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You probably didn’t start your salon because you love math. But once the flow of expenses and profits starts, numbers become a vital part of keeping your business afloat.
For salon owners who spend much of their day on their feet, face-to-face with clients, bookkeeping (and the math that comes with it) can get relegated to off hours — or sidelined altogether.
But when you’re dealing with the complexities of chair rentals, tips, product sales, and stocking just the right amount of supplies, bookkeeping is a lot to stay on top of. Doing it off the side of your desk (or your chair, in this case), is a recipe for failure.
Why is it so important to keep up-to-date books? Reconciling your accounts gives you control of your money and streamlines your operations. Less time bookkeeping means more time focusing on what you love to do: making your clients feel and look amazing.
So why not make it easier for yourself? Here are six basics of bookkeeping every salon owner should know:
1. Bookkeepers and accountants do different things. In the simplest terms, bookkeeping is keeping a record of your day-to-day financial details. It includes writing sales invoices, recording payments received, entering bills from vendors, paying those bills, processing your payroll, keeping track of the financial details of contractors and employees — all the little ways money flows in and out of your business. A bookkeeper enters all that information into your accounting platform, so attention to detail is a must.
Accountants, on the other hand, are in charge of examining those meticulous records kept by bookkeepers and helping you make decisions with them. Accountants use information from bookkeeping to create strategies for improvement, to prevent fraud, to plan wisely for tax time, and to prepare for future growth.
2. Bookkeeping is a non-negotiable part of running a business. It can be a bummer to do it, but it’s necessary to have. Bookkeeping is essential because it shows your business’ profitability and lets you pivot quickly if you stay in the red too long. When your income and expenses are properly organized, your books are clean — making for a super-stress-free tax season and no surprises when you find out what you owe.
Proper bookkeeping also helps you budget and plan for the future. Maybe you want to expand or open another location. Your records are necessary to apply for funding or loans. Even if you’re just planning to stay small, bookkeeping is vital for peace of mind — when you know your books are taken care of, you can turn your attention to the fun stuff, like increasing profits or perfecting your balayage.
3. Keep your personal and business expenses separate. This is a really common mistake many small business owners make. When you start your own salon, you are responsible for pretty much everything, so it can feel like you are your business. But it’s essential to keep them separate, with separate accounts. Not only does it save you or your bookkeeper time filtering out personal versus business expenses, it also reduces your risk. Your assets won’t be exposed if you hit a legal snag down the line.
4. Record all extra cash-flow (like your hard-earned tips). It’s brutal but true: tips count as taxable revenue, and the IRS can be ruthless about enforcing this. Ensure your books are audit-proof and avoid unexpected payments down the line by keeping detailed records of all your tips and paying taxes on them.
5. Keep records of contractors vs. employees. Federal and state tax rules differ between contractors and employees. So ensure you’re compliant when recording their status properly and paying them accordingly. Lumping them all into one category not only means untangling it all at tax time, but it also puts you at risk if you get audited.
6. Like hair colors, you have lots of bookkeeping options. There’s more than one way to approach the books. You can go DIY, which is time-consuming, but more affordable if you’re just starting out. Hiring a bookkeeper or personal accountant is another option, but that can be expensive and they’re not always there when you need them. Or you can use an online bookkeeping service like Bench. It makes bookkeeping easy because they do all the work for you, plus it’s affordable; they have a dedicated support team ready to answer your pressing questions the minute one pops into your head.
The bottom line is that bookkeeping is as indispensable as your favorite barrel brush, and you have to do it right. Handing the responsibility to a professional bookkeeper can free up your time so you can focus on your passion.