:

In a Salon, you must have a backup plan for your finances. In case of sudden increase in competition or new promotional activity in the market to counter, you may witness sporadic shift in consumers buying patterns resulting in lower sales like the recent recessional activity. On the other hand, you may need fresh finances to purchase new products or new appliances based on consumer demands. Depending on the requirement of the industry and consumer behaviour, you should have a back up arrangement.

What alternate plans you have?

Besides your personal capacity to inject funds into the salon, 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 Company) or investment from family, friends or a new investor.

Build Relationship with the Financers and Investors:

As a business owner, you need to know the institutions that are willing to invest. What are their requirements and criteria, and after proper research put efforts to bring your business to meet the financer’s standard. The available financers may include the following:

  1. Banks: banks are generally more conservative and risk averse. They primarily invest in more established and financially strong salons. You need to check and understand where you stand in terms of establishing a relationship with relevant banks.
  2. Small Agencies: identify agencies and investment companies that are willing to take a risk in your industry and what are their eligibility criteria for issuing a credit line. After doing your homework, you may incorporate changes to your business to meet the general requirements of the financers.
  3. Personal Relations and New Investors: look around and see which of your family, friends or club members may be interested to invest in your business when required. Shortlist them and continue to build relationship with them. You should also always keep your eyes and ears open to identify investors that may become interested in financing with your business when required. Build a relationship of trust between these people too.

Trouble meeting your business financing needs?

If you have trouble in meeting your business financing needs then check your costs and your profit levels… typically a salon 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 (us at Salon Business Coach is a good start) to help create a solution with you.                                           

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