During the ownership of my first retail business, I vividly remember lying awake at night with a spreadsheet going through my head. The numbers never slept! There were the rows of accounts payable and then the columns of daily sales. Was one column enough to compensate for the growing tally of the out-going column? It was a nightmare that just didn’t end!
Fortunately, it did end, but it didn’t end well. After six years running two locations, my first husband and I declared business and personal bankruptcy. Then we divorced. Never underestimate the power of the dollar to destroy a relationship!
The upside of this story are the lessons learned! First of all, by losing everything, I discovered how much I actually had; none of it with monetary value. There were children, family, friends, support, and a new career in the beauty industry that has nurtured my soul as well as my pocketbook. It was a devastating but rewarding time.
The next lesson I learned was what I would do differently; and that’s what I would like to share with you today. Part of my job is mentoring new business owners in the beauty industry. They can be new chair/booth renters, single studio, or six plus station salons. One of the issues they all share is cash flow! How do we handle it?
It is easy to look at money coming into the bank as something that belongs to us. Two things are important here:
- Having a clear idea of what your break-even point is. How much does it cost to keep your door open from month to month? In those breakeven costs you will include your rent, utilities, supplies, products, fees, marketing, insurance and any employee costs that you have, including the employer portion. As you bank account acquires funds, keep in mind that breakeven point, because in reality that money doesn’t belong to you until AFTER you have reached your breakeven. If your monthly financial commitments are $5000 than you start to make money at $5001. It’s great to keep a running total in your head but paper is better. Keep track of your daily sales and chart them EVERY day.
- It is also really easy to consider the money you accept in total is part of your cash flow. It isn’t. A portion of your revenues will be taxes. The number one reason so many salon/spa owners fail is that they neglect to put aside the appropriate funds for when the taxman comes ‘a calling! Open a second account with your daily business one and transfer your tax amount into that separate account. If you are paying employees, on every payday, separate their taxes and your portion from your working account and put it aside in that other account. Also include their holiday portion as well. When tax payments are due, you will never be short, and believe me, you will sleep better at night!
By doing these two simple things, you will ensure the success and longevity of your business.