Have you ever said, “I don’t care about the numbers, I just want to do my work.” Whether you have salon staff or not, in order to grow a successful and sustainable beauty or barbering business, you must have sufficient cash reserves and give a name to every dollar.
Financial literacy — understanding financial reports and financial management is a non-negotiable necessity for ALL businesses — large and small.
There are many busy salons and barbershops bringing in a lot of money that are barely profitable and tight for cash.
As much as many service providers balk at knowing and understanding the numbers side of the business, they know and understand their own numbers and make grossly inaccurate assumptions on what the salon/shop and owners truly make. We have a Strategies Salon Spa Business Idea Exchange discussion group on Facebook and in response to our question, “What’s a good commission rate?” a stylist recently posted this post: “You work hard to have clients and a salon wants at least 50 percent, it still seems crazy. Glad there are suites these days because I’d rather be the captain of my own ship. No need to have to work in a salon with 20 competing stylists. And why should a salon make (20 stylists make $1000 a week, so the salon gets $500 × 20 = $10,000 a week.) They [owners] make the money, don’t worry about it.” The post illustrates the employee’s conclusions and point of view regarding the age-old 50/50 commission split. More importantly, and absolutely no disrespect to the person who posted this, the post illustrates how the lack of financial literacy training makes it easy for employees to make conclusions based on “50 percent” of the salon/spa’s financial reality story. Using the numbers in the stylist’s post and looking at a typical salons annual profit & loss statement, here’s the math on both sides of the 50/50 split:
• All expenses are based on conservative industry benchmarks
• The above Profit & Loss Statement DOES NOT include “Owner’s Pay”
• A 5% Net Profit leaves little margin for error
• Debt payments (bank loans, credit card balances, etc.) are paid out of Net Profit
• Reminder … Profit is not cash
So, based on the stylist’s side of the numbers that assumes owners get 50 percent of service revenue, where’s all that money salon/spa owners are making? Yes, it’s frustrating for owners that employees believe they’re being taken advantage of. Without financial literacy training, employees will continue to say, “Owners keep all the money after commissions are paid.”The fact is the numbers tell the truth, but only when all the numbers are considered. It took me ten minutes to build the example Profit & Loss Statement in Excel.
Here’s my challenge to you:
I believe that it’s the responsibility of every business owner to teach themselves financial literacy and to understand the true cost of running your small business. Create an Excel spreadsheet to chart out both your income and your outgo. Do that for 3 months to get a wholistic picture.
Originally published here