The Business of the Salon & Spa in India
As an accounting firm working with salons, spas, and distributors for several decades, we have identified many key traits that make these businesses successful. Using specific tactics, we can see what is working right with a business and what is wrong and then base any advice on successful strategies. Below, is an overview of accounting industry secrets that we feel will help put your salon or spa on the road to success. Naturally, this is just a small part of the big picture and cannot replace the advice and services of a qualified CPA, but it’s a good starting point to get your business on track.
Be a Business Person First
Running a salon is a business. To be successful, your salon or spa must be run by being a business person first. Although most salon owners are good at what they do, they are not business people. They got into business because friends and clients kept whispering in their ear that they should start their own salon but most did not realize the talent of a hairdresser is much different than the skill of a business person. Those owners knowing both the art of hair and of business have the advantage.
Here are a few suggestions to help obtain business skills:
- Attend business classes at salon shows.
- Read business books and set aside time to study.
- There are several different Books for Dummies that can provide a wealth of knowledge that is easy to read and follow.
- Find a mentor. Find a successful salon/spa and learn what they are doing.
- Hire a coach.
- Listen and make sure that you understand what your accountant/consultant is telling you.
- Learn from the school of hard knocks.
Have a Plan
Having a business plan is a trait in all successful businesses. However, having a written plan that makes you accountable is even better. Accountable means it is your responsibility as an owner to make sure that the plan is carried out. The key words here are “written” and “accountable.”
There can be several areas included in a business plan but here are the essential elements for a salon/spa:
- Marketing Plan
- Sales Strategy
- Products to sell
- Employee Strategy
- How to attract
- Front desk requirements
- Management staff duties
- Cash flow budget/projection
It’s relatively easy to fill out a business plan. You can go out to the internet and key in “business plans for beauty salon,” and you will find several options that you can buy and some that are free. The hard part of the business plan is that you need to put some thought into it and be honest in what you include in the plan.
Cash Flow Budget
The cash flow budget is already mentioned above in the business plan section, but it is important enough to get its own bullet point. Use a Microsoft Excel template to prepare a cash flow budget and include the following:
In more sophisticated projections, breakdown color, hair, nails, etc.
- The number of clients you see each month
- The average service ticket
- The average retail sales per service
- Walk-in retail sales
- Compensation percentage or pay package for the producers
- Number of assistants and their rate of pay
- Retail costs
- Back bar cost
- May break this down with color separated
- Determine if any free back bar from the distributor
- Credit card fees
- Fringe benefits for producers and assistants
- Payroll cost for producers and assistants
- Miscellaneous cost per estimated number of clients to cover coffee etc.
For fixed costs, you can get reasonably detailed comparing your fixed costs to prior years and also calculating, for example, non-producer compensation and payroll burden. If you use a business plan software, then there is usually a good listing of expenses.
- Plans for remodeling and expansion
- Note payments
- Owner compensation if not included in fixed and variable
- Income taxes
Successful salons have financial statements and know how to read them. Financial statements are essentially your business’ report card. They tell you how your business is doing and also can show you areas of concern.
Consider using bookkeeping software such as QuickBooks. It’s easy to use and can produce all of the reports that are necessary.
Financial statements are essential because:
- Banks and creditors will be happy that you have good financial statements.
- You can compare your actual results with your cash flow projections.
- Good financial statements allow you to compare your results to industry averages.
Besides comparing to industry averages, look at:
- Retail cost percent
- Back bar cost percent
- Production labor to sales percent
- Advertising percent
- Payroll tax cost percent
- Credit card fee percent
Based on your actual numbers, calculate your breakeven point, which is how many dollars of sales do you need to make just to keep the doors open. Also, you can create a goal by setting a profit number in the calculation.
Good financial data will also help if the IRS ever starts snooping around. As a cash-based business, the IRS is very suspicious of salons/spas. Financial statements coupled with good recordkeeping and backup documentation will help show that you are reporting all of your income.
Understand Your Numbers
If you have financial statements and salon software, you have a wealth of information at your fingertips. This information is important, and you need to know how to use it. Knowing your numbers can help you to make sound business decisions.
Besides the numbers listed above, here are some critical numbers that, between QuickBooks and your salon software, you need to know:
- Average service ticket
- Average retail ticket
- Pre-book percentage
- Services per hour
- Client retention
- Production percentage
Know the Law
Department of Labor laws, both state and federal, is an area where a lot of salons unknowingly make mistakes. There are so many different rules, and the rules can vary from state to state and even county to city. The smart owner needs to either know the laws or clearly explain their systems to their CPA or HR attorney to make sure that they are in compliance. The penalties for being out of compliance are huge.
Items to be aware of are:
- Overtime rules
- Pay at hair shows
- Pay for travel to and from hair shows
- For commission salons, pay for attending meetings
- Minimum wage laws
- Rest requirements
- Any required sick, family or personal requirements by state, county, or city law
- If paying sick leave, how to calculate for commission professionals
- Tip reporting requirements
- How to legally calculate staff product charges
- Employment contract do’s and don’ts
- Handbook DOs and DON’Ts
- Covent Not to Compete
- If in California, the recent “piecemeal” laws
Create A Salon/Spa Culture
Successful salons also create a great culture for their employees so that they enjoy and respect the salon and the owners and managers. On the other side, owners and managers care about the staff. They involve staff in decisions so that they feel part of the organization. They also help their staff members to not only be better at their profession but also help them in their personal lives to hit their professional goals.
Do Business Right
Owning a salon is a tough business. Right now salons are facing numerous challenges including the economy, government regulations, competition from rental, suite, and national chain salons, and the Amazon Effect, which impact retail sales. So what can an owner do? Be a business person first! Successful owners read, study management techniques, seek help from qualified professionals, and are not afraid to make changes for the sake of their business.