Important Budget Factors For Independent Stylists
If you work for yourself in the beauty & wellness industry then you have to be responsible for every aspect of running your salon business. While that can be daunting, what must take precedence over most issues is the ability to create a budget, maintain it and review it. This will not only help make more money but serve as a guide to troubleshoot areas that may need improvement from a financial perspective. Therefore, it must be part of your salon business plan.
So what to track? Well, there’s plenty to focus on but here’s the key budget factors that must be tracked and reviewed to insure long term financial stability.
Start with top line sales. Track service sales, retail sales, gift card sales and client count. From these numbers you can calculate average tickets as well as retail to service percentage. Your average service ticket will help gauge if you are effectively adding on additional, relevant services. Your average retail ticket and retail to service percentage will support you to see if you are retailing consistently.
What’s most important is that if you are not tracking top line sales you will not be able to track the variable expenses we are about to review. This is because your budget goals for your expenses are calculated by dividing the expense amount in dollars into specific or total sales in dollars.
Retail inventory: If you sell your own retail products then you have to monitor your purchasing patterns to insure you do not over or under stock your shelves. Your retail inventory budget goal is 50%. To calculate your percentage divide monthly retail inventory purchases into total retail sales.
Back bar inventory: If you are purchasing your back bar products to perform your services then your inventory goal should be no less than 5% and no higher than 10%. To calculate your percentage divide back bar inventory purchases in service sales.
Credit card processing: If you manage credit card processing on your own, your goal is to keep it no higher than 2% of total sales. To calculate your percentage divide credit card processing fees into total sales.
Marketing: Set a budget each month to invest in growing your business. Your budget should be no less than 2% of total sales and no higher than 4%. To calculate your percentage divide marketing dollars spent into total sales.
Education: Investing in your own professional development should happen every month. Your budget should be between 2-5% of total sales. Calculate your percentage by dividing education dollars into total sales.
Hourly payroll: If you have an assistant or a front desk associate that supports you then it’s imperative that you have a budget goal to insure you pay and develop them. Your budget goal is 8% of total sales. To calculate this, divide hourly payroll into total sales.
Taxes: Working for yourself means you must be responsible to track and pay taxes on a quarterly basis. While you will have various expenses you can write off to reduce the amount of taxes you have to pay it’s prudent to set aside at least 20% of sales for tax time!
Retirement/IRA: Plan for your future by opening a savings account or stashing monies into an interest baring account like an IRA. Start with 10% of total sales as your minimum goal.
Profit: What’s left after you pay your bills? Profit! But wait, be sure you set a goal to pay yourself what you need to make each month to pay your bills. Then whatever is left is pure profit which you can use to chunk down debts, re-invest in more education or add to your savings account. A good goal here is to plan on having 10% set aside above and beyond monthly living expenses.
With planning, implementation and tracking you can create a budget that works for you, that helps you make more money and keep more of it too! Happy tracking!
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