Do you take your retail sales earned and put it in your account and pay bills with it? While most salons and spas would answer “yes” to this question, this is not a wise financial strategy in the long term. Think of your retail business separately from your service income and your gift card income. In fact each of them should be tracked separately and have their own budgets. For now, let’s set our sights on retail.
For every dollar you bring in with retail sales you can count on roughly 34% (.34 cents) profit after inventory is purchased, commissions are paid and you cover any sales tax, credit card processing, discounts and/or shrinkage. If this amount is left in your bank accounts and used to pay monthly bills then the salon is taking away pure profit and, with it, a chance to make that money work more efficiently. Let’s look at an example of what we mean and then introduce a plan to get that money back into savings.
Let’s say you sell $1,000 a month in retail sales. Based on the averages this would mean a profit of $340 dollars. If this $340 dollars is left in the account to pay monthly bills then it is being lost. Over a 12 month period this adds up to $4,080!
Think about what this amount of money can be used for. You could chunk down credit card debts, make a double loan payment, invest in education or marketing and, of course, build a nest egg by saving for future retirement. Any of this would be smart business, not to mention the boost of confidence and empowerment in seeing true financial progress being made.
Seeing this is powerful, making the change is important but takes some patient steps to make happen. Up to now, the business has been used to having the $340 to pay bills each month, to just take it away with no plan to replace it wouldn’t work. To get this money back the salon or spa would have to grow its average services sales each month to cover it. However, it would have to grow by more than just $340 a month because any service sold includes expenses to perform the service so be sure to add in additional sales growth in the goal to cover commissions, payroll tax, back bar coat and credit card processing.
To learn more, go to my store and grab my book, Financial Fitness! I break this down in depth and you’ll have spreadsheets that go with the book that help you track this.
Once you achieve this goal you will be able to make the profit work for you not to mention feel more confident and inspired about your financial future!
Steve, so glad to see you’re still following your passion. You inspired me back in the ybn days. I’ll keep looking out for you. Len