It's all about the MONEY

This is the Build Your Salon podcast with me, Phil Jackson, here to help salon owners master the skills you need to build bigger profits and a fuller life. Hello, Phil Jackson from Build Your Salon, here to help you master the skills that you need to build the profits you deserve and lead a fuller life. Today, my question for you is, as far as money is concerned, how much in control do you feel? I know that there have been times when I've felt very much out of control as far as my salon finances have been concerned. In fact, I don't need to go back too many years before I had to skip three whole paychecks, and so did my business partner, just so that we could keep the doors open and keep paying the staff that we had. We really hit rock bottom, and in fact at the time I did a prediction that we had about three months before we would have had to close up completely. So yeah, we were six months away from bankruptcy and not being able to finance our commitments. And what really changed for me was the day that somebody explained the difference between accounting and management accounting. Now, I'm not a stupid guy. I have a degree in banking and finance, and a postgraduate degree in law as well, and I still didn't really manage to apply any of that knowledge and understanding to my own salon. So that's kind of what I want to share with you today, is a few little hints and tips. And usually, when I'm mentoring or coaching a salon, there are two ways that they get things really wrong with finance. The first is that they run their salon from their bank statements. So they get to the end of the month, they see a certain amount of cash left in the bank, and assume that that cash can be spent. Unfortunately, that's a really, really quick way to cock up your cash flow. Because as we know, our expenses, sadly, aren't paid between the 1st and the 28th of every month. Some things crop up in fits and starts. For example, our VAT over here in the UK is usually paid every quarter. So you can't really live off your bank statements unless you're also quite prepared to live for a very large proportion of the time in your overdraft. The second way that people go wrong is that they run their accounts from the accounts that are provided by their accountant. Let me put that better. So basically, at the end of every year, we have a statutory obligation, a legal obligation to produce accounts.

This is how Her Majesty makes sure that she can collect the correct amount of tax from us. Unfortunately, if you're using those accounts to manage your business, you're using quite stale data. By definition, you're looking backwards instead of forwards. You're not financially planning. You're figuring out what happened last year. And also, we have a statutory requirement to produce those accounts, but it doesn't have to happen on the last day of the year. So sometimes, my accountant would produce that paperwork three, four, maybe even six months after the year end. So you're then managing your day-to-day business on data that could be 18 months old. And also, those accounts are very confusing. They're not presented for our digestion. They're not presented for our purposes as salon owners. They're presented so that Her Majesty can make sure she's collecting the right revenue from us. So what do we use instead? Well, management accounts. And management accounts should be produced by your accountant, I think, on a monthly basis. Some of the data you're going to want to monitor on a more frequent basis, but monthly is a really, really good start. So what do I ask my accountant for? Firstly, I want the turnover figures. I want to know how much money we put through the till last month. I have a financial plan, so I have targets that I need to hit as a salon owner, and I want to know whether we've hit them or not. But also, I want that turnover broken down slightly for me. So I break my turnover down into retail and service, because I want to know that it's the service side, really, that I'm most interested in. Retail kind of takes care of itself. Also, we run memberships in my salon, so I want to know how much is being paid monthly by direct debit to help smooth out my cash flow, and how much is just being put through the till as normal service. And also, I want that turnover broken down by member of staff. So I have a rough rule of thumb that my team need to be producing at least three times their wage in income every month. So I have that ratio worked out by my accountant, because she also does the payroll for me. So she can tell me exactly how much I've paid a member of staff, and also how much they've put through the till. So that then dictates how I performance manage that member of the team when I get back to the salon. I'm either going to have meetings to improve their performance, or they'll be encouraging meetings because they're doing a really good job,

or there might be some slightly more serious meetings if we're going to get rid of that member of the team. So as well as turnover, I also want to see my expenses. So we have a budget for expenses. We have a budget on what we spend on salon stock. We have a budget on what we can spend on IT. We have a budget on what we can spend on pretty much everything. So I want to know that we're operating within budget, that we haven't gone over our budget, which is then going to hurt cash flow in the future. Most importantly, I want to know how much profit we've made. Your accounts that you produce at every year will have a profit figure. I could never really figure out where that money is. So my accountant would say, we've had a really good year. We've produced a profit of 35,000. And I would say something like, where's my cheque then? And the cash was never there. So I want to know monthly how much profit we're making, which I could potentially draw down. Otherwise, I could reallocate that profit to invest in the business in future. So I might decide to increase our training expenditure or replace some older equipment. The other thing which my accountant will tell me is whether we're on track to hit our year targets. So I have two sets of targets that I set with my accountant. The first is we have a three-year plan. And the second is that we have a 12-month plan. So the 12-month plan is a lot more detailed. And it will tell me exactly how much we need to produce in turnover and profit on a monthly basis. So my accountant will tell me how far out we are, whether we're over or under, whether we need to work a little bit harder in the following month, or whether we can afford to ease up just a little bit. I hope that's been useful to you. The Cheat Sheet, as always, is available to download from the buildyoursalon.uk blog. Don't forget you can subscribe on YouTube for these videos or also on iTunes for the podcast soundtrack. I'll see you soon. Hey everyone, it's Phil. Did you like the episode? Be sure to subscribe and tell your friends. For more help in getting more from your salon and your life, head over to buildyoursalon.uk. Enter your name and email for our newsletter list. In the meantime, keep on building! Bye! Bye! Bye! Bye! Bye! Bye! Bye! Bye! Bye! Bye! Bye! Bye! Bye! Bye! Bye! Bye!

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