Better Your Bottom Line
It’s super easy to get hyper focused on the money coming into your business, but what about the money going out?
At SalonScale we love the saying, “Revenue is Vanity. Profit is Sanity. Cash is Reality.”
Your bottom line (Profits) help to show that you are actually keeping money in your business. You want to have a healthy bottomline, and a strong profit margin. But ultimately, the actual cash available to your business, its health and likelihood to continue to operate month to month.
So first let’s start by defining cash flow. Cash flow is the money flowing in and out of your business.
Cash flow takes into account your revenues coming in (service and retail). Any financing that occurs, such as loans. As well as any payment for business expenses and staff.
The goal as a business owner is to have a positive cash flow! Why?
Negative cash flow means that you can’t afford to make the payments necessary to keep your business running!
It’s great to have cash on hand, but you want to have cash coming into your business so that you can always be able to pay off upcoming expenses and have financial security. By always having a positive cash flow, you won’t go out of business. By building a positive cash flow, you’re able to set yourself up to be financially free, without having to worry about running out of cash.
8 steps to better your bottomline!
1. Monitor Your Cash Flow
So first things first, you can’t improve your cash flow if you aren’t tracking it.
I want to start off with us working on our mindset towards our business and getting the ‘CEO’ mindset. It’s important to get comfortable with being uncomfortable. Know that every time you’re working to improve your numbers you are creating a healthy business.
A couple of ways you can get confident with monitoring your cash flow is…
One, to use an accounting software. This will help to create easy visuals to help understand your business numbers. A software will help you to quickly see your revenues, expenses and how much money is left over at the end. Some softwares will help to create graphs to so you can easily see how much is being spent on inventory compared to rent and/ or salaries.
Second, meet with an accountant to get a stronger understanding of your numbers. They can help you to understand everything available on the software plus navigating it, as well as provide their expertise to improve your cash flow. Your accountant will also help to get tips like you should count your inventory monthly vs. annually as it helps when it comes to tax season when stating the cost of goods sold.
Monitoring your cash flow helps you to become so much more familiar with your business and build a healthy relationship with your numbers.
2. Decrease Your Expenses!
Before you get started, get familiar with what money is leaving your business.
Create a list and start recording every expense trailing back for a year – this will help to gage your expenses! Identify areas that you can reduce your spending and you can set a monthly budget!
Once you can find the areas where you can cut costs and start saving today, you can set your monthly budget. By decreasing your expenses, you will dramatically change the structure of your company and set it up for success and sustainability.
Maybe you discover that you’re overspending on back bar inventory, purchasing what you actually need unlocks so much more cash available to you!
3. Increase Your Prices
Increasing your Pricing Sounds simple, I know what you’re thinking. What about my clients? What about my staff? Step one is so important, and you’ll need to get comfortable with being uncomfortable.
But when is the last time you increased your prices? And now I don’t just mean increase your prices willy, niley. But actually sat down and ensure that what you’re pricing for services your salon is covering you color, your pay, your staff’s pay, your rent and everything else.
Which means you’re not looking at the salon across the street. It totally makes sense to do research and see what the other salons in your areas are pricing. This is a normal strategy to help you be competitive. However this is dangerous to your business. For example if your salon rents their building and the salon across the street owns theirs,… the overhead for the other salon is already lower than yours. Meaning the other salon is able to charge less.
This makes it critical to not only know your overhead, but also know your breakeven point. But also to review this annually to keep up with inflation but to also see financial growth in your business.
When you know these numbers, you can more confidently make the decision to increase your prices by 10% or support your stylists to increase their prices too!
It’s so important to ensure that you’re turning a profit on ALL services in your salon.
Another alternative to increasing your prices is to switch to parts and labour. This method ensures that your/ your stylist are being paid for your time, your products are being paid as well as that there is money going to cover business expenses. Learn more about going to Parts + Labour!
4. Decrease Time Spent on Customers /Track Time
Time = Money!
Getting your time spent per guest down simply increases your chance of more customers and more profit per client.
Just remember that good old saying: Time = Money. So many of us have a hard time valuing our time. If you take more time, make sure you are pricing properly so you do not ultimately cut your profit per hour down.
Meaning, if it takes you 1 hours, 3 hours, or 6 hours to complete a service that your time do that that is actually being reflected in the price. But also be cognizant of your time spent on services.
5. Start a service add on challenge!
Everyone loves a good competition right? Take some time to plan out a year of monthly challenges whether it is add on services or retail – these team goals will help you increase your margins. If you can increase each ticket by just $10 as a salon will average 300 tickets a month that’s another $3000 a month.
One thing you can do is create a bingo card around the holidays and have squares that have various challenges. Such as “Sell a shampoo and conditioner pack”, “sell a treatment add-on” etc. These challenges are great to help promote retail sales while also creating healthy competition for your team. You can choose to do an individual prize or team prize as well.
Another idea is to have your team create looks with the product available at your salon to help promote products for their purpose and also educate clients on the products available.
6. Set Retail Incentives per Transaction
Increasing your sales tickets, increases your cash flow!
The first step is to set a percentage of retail sales to revenue transactions that go to your team. 21% of each ticket is a great retail target.
Watch this daily, and remember being able to increase each sales ticket is a double win. It ultimately increases your cash flow and pays off a product that has been burning capital by sitting on your shelves.
The second would be to do an incentive on retail for your guests (an example of this would be a BOGO sale). Be consistent and have your sales run at the same time each year to build momentum and hype.
7. Add Ecommerce to your business.
E. Commerce helps you to make money while your salon is closed. We are all not web builders, luckily there are platforms like Shopify and Squarespace to make it easy. Create content that promotes the products to purchase and create look kits and or bundles for extra sales.
Another tip is getting an affiliate link to a brand you sell or on Amazon. You know so many people are used to ordering products online. By having an affiliate link, you’re able to earn money based on sales, but also guarantee that your clients are still getting the correct products to their door.
Now let’s talk about salon retail commissions. Are you holding back because you don’t know how it will affect your staff? The best tip I have is either make a form that the consumer has to fill out regarding who their stylist is or create a team bonus or team base payout. This is a great way to reward everyone and keep it simple.
8. And last but definitely not least, create clear goals!
Create goals that are easy to understand targeted to the growth of your business.
Do you want to retire one day? Sell your business? Or even just be able to go on vacation and not worry about the financial state of your business? Me too.
Creating clear goals by monitoring each stylist and or your numbers. Track your service revenue, add on revenue, retail revenue. Create goals that increase your cash by a minimum of 5- 10% year over year.
Additionally by tracking your goals, you are able to see where in the business needs the most help is a powerful step to hit your projections. This way you can identify where you can make changes and have some insight into what will help.
Now, let’s get ready to watch your bank account burst with that CASH!!