Know Your Business Inside and Out.
No matter the type of business you own, you will face operating expenses in order to keep your door open. Operating Expenses are expenses a business incurs through normal business operations. These can include rent, equipment, inventory, marketing, payroll, insurance, etc. It’s important to remember that these expenses don’t relate to the production of services. Meaning color products and retail products are not operational expenses.
Operational expenses are found on your income statement and are used to determine your operating income.
Our friend, Caylee Auge, has a great webinar on understanding your operational expenses and keeping your business recession-proof!
Here is a basic formula that an income statement follows:
As business owners, we want our business to be profitable, which means we need to have a healthy bottom-line. We can’t always increase prices, as that can leave a bad taste in our customer’s mouth, or can be increasing our taxes for both our salon and stylists. But we also want to ensure that we are providing the best products to our customers, so going for cheaper products can mean lower quality products, which can hurt your reputation. By having more control of your expenses you can add more to your bottom line without increasing your prices.
It’s important to differentiate Operating Expenses, vs Non-Operating Expenses, and Capital expenses.
Different types of operating expenses:
- Accounting fees
- Advertising and marketing
- Salon supplies and tools (i.e. foils, dryers, flat irons, etc.)
- Education
- Insurance
- Legal fees
- License fees
- Office Supplies
- Salon Software
- Maintenance and repairs
- Rent
- Salaries and wages (other than direct labor for production employees)
- Property taxes
- Travel
- Utilities
- Vehicle expenses
Non-operating expenses. There are expenses unrelated to the core operations of the business, but we still face them.
- Depreciation and amortization
- Interest Charges
Operational Expenses are different from Capital Expenses. Capital Expenses include anything around purchasing your business that would include acquiring and updating tangible and intangible assets.
- Real estate
- Waiting-area furniture
- Hydraulic chairs, and mirrors
- Washing stations
- Other physical assets.
Generally, a lot of your operating expenses are fixed, meaning they will stay the same month to month for a longer period of time. We know that Financial Statements are overwhelming at first, but the more you look at these statements the easier it gets. Then you can increase your bottom line, cut costs, and see opportunities to grow your salon.
