Mastering Cash Flow as a Salon Owner | 5 Essential Tips

Cashflow is the lifeblood of any salon, and yet there are so many hair and beauty businesses that struggle to meet their financial obligations and keep the lights on month after month, even after years in business. What's going wrong? Here are my five tips on managing cashflow for a profitable salon business. Hello, hello, hello, my salon friends. Phil Jackson here, your Queen of Salons, coming in your eyes and ears again with another dose of Wise Owl Wisdom. How on earth are you? How is December treating you? I hope this festive season is putting lots and lots of lovely cash in your till, but more than that, I hope you are managing that cashflow well. Gosh, that got serious very quickly, didn't it? But we're talking about my favourite topic, which is money. It's quite an un-British thing to enjoy talking about money, isn't it? So many of us really struggle and find it kind of embarrassing. In fact, when I was growing up, money was a vulgar topic and it was rude to talk to somebody about what they were earning or how they were managing their money. No wonder then that so many of us grow up with a kind of repelling energy around money and then we wonder why we're not making any. So my first piece of advice is to make friends with the money in your business. Get comfortable with the figures. I was talking to a coaching client not too long ago who really struggles with figures and spreadsheets. Guess what? As a business owner, this is your job. You've got to find a way that you can make friends with the money. That said, what are my five tips on managing cashflow, managing the money that's flowing through your business? Well, the first one is to look at what we're spending. I want you to look at budgeting. And I always find it. And I always find it very confusing when salon owners overspend, particularly on their supplies. Because ultimately, if you think about it, what we should be doing when we're buying products into the business is replacing what's been sold. So we should only be replacing the products that we've used to carry out services, which should be priced in, shouldn't they? And we should be replacing the retail products that we've sold. There shouldn't really be a reason to overspend. So here's how we ran things in my salon. I actually delegated the ordering because I don't find ordering and meeting with sales reps particularly useful. So I used to meet with the sales rep at the beginning of the year and then basically let my assistant manager get on with it within very strict guidelines. So essentially, as far as retail was concerned, we were replacing what was sold. And that was it. Now, it gets a bit messy if you have suppliers that insist that you order in multiples of three or multiples of six. So you're going to have to set minimum and maximum stock levels.

But once that's done, it should be a relatively straightforward exercise. Now, what I did allow was my assistant manager could order by could increase the value of the order rather by up to 10% if it meant we were getting a deal. So we've all come across these situations where our suppliers come in and you're about to place an order for 250 quid. And then they say, well, actually, if you spend 300, you can get X, Y and Z free. So I did allow my assistant manager to increase the value of the order, but only by 10% if it meant we were getting a deal or getting to the next level of a deal. So that meant we had tight control on our retail. And also when we're talking about tight control on retail, I think I've got an episode flying around somewhere around speed of sale, how quickly we sell products and monitoring that. If not, then we need to record one. Somebody make a note. When it comes to replacing and replenishing the stock that you use for your salon services. Well, that's pretty easy as well. If we know as a percentage how much we need to spend on products in order to carry out services. So let's say your service cost makes up, I don't know, 15% of what you're actually charging for service. Well, what we should be able to do is look at what we took last month. And then 15% of that becomes your budget to replenish this month. Does that mean sometimes things might be a little bit tight? Well, yes, they might, particularly if you've got high wastage in your salon business. But I'm hoping lots of us have got to grips with that as well. Now, it might be that you don't know how much you need to be ordering, in which case I would suggest you choose a rough percentage and then tweak and change it. If you find that you're not ordering enough and that you're running out of stock frequently, then perhaps we need to add another percent to the budget for the next quarter. That's how we kind of keep tabs on what we're buying in from our suppliers month after month. My next tip, and it sounds very obvious, but I promise you it isn't, is to prioritise making more money. If you're struggling with cash flow, if you're really concerned that there's not enough money coming in this month, we've looked at what's actually leaving the business, but we really do need to emphasise what's actually going through the till.

And this came off the back of a coaching conversation with one of my one-to-one clients, who had very openly and honestly at the beginning of the call said, it's going to be a tough month. I don't think we're going to hit target this month. Takings are not where they ought to be, and I have concerns. And we had a whole conversation around what was going on with that client's team, what was going on with some refurbishment that was going on in the salon. But at no stage of the conversation did I hear any details on what was going on marketing-wise, on what was going on to increase cash flow in the short term. So if you're concerned about cash flow, you've got to prioritise getting more money through the till. I need to be able to see in your calendar that you're booking out some time for marketing. I need to see in the goals that you're setting this month that increasing average bill, upselling, retailing are all a big part of your goals. So please, if you're struggling with cash flow, make sure that you've got more cash coming in. On that note, and tip number three, how do we know how much cash we've got coming in? Well, we need to be forecasting. Your salon software is your friend here because most salon softwares have a report which is called something like value of future services. So we should be able to see, with a relatively high level of accuracy, what kind of month you've got coming up. Now, I know lots of salon businesses get lots of last-minute bookings as well. But what you'll start to see over time is that there's a pattern to the amount of last-minute booking. So, for example, if you look at your value of future services for January and it says you've got 5,000 booked in, most people will be able to add something to that through last-minute bookings. But the amount that you add is fairly consistent. So let's say you start the month on 5,000 and then last-minute bookings end up totalling, say, 3,000. That 3,000 will be fairly steady. So wherever you're starting the month, you can start to guess how much you're going to finish the month on. Now, when we're forecasting, do bear in mind that there are seasons to every business. And I'm not talking about the calendar seasons. I wish they lined up that neatly. But every business has a spring, a summer, a fall and a winter. For my own business, for my own salon business, and actually for my coaching business too, August and the school holidays, they're my winter.

It's very, very hard for me to make money in my coaching business during the summer holidays because lots and lots of my target clients are working parents. As soon as they start struggling with childcare, they're not going to prioritise coaching calls. And it was the same in my salon business too. As soon as the kids broke up from school, my target clients, who were, again, working parents, struggled with childcare, so they could not prioritise salon visits. And you can either rage against that and say, OK, I'm going to market my way through that. So I'm going to double down on the marketing. I'm going to push really hard. But it's kind of exhausting to sow seeds in winter. Or you can kind of roll with it and say, I'm going to appreciate that August is going to be a bit tough. It's going to be slightly lower takings, and I'm going to build that into my forecasts. So you can sow seeds in your business winter, but you're going to be working very, very hard to get them to germinate. Equally, do bear in mind that you're reaping the harvest now of the activity you've been doing for the last three, six, maybe even 12 months. There are lots of people saying things like, oh, email marketing doesn't work for me, when they've only just started email marketing. Do bear in mind that where you're getting your takings from now is a result of the marketing that you did last month or last quarter or even last year. These things have a slow burn, particularly if you're looking at things like organic reach on social media. Lots of people say, oh, social media doesn't work for me. Well, it might not put money in the till now. It doesn't mean it's not going to be putting money in the till in a quarter or a six month. Next, I want to talk about the thing that seems to slip more people up as far as cash flow is concerned than anything else I've come across. And that is tax. There are so many salons who end up borrowing money or going into overdraft or even bankrupting their business because they can't meet the obligations of his majesty's revenue and customs. So I want you to shift your perspective a little bit. The money that we collect on behalf of HMRC is not your money. It's not yours to spend. So it needs to be separated out from your takings as quickly as possible. And if you're using any of the fintech accounts, if you're using any of the smaller, newer bank accounts, then this can be really, really simple, though some of the older bank accounts are starting to catch up as well. So I bank with Monzo. This isn't a recommendation for Monzo. I don't get anything if you open a Monzo account. But they do have the facility on my account. I think mine's a paid account.

I don't know if you have to have a paid account for it, but it's about five or a month. As money hits my account, I can have a percentage of that siphoned off into a separate space immediately. So as soon as the money hits my account, a percentage of it gets taken away. So what I will be doing is speaking to your accountant or your bookkeeper, getting some financial advice on what a sensible percentage to put aside for tax should be. Bear in mind, if you've got sales tax, you need to factor that in as well. Do I always get it right? No, I don't. Most of the time, I actually put too much money aside for tax. And then I get to spend a little bit of it, which is wonderful. So I will have a separate space for this financial year and another separate space for the year before. So I wait until I know that all of my tax obligations have been taken care of. And then if there's a surplus, then I get to spend that on something, hopefully tax deductible, to reduce my liability for this year. So two years ago, I used to put aside 15% for tax. That was too much in the end. This year, I'm putting aside 13%. And it looks like that's going to be slightly too much, maybe. I don't know. It looks a lot closer anyway. There's certainly not going to be so much surplus. So we're tweaking and changing these percentages as we go along. But get that money put to one side. You can't have it in your main bank account. You can't spend it on supplies. It's not your money in the first place. And finally, you didn't think we were going to get through an entire episode talking about cash flow without talking about memberships, did you? Having some retainer income, some predictable income month after month, quarter on quarter, is a superb way of reinvigorating and taking the stress out of your cash flow. I've talked to you about salon memberships before. But I promise that predictability will reduce that first of the month anxiety almost overnight. Just knowing that you have some money. Yes, of course, some people are going to cancel as we go along. But having some money that you can rely on and put your finger in the air and feel the winds of change, but know that your membership income is safe and secure, is a game changer for so many salons. And what I would do is set yourself a target which relates to the amount of financial anxiety that you have. So if you're very stressed by cash flow, then I would be trying to move more of your takings onto salon membership income. If it's not causing you that much anxiety, then just have a few memberships floating around there instead.

For help with memberships, head over to buildyoursalompodcast.com forward slash memberships. I've got a cheat sheet to help you get going. And that's where I also cluster all of the episodes that I'll be talking about memberships on as well. Your queen of salons is also, of course, queen of memberships. And one tiny bonus tip about cash flow. And this is completely stolen from a book that I read called Profit First by Mike Michalowicz. Spend as late as you possibly can. If you can put something off to tomorrow instead of spending the money today, then do it. So you'd be amazed how far you can push these things. We've got into the habit in our businesses. And I think Amazon's to blame for lots of this. As soon as it pops into your mind, then you're straight on your phone. And then Amazon delivers the item the next day. We need to break that cycle. See how long you can push before you have to invest some of your hard-earned cash. And I think you'll reap the benefits very, very quickly. Like I said, can't take credit for that one. If you haven't read Profit First, by the way, this is my hearty endorsement of the book. Game changer for lots of businesses. Incidentally, don't bother with Profit First for salons. Not as good. Okay. What have I missed? What are you doing to help your business with cash flow? Or what are your struggles? If you've got questions, then please reach out and let me know. You know, I love hearing from my salon owner friends anyway. Just seven short days until the next episode of the Build Your Salon podcast. And until then, take care.